PRESENT: Hassell, C.J., Keenan, Koontz, Kinser, Lemons, and
Agee, JJ., and Lacy, S.J.1
RAN NIZAN
OPINION BY
v. Record No. 061577 JUSTICE G. STEVEN AGEE
September 14, 2007
WELLS FARGO BANK MINNESOTA
NATIONAL ASSOCIATION, F/K/A
NORWEST BANK MINNESOTA NATIONAL
ASSOCIATION, TRUSTEE, ETC.
FROM THE CIRCUIT COURT OF THE CITY OF PETERSBURG
James F. D’Alton, Jr., Judge
In this appeal we consider the judgment of the Circuit
Court of the City of Petersburg entered against Ran Nizan and in
favor of Wells Fargo Bank Minnesota National Association (“Wells
Fargo”). Nizan appeals the circuit court’s judgment that the
funds Wells Fargo received through a settlement agreement with
another entity cannot affect the amount of damages for which
Nizan is liable to Wells Fargo as the result of a defaulted
loan. For the reasons set forth below, we will reverse the
judgment of the circuit court.
I. BACKGROUND AND MATERIAL PROCEEDINGS BELOW
Nizan and Avram Cimerring were business partners regarding
certain apartment complexes through their ownership of Lee Hall,
L.L.C. To facilitate financing of the apartments, Nizan and
Cimerring executed a guaranty (“the Guaranty”) of an Amended and
1
Justice Lacy participated in the hearing and decision of
this case prior to the effective date of her retirement on
Restated Deed of Trust Note (“the Note”) made payable to
HSA/Wexford Bancgroup, L.L.C., as lender, from Lee Hall, L.L.C.,
as borrower. Four apartment complexes served as collateral
under deeds of trust for the Note. Although HSA/Wexford was
payee of the Note, the loan was funded by UBS PaineWebber, Inc.,
(“UBS”), which then acquired the Note. UBS later assigned the
Loan2 to Merrill Lynch Mortgage Investors, Inc., Real Estate
Investment Mortgage Conduit3 (“the REMIC Trust”) as part of a
securitized mortgage loan pool. Wells Fargo serves as trustee
for the REMIC Trust, and its participation in this case is in
that capacity.
After the Note went into default, Wells Fargo foreclosed on
the apartment complexes serving as collateral for the Loan.
August 16, 2007.
2
The Note, deeds of trust, Guaranty, and other documents
comprising the Lee Hall, L.L.C., transaction will be referred to
collectively as the “Lee Hall Loan” or “the Loan.”
3
A REMIC trust is a real estate mortgage investment conduit
defined in § 860D of the Internal Revenue Code of 1986. 26
U.S.C. § 860D (2000). A mortgage qualifies as a REMIC mortgage
if, at the time it was originated or contributed to the trust,
it was principally secured by an interest in real property. Id.
REMIC trusts are pools of mortgages in which the beneficial
ownership has been sold to various investors in the form of
certificates representing their undivided interest in the total
mortgage pool. See, e.g., "Which loans qualify for REMIC
trusts?," Commercial Lending Litigation News (October 14, 2004).
If the REMIC trust complies with Internal Revenue Service
regulations, mortgage payments made to the trust may be passed
through to certificate holders free of federal taxes. See Dean
Weiner and K. Peter Ritter, "Real Estate Mortgage Investment
Conduits and Financial Asset Securitization Investment Trusts,"
2
Wells Fargo then filed a motion for judgment against Nizan and
Cimerring in the Circuit Court of the City of Petersburg to
recover the deficiency on the Note pursuant to the Guaranty. In
a June 26, 2002 order, the circuit court granted partial summary
judgment to Wells Fargo, ruling that “the Note at issue in this
litigation is in default and that the Debt and other obligations
under the Note, Deeds of Trust, Guaranty and other Loan
Documents are fully recourse under the terms thereof.”
Shortly before the trial date, Nizan filed for bankruptcy,
and further proceedings against him were stayed until the
bankruptcy court lifted the stay in February 2005.4
A. The UBS Litigation and Settlement
In March 2002, Wells Fargo5 filed a lawsuit against UBS in a
Texas state court alleging breach of contract and fraud claims
arising from UBS’ transfer of numerous promissory notes in the
securitized loan pool, including the Lee Hall Loan, to the REMIC
Commercial Securitization for Real Estate Lawyers, Volume 1,
ALI-ABA COURSE OF STUDY MATERIALS (April 2003).
4
Wells Fargo’s claim against Cimerring proceeded to trial
in the circuit court as scheduled. The circuit court entered
judgment on February 18, 2003 in favor of Wells Fargo and
against Cimerring for $6,619,005.86 in compensatory damages,
with interest accruing at 13.2 percent from September 23, 2002.
In September 2005, Cimerring filed a bill of complaint to
obtain relief from the judgment against him. The circuit court
sustained Wells Fargo’s demurrer to Cimerring’s bill of
complaint, and he appealed that judgment to this Court. We have
affirmed that judgment by an order issued this day.
3
Trust. Wells Fargo contended that UBS’ conduct “materially and
adversely affected the value of” the Lee Hall Loan, and it
sought in the lawsuit to have UBS “honor its written,
contractual obligation to repurchase” the Lee Hall Loan, “or pay
damages equal to the repurchase price[].”6
In September 2004, UBS and Wells Fargo signed a settlement
agreement and mutual release (“UBS Settlement”), which resolved
the Texas litigation. While the terms of the UBS Settlement
were confidential, public documents introduced by Nizan in the
circuit court indicate UBS paid $19.375 million to the REMIC
Trust in “liquidation proceeds.”7 Pursuant to the Pool and
Servicing Agreement between Wells Fargo and Orix, the UBS
Settlement proceeds were required to be classified as payment
upon one or more of the promissory notes held in the REMIC
Trust. Consequently, Wells Fargo “treated [approximately $13.4
million from the UBS Settlement] as having been received in
5
ORIX Capital Markets, LLC, (“Orix”) brought the suit as
“Master Servicer and Special Servicer of the Trust” on behalf of
the REMIC Trust and Wells Fargo, as trustee.
6
According to the Mortgage Loan Purchase Agreement (“MLPA”)
signed by Wells Fargo and UBS, the “Repurchase Price” was “an
amount equal to the sum of” “the outstanding principal balance
of [the loan] as of the date of purchase,” “all accrued and
unpaid interest,” and related expenses.
7
The Wells Fargo and ORIX Pool and Servicing Agreement
defined “Liquidation Proceeds” as, inter alia, “[a]ll cash
amounts . . . received . . . in connection with . . . the
realization upon any deficiency judgment obtained against a
Mortgagor.”
4
respect of” the Lee Hall Loan for purposes of accounting in the
REMIC Trust.
B. Post-Bankruptcy Proceedings Against Nizan
After the bankruptcy court lifted the stay in February
2005, proceedings in the circuit court under Wells Fargo’s
motion for judgment recommenced.8 Nizan sought additional
discovery from Wells Fargo in the circuit court regarding the
UBS Settlement. He maintained that Wells Fargo was barred from
obtaining a “double recovery” from both him and UBS for the same
damages represented by payments on the Lee Hall Loan. Nizan
contended further discovery was necessary to determine whether,
or to what extent, Wells Fargo had already received payment in
the UBS Settlement for the same damages that Wells Fargo sought
to recover from him under the Guaranty for the Lee Hall Loan.
In response, Wells Fargo filed a motion for a protective
order and made an oral motion in limine so as to bar further
discovery. Wells Fargo contended that the date for concluding
discovery had passed prior to Nizan’s bankruptcy and that the
details of the UBS Settlement were irrelevant to its claims
against Nizan. Wells Fargo asked the circuit court to adopt the
8
Nizan stipulated that the “balance due and owing under the
[Lee Hall Loan was] $6,619,005.86 as of September 23, 2002,”
plus interest accruing from that date at a rate of 13.2 percent
per year until such sums were paid in full. Nizan’s stipulation
reserved his right to assert “that credits are due, or other
claims or defenses which he may have to payment.”
5
rationale articulated in an order entered by the United States
Bankruptcy Court for the Southern District of Texas, In re:
Cyrus II Partnership, No. 05-39857 (Bankr. S.D. Tex. 2005)
(“Cyrus”).
In Cyrus, the bankruptcy court held the UBS Settlement was
irrelevant to resolving Wells Fargo’s claims against another
guarantor for another loan that was part of the same securitized
mortgage loan pool as the Lee Hall Loan. While Nizan was not a
party in Cyrus, Wells Fargo contended the issue was the same and
involved a similarly-situated guarantor on a similar loan that
was part of the same loan package UBS sold to the REMIC Trust
that included the Lee Hall Loan. Wells Fargo argued the
bankruptcy court’s analysis was precisely on point and resolved
any claim presented by Nizan as to the Lee Hall Loan by virtue
of the UBS Settlement. Wells Fargo cited the following portion
of the Cyrus opinion:
When the Debtors signed the loan documents, they
became obligated to the holders of the debt. [UBS]
was never a maker of the note. UBS allegedly breached
an independent obligation that it had to Orix. When
it settled its breach by the payment of $19.4 million,
UBS could have negotiated that it would have paid more
to Orix for the transfer of the note to UBS. Or, UBS
could have paid less and left the note with Orix.
[UBS’s] breach was independent of the Debtors’ payment
obligation. If UBS had acquired the note as part of
its settlement (i.e., UBS had paid $19.4 million and
received the note from Orix), the Debtors would have
no conceivable argument that the Debtors would be
entitled to a credit for UBS’s payment. The
transaction that occurred was wholly independent of
6
the Debtors’ obligation to pay on the note. Because
[UBS] paid less and left the note with Orix, the
Debtors allege that they are entitled to a credit.
Logic dictates that the amount owed by the Debtors
should not be affected by the structure of a
settlement between third parties.
Cyrus, slip op. at 3.
After a hearing, the circuit court granted the protective
order and barred further discovery by Nizan as to the UBS
Settlement by an order entered April 14, 2006 (“the Protective
Order”). At the time of the ruling, the circuit court stated
that additional discovery was not necessary for the parties to
adequately argue their positions regarding the relevance of the
UBS Settlement, and Nizan’s defense of double recovery.
During a later pre-trial conference, the circuit court
indicated that it had reviewed Cyrus more thoroughly and was
persuaded by its reasoning. However, the court permitted the
parties to submit an additional brief limited to “why the
reasoning and the bankruptcy case of [Cyrus] does not apply here
and if it can be distinguished how the Virginia law would change
that rationale.” The parties submitted further briefs and at a
hearing on that limited issue, the circuit court reiterated its
belief that Cyrus was persuasive, and concluded: “This suit by
Wells Fargo against UBS was because of their misrepresentation
of the value of those loans. That’s a separate issue [than
7
Nizan’s liability as a guarantor.] UBS or the guarantors did
not have any common liability to Wells Fargo.”
Consistent with this ruling, the circuit court entered an
amended final order (“the Amended Final Order”) on May 3, 2006,
which stated:
The UBS settlement and the manner in which the
proceeds of such settlement were allocated are not
relevant to Nizan’s obligation as Guarantor to repay
the entire amount due on the Lee Hall Loan, and Wells
Fargo’s recovery under the Guaranty does not
constitute or operate as a double recovery.
Finding no further issues remaining in the case, the circuit
court entered judgment in favor of Wells Fargo, and held Nizan
liable “in the amount of $6,619,005.86 as of September 23, 2002”
in addition to interest at a rate of 13.2 percent per year. We
awarded Nizan this appeal.
II. ANALYSIS
Nizan raises five assignments of error: (1) the circuit
court erred “in determining, as a matter of law, that Wells
Fargo was entitled to more than one recovery of the amounts due
under the Note because Mr. Nizan and UBS did not have joint or
common liability to Wells Fargo”; (2) the circuit court “erred
in disregarding uncontroverted facts establishing that UBS
compensated Wells Fargo in full for the damage claims asserted
against Mr. Nizan”; (3) the circuit court “erred in denying Mr.
Nizan the opportunity to conduct discovery on his defense of
8
double-recovery”; (4) the circuit court “erred in determining,
as a matter of law, that the defense of double-recovery was not
available to Mr. Nizan”; and, (5) the circuit court “erred in
adopting as a basis for its ruling, without evidentiary support,
the arguments advanced in Wells Fargo’s various pleadings and
briefs.”
A. Double Recovery Defense in
a Uniform Commercial Code Proceeding
Before analyzing Nizan’s assignments of error, we first
address Wells Fargo’s argument that under the Uniform Commercial
Code (“UCC”), as applicable in Virginia, Nizan can only be
relieved of his obligation to pay the Note if he is discharged
from that obligation under the provisions of Code § 8.3A-601.
That statute provides that discharge occurs “as stated in this
title or by an act or agreement with the party which would
discharge an obligation to pay money under a simple contract.”
Wells Fargo asserts that Nizan’s liability was not discharged by
any means described in Title 8.3A, nor by agreement with Wells
Fargo. It further asserts that its “act” of “characterizing
. . . the UBS Settlement [as a] write-off [of] the Lee Hall Loan
. . . does not operate as a discharge.” Therefore, Wells Fargo
contends Nizan remains obligated to pay the Note and cannot
assert an “extra-statutory ‘equitable discharge’” means of
relief via the defense of double recovery.
9
Whether an equitable defense such as double recovery can be
asserted against the holder of a negotiable instrument under the
UCC is an issue of first impression in Virginia. Code § 8.3A-
601, on which Wells Fargo relies, addresses the means by which
an obligation to pay a promissory note can be discharged under
the UCC. However, Nizan does not assert that his obligation has
been discharged. Instead, he has raised the defense of double
recovery.
We have analyzed the common law defense of “double
recovery” in several contexts, including as a defense to
recovery of damages in contract-based actions. See, e.g., Cox
v. Geary, 271 Va. 141, 150, 624 S.E.2d 16, 21 (2006); Klaiber v.
Freemason Assocs., 266 Va. 478, 488-89, 587 S.E.2d 555, 560-61
(2003). This Court has recognized that a party with two valid
causes of action is entitled to “seek compensation in each, [but
is], nonetheless, estopped from collecting the full amount [of
damages] in the second action if they were partially paid
therefor in the first.” Katzenberger v. Bryan, 206 Va. 78, 85,
141 S.E.2d 671, 676 (1965). We based this “proposition[] upon
basic principles of fairness and justice.” Id. We have also
recognized that the holder of a promissory note may not “obtain
a judgment against the [obligor] for the balance due on the note
[when doing so] would be inequitable and allow him a double
10
recovery.” Joyner v. Graybeal, 204 Va. 543, 546, 132 S.E.2d
467, 469 (1963) (pre-UCC).
The defense of double recovery is thus rooted in common law
and equitable principles regarding the relief a particular party
is entitled to receive, and is not based in either general
contract law or the UCC. Specifically incorporated into the UCC
by statute is the general principle that:
[u]nless displaced by the particular provisions of the
Uniform Commercial Code, the principles of law and
equity, including the law merchant and the law
relative to capacity to contract, principal and agent,
estoppel, fraud, misrepresentation, duress, coercion,
mistake, bankruptcy, or other validating or
invalidating cause supplement its provisions.
Code § 8.1A-103. Thus, unless a particular provision of the UCC
displaces the defense of double recovery, that defense would be
available in a UCC-based claim. Code § 8.3A-601 does not touch
upon, much less displace, the defense of double recovery.
Therefore, under the provisions of Code § 8.1A-103, the
defense of double recovery may be applicable in UCC-based
actions as “a principle of law and equity” not displaced. For
purposes of this opinion, it is unnecessary to address the
corollary issue of whether a person who successfully asserts the
defense of double recovery is thereby “discharged” from the
underlying debt under Code § 8.3A-601.9 Accordingly, Wells
9
Neither party raised any potential applicability of Code
§ 8.3A-305, “defenses and claims in recoupment,” in the circuit
11
Fargo’s argument under Code § 8.3A-601 fails. We now turn to
the merits of Nizan’s assignments of error.
B. Availability of Double Recovery Defense to Nizan
Nizan asserts in its second and fourth assignments of error
that the circuit court erred in holding that Wells Fargo’s
recovery in the UBS Settlement did not compensate Wells Fargo,
in some part, for the damages it sought from Nizan so that Nizan
did not have a valid defense of double recovery. Nizan argues
that he proffered sufficient evidence to “suggest that the [UBS
Settlement] compensated Wells Fargo in full for its losses under
the Lee Hall Loan.” This is so, he maintains, because “Wells
Fargo’s damages in both [the case at bar] and in the UBS
Litigation were based upon Wells Fargo’s losses” as the holder
of the unpaid Note. Nizan contends that the facts he asserted,
“if proved at trial, would provide at least a prima facie case
that Wells Fargo’s claim against Mr. Nizan should have been
reduced, at least in part, by the $19.375 million which Wells
Fargo received from UBS.”
Wells Fargo responds that the circuit court did not err
because the prohibition of double recovery only applies when
“recovery is sought for the ‘very same items of damage,’” which
did not occur in the case at bar. It asserts that the “‘item of
court or in argument to this Court and we express no opinion
thereon.
12
damage’ for which Nizan is liable to Wells Fargo is payment of
the amount due on a negotiable instrument,” while the “ ‘item of
damage’ for which UBS was liable was the amount the Trust
overpaid in its purchase of the pool of loans – that is, an
adjustment in the purchase price.” Wells Fargo submits that the
circuit court “properly recognized the distinction between the
injuries [Wells Fargo] sustained as a result of UBS’s action and
those sustained by Nizan’s failure to pay his obligations.” It
contends that UBS could have repurchased the Note as part of the
Settlement Agreement, but did not do so; instead, Wells Fargo
“remain[ed] the holder entitled to enforce” the obligation to
pay the balance due on the Note. Lastly, Wells Fargo asserts
that under Lanasa v. Willey, 251 Va. 231, 234 n.4, 467 S.E.2d
786, 788 n.4 (1996), a person who is obligated to pay a
promissory note must do so “according to its terms” and cannot
assert a defense of double recovery to prevent the holder from
enforcing the terms of the note. Id.
Initially, we note that Wells Fargo’s reliance on Lanasa is
misplaced. In that case, two individuals signed a promissory
note, and the holder of the note sought to enforce the note
against Willey, one of the makers. Willey argued that the
holder should be limited to collecting one-half of the note
balance because the holder could collect the remainder due under
the note from the other maker. Willey contended that permitting
13
the holder “to recover the full amount of the [n]ote would
facilitate a double recovery.” Lanasa, 251 Va. at 234 n.4, 467
S.E.2d at 788 n.4. This Court rejected that argument, stating,
“Willey’s sole obligation in this matter is as a maker of the
note. She and the other maker[] are ‘jointly and severally
liable in the capacity in which they sign,’ and, if she pays the
note, she will be entitled to receive contribution from the
other maker[].” Id. Clearly, what Willey argued in Lanasa was
not the same “double recovery” defense that Nizan makes here.
While Willey sought to have her joint and severable obligation
reduced based on the co-liability of other obligors under the
promissory note, Nizan seeks to have his obligation reduced
based on Wells Fargo’s alleged recovery for the same damages it
now seeks to recover against him.
Among the factual representations Nizan made to the circuit
court in support of the defense of double recovery were: (1)
Wells Fargo sued UBS seeking “repurchase” of, inter alia, the
Lee Hall note; (2) Wells Fargo’s expert witness in the UBS
litigation used the “repurchase price,” rather than “investor
damages” as the basis for calculating damages relative to the
Lee Hall Loan; (3) Wells Fargo represented to the courts in
Cyrus and Trust for Certificate Holders of Merrill Lynch
Mortgage Investors, Inc. v. Love Funding Corp., 2007 U.S. Dist.
LEXIS 13566, No. 04 Civ. 9890 (SAS) (S.D.N.Y. Feb. 27, 2007),
14
that guarantors of other loans that were part of the UBS
Settlement were not entitled to “credit” from the UBS Settlement
proceeds because those proceeds were allocated to the Lee Hall
Loan; and (4) Wells Fargo allocated some of the proceeds from
the UBS Settlement to the Lee Hall Note for REMIC Trust
purposes, and notified certificate holders of the REMIC Trust
that the Lee Hall Loan had a zero balance following this
allocation.
We begin by distinguishing Nizan’s third and fourth
representations from the first two. At trial and on appeal,
Nizan contended that Wells Fargo’s allocation (or the allocation
by ORIX on behalf of Wells Fargo) of the UBS Settlement for
purposes of the REMIC Trust to the Lee Hall Loan was persuasive,
albeit not dispositive, evidence supporting his defense that
Wells Fargo had been reimbursed for its damages arising from the
Lee Hall Loan. We do not agree that Wells Fargo’s accounting
allocation of the UBS Settlement proceeds to the Lee Hall Loan
is relevant to Nizan’s defense of double recovery. Under the
REMIC Trust’s operating documents and in accordance with federal
tax law governing those trusts, Wells Fargo was required to
allocate the proceeds of the UBS Settlement as payment upon one
or more of the Trust’s assets. How Wells Fargo chose to
allocate this money within the REMIC Trust does not have any
legal effect on Nizan’s liability on the Note nor does it show
15
the allocated funds were in fact paid by UBS as the same damages
Wells Fargo seeks to recover against Nizan. See, e.g., Long v.
Turner, 134 F.3d 312, 316-17 (5th Cir. 1998) (“a write-off of a
debt on the creditor’s book is an accounting practice that does
not of itself amount to a discharge or release of the
debt. . . . A write-off is merely an accounting practice or
convention for reducing to zero the value of an asset as shown
on a balance sheet.”). That Wells Fargo may have made
representations in other courts about the allocations for REMIC
Trust accounting purposes is likewise irrelevant to a double
recovery claim.10
By contrast, we find that Nizan’s first and second factual
representations noted above were relevant to determining whether
Wells Fargo had recovered damages under the Lee Hall Loan of the
same character as that sought from Nizan. The first and second
representations, if proven at trial, could be sufficient to make
a prima facie case of double recovery. We reach this conclusion
upon review of the principles set out in Katzenberger and Cox.
In Cox, we summarized Katzenberger’s factual background:
[T]he purchasers of real property filed a motion for
judgment against an attorney who had examined and
certified title to the parcel of property they had
contracted to purchase. At the time the suit was
filed, the purchasers had already settled a claim
10
Whether Wells Fargo’s representations in other courts
implicate some form of estoppel is not an issue before us and we
express no opinion in that regard.
16
against the sellers of the property for breach of the
warranty of title.
. . . .
The purchasers were wronged by the sellers because the
sellers “breached their covenant that they had the
right to convey the land,” and the purchasers were
separately wronged by the attorney because he
“breached his duty to use due care in examining the
title to the property.”
Cox, 271 Va. at 149-50, 624 S.E.2d at 20-21 (internal
citations omitted). Nonetheless, in Katzenberger we held:
While the [purchasers], by settling their
contract action against the [sellers] were not barred
from seeking further recovery in their tort action
against the [attorney], they were not entitled to
secure a double recovery. While they had two separate
causes of action and were entitled to seek
compensation in each, they were, nonetheless, estopped
from collecting the full amount in the second action
if they were partially paid therefor in the first
case. These propositions are applicable to this case
. . . upon basic principles of fairness and justice.
As has been noted, it may be assumed that the
[sellers] did not pay for an element of damage for
which they were not liable. . . .
But the [purchasers] alleged substantially the
same elements of damages in their action against the
[sellers] and in their action against the [attorney].
. . . .
It thus appears that, in the satisfaction made by
the [sellers] and in the verdict rendered against the
[attorney], there may have been a duplication in [one
element of damages claimed in each case]. [I]f it was
shown that a portion of the settlement was applicable
to the very same items of damages which the
[purchasers] sought against the [attorney], the
[purchasers’] recovery could have been reduced by the
extent of the duplication.
17
206 Va. at 85-86, 141 S.E.2d at 676-77. Because all
evidence relating to the settlement was excluded, we
reversed the judgment of the circuit court and remanded the
cause for a new trial. Id. at 86-87, 141 S.E.2d at 677.
In Cox, the plaintiff filed a motion for judgment against
his former attorneys for malpractice, and sought damages arising
from his wrongful conviction and imprisonment. 271 Va. at 146-
47, 624 S.E.2d at 19. Prior to filing suit, the plaintiff had
received “compensation from the Commonwealth [for] his wrongful
incarceration.” Id. at 145, 624 S.E.2d at 18. The plaintiff
did “not argue that the type of injuries for which the General
Assembly compensated him differ[ed] from the type of injuries
he” alleged against his former attorneys. Id. at 148, 624
S.E.2d at 20. We held that the plaintiff did “not seek to
recover from the Attorneys an element of damage different from
the damages provided by” the General Assembly’s action. The
injuries and damages were the same and the plaintiff was only
entitled to one recovery for those injuries and damages. Id. at
151, 154, 624 S.E.2d at 22-23.
Nizan’s first and second factual representations thus raise
the potential connection of damages Wells Fargo sought and
recovered from UBS to the damages Wells Fargo now seeks against
Nizan. It would be a question of fact, or mixed question of law
and fact, at a trial on the merits as to whether the UBS payment
18
in the UBS Settlement was a payment on the Note or some other
type of damages such as the “investor damages” Wells Fargo
recites. Based on our jurisprudence regarding the defense of
double recovery, if some of the proceeds from the UBS Settlement
were indeed a payment or partial payment by UBS of the Note,
then a valid argument would be set forth that the damages
recovered from UBS and sought from Nizan are the same damages:
payment of the Note. If Nizan proves the factual
representations at trial, he may have presented a prima facie
claim of double recovery.
The circuit court thus erred in ruling as a matter of law,
at this stage of the proceedings, that the damages recovered as
part of the UBS Settlement could not be the same damages Wells
Fargo seeks against Nizan. The circuit court also erred, at
this stage of the proceedings, in preventing Nizan from
presenting further evidence as to whether Wells Fargo could
recover damages from Nizan if the proceeds from the UBS
Settlement compensated Wells Fargo for the same damages under
the Lee Hall Loan.
C. Joint or Common Liability
Nizan also contends the circuit court erred by determining
“Wells Fargo was entitled to more than one recovery of the
amounts due under the Note because Mr. Nizan and UBS did not
have joint or common liability to Wells Fargo.” Neither the
19
Amended Final Order nor the Protective Order recite that
holding; however, the Protective Order recites as a basis for
the order “the reasons set forth from the bench on . . .
February 22, 2006.” The Amended Final Order references the
language of the Protective Order.
At a hearing on February 22, 2006, during which the circuit
court concluded that Nizan was precluded, as a matter of law,
from arguing the defense of double recovery, the court stated
from the bench, “I have been particularly persuaded by the
[Cyrus] case from the bankruptcy court. . . . It appears the
rationale set forth there would seem to indicate there’s no
right to share in how they distribute the money. They still owe
the debt.” The court then stated “my conclusion is that this
case really sets forth the principal [sic] in the [Cyrus] case
and the reason that should be and will be applied to this case.”
At its subsequent hearing in which the parties argued
Nizan’s amended motion for reconsideration and the language to
be included in a final order, the circuit court affirmed that
its ruling was based, in part, on a lack of “common liability”
between Nizan and UBS and the rationale of Cyrus. The circuit
court stated the following:
I indicated that I thought Cyrus was persuaded [sic],
and I think still think it’s persuaded [sic], although
not controlling.
20
In their terminology of solidary liability in my
reading of it, while it’s not inconsistent with
Virginia law – in fact, the bankruptcy court referred
to it as a common law version of joint liability, and
that’s in its language.
Nizan was not a party to this settlement, it was
not made on his behalf, and there is no common
liability. You’ve argued that common liability does
not apply, but there is no common liability.
This suit by Wells Fargo against UBS was because
of their misrepresentation of the value of those
loans. That’s a separate issue.
And I agree with Wells Fargo’s analysis as to
Katzenberger’s applicability, and [Cox]. I do not
find that they really deal with the specifics of this
case or the underlying laws as it relates to this
case. UBS or the guarantors did not have any common
liability to Wells Fargo.
And for all the reasons stated in plaintiff’s
brief and for the reasons I’ve so stated, I do grant
the motion in limine, and I will enter judgment for
the plaintiff.
To the extent the circuit court based its judgment that
Nizan could not assert a claim of double recovery against Wells
Fargo because Nizan had no “common liability” with UBS as to the
Note, the circuit court erred. Our jurisprudence is clear that
the defense of double recovery arises from a claim as to the
same damages, not the same basis of liability for the damages.
We return to our analysis in Katzenberger to amplify this point.
As noted above, the Katzenbergers bought real property that
did not have the access as represented by the sellers. Their
closing attorney failed to detect this defect in his title
21
examination. The Katzenbergers brought successive suits against
the sellers for breach of warranty of title and against the
attorney for malpractice for a defective title examination. In
both actions, the Katzenbergers asserted as damages the
diminution in value of the property because of the defects in
title. The Katzenbergers entered into a settlement agreement
with the sellers of the property but continued their action
against the attorney seeking a full recovery. We recognized
that
[the sellers] and the [attorney] were not joint tort-
feasors, they were not in privity one with the other
and they were not acting in concert in any manner.
Their acts which gave rise to the claims against them
were separate, different and distinct. If the
[purchasers] were wronged, it was because the
[sellers] separately breached their covenant that they
had the right to convey the land and because the
[attorney] separately breached his duty to use due
care in examining the title to the property. The
[sellers] were strangers to the wrong allegedly
committed by the [attorney] and he a stranger to the
wrong allegedly committed by them.
Katzenberger, 206 Va. at 85, 141 S.E.2d at 676. The
Katzenbergers thus had separate and distinct causes of action
against the sellers and the attorney based on each defendant’s
conduct, but for the same injury. We concluded that
[w]hile the plaintiffs, by settling their contract
action against the [sellers] were not barred from
seeking further recovery in their tort action against
the [attorney], they were not entitled to secure a
double recovery. While they had two separate causes
of action and were entitled to seek compensation in
each, they were, nonetheless, estopped from collecting
22
the full amount in the second action if they were
partially paid therefor in the first.
Id. (emphasis added).
Katzenberger establishes that what is dispositive to a
defense of double recovery is whether the damages claimed, on
whatever theory of liability, are the same damages. If the
element of damages is the same, it makes no difference that the
potential payors are not joint tortfeasors or jointly and
severally liable under the same theory of liability.
The circuit court’s reliance on Cyrus is thus inapposite.
In Cyrus, the bankruptcy court applied Louisiana law which
“encompasses the concept of ‘solidary liability’. ‘An
obligation is solidary for the obligees when it gives each
obligee the right to demand the whole performance from a common
obligor. When obligations are independent, Louisiana law does
not allow the settlement of one independent obligation to affect
liability on the other.” Cyrus, slip op. at 3 (citation
omitted). Consequently, the bankruptcy court concluded that
“there is no solidary liability here because UBS . . . and the
Debtors did not have a common liability . . . under Louisiana
law.” Id., slip op. at 4.
This concept of solidary liability under Louisiana law has
no nexus to a claim of double recovery in Virginia and is not an
element of that defense. To the extent the circuit court based
23
its judgment on the view that common liability was a required
element of a double recovery defense, that ruling was in error.
In order to assert the defense of double recovery against Wells
Fargo, Nizan must prove that the damages Wells Fargo received
from UBS and what it seeks from Nizan are the same, not that
Nizan and UBS are jointly liable under a common basis of
liability or through the same cause of action.
D. Discovery
Nizan also assigns error to the circuit court’s ruling that
denied him the “opportunity to conduct discovery on his defense
of double-recovery.” Nizan contends the circuit court’s “denial
of discovery restricted [him] to matters of public record to
support his defense,” and “had the effect of granting summary
judgment since it was predicated upon the assumption that there
was no set of facts which [Nizan] could prove that would support
his defense of double-recovery.”
Wells Fargo responds that “[d]iscovery on the UBS
Settlement would be a fruitless exercise” because Nizan
acknowledged that the “principal facts” regarding the UBS
Settlement were not in dispute. “Thus,” Wells Fargo asserts,
“the [circuit] court possessed all the facts necessary for
making the ruling with respect to the relevance and
admissibility of the evidence relating to the UBS [S]ettlement.”
Because “Nizan was afforded numerous opportunities to explain to
24
the [c]ircuit [c]ourt the relevance of the UBS” settlement,
Wells Fargo argues that the circuit court properly denied
additional discovery because it would have been “a waste of time
and would not alter the final result.”11
Rule 4:1(b)(1) states that with certain exceptions
“[p]arties may obtain discovery regarding any matter, not
privileged, which is relevant to the subject matter involved in
the pending action, whether it relates to the claim or defense
of the party seeking discovery or to the claim or defense of any
other party.” The court can limit “the frequency or extent of”
discovery methods
if it determines that: (i) the discovery sought is
unreasonably cumulative or duplicative . . .; (ii) the
party seeking discovery has had ample opportunity by
discovery in the action to obtain the information
sought; or (iii) the discovery is unduly burdensome or
expensive, taking into account the needs of the case,
the amount in controversy, limitations on the parties’
resources, and the importance of the issues at stake
in the litigation.
Id. “Generally, the granting or denying of discovery is a
matter within the discretion of the [circuit] court and will not
be reversed on appeal unless ‘the action taken was improvident
and affected substantial rights.’ ” O’Brian v. Langley Sch.,
11
One of Wells Fargo’s original arguments opposing further
discovery was that the parties’ discovery deadline passed before
Nizan requested additional discovery into the UBS Settlement.
However, this is not a relevant consideration since the UBS
Settlement, and therefore knowledge of its potential relevance
25
256 Va. 547, 552, 507 S.E.2d 363, 366 (1998) (quoting Rakes v.
Fulcher, 210 Va. 542, 546, 172 S.E.2d 751, 755 (1970)). In
O’Brian, we held the circuit court erred by entering summary
judgment for the plaintiffs before permitting the defendants to
conduct discovery on their defense that a contract’s liquidated
damages provision was unenforceable. Id. at 549, 507 S.E.2d at
364. The Court then noted that although the parties signed a
contract that contained a liquidated damages provision, a
recognized defense to the enforceability of such a provision
exists under certain circumstances. Id. at 550-51, 507 S.E.2d
at 365. Because the circuit court in O’Brian “precluded any
inquiry into the validity of the liquidated damages clause by
denying the O’Brians’ motion to compel and subsequently awarding
summary judgment before hearing any relevant evidence on the
issue” we reversed the court’s judgment. Id. at 552, 507 S.E.2d
at 366. We concluded that “the [circuit] court’s actions . . .
substantially affected the [defendants’] ability and right to
litigate the validity of the liquidated damages clause” and the
court abused its discretion in denying discovery. Id. at 552,
507 S.E.2d at 366.
Similarly, in the case at bar, Nizan sought to assert a
defense of double recovery, which is legally cognizable in
to the case at bar, occurred after the prior discovery deadline
had passed.
26
Virginia. The circuit court prevented Nizan from conducting
discovery that could be relevant to producing evidence of double
recovery as to whether some part of the UBS Settlement proceeds
represent payment on the Note and are the same damages Wells
Fargo seeks to recover from Nizan. By preventing Nizan from
conducting further discovery, the circuit court substantially
affected Nizan’s “ability and right to litigate” his defense.
Accordingly, the circuit court abused its discretion in denying
Nizan the opportunity to conduct additional discovery into the
UBS Settlement.12
III. CONCLUSION
For the aforementioned reasons, the circuit court erred in
denying Nizan the opportunity to conduct discovery related to
his defense of double recovery, in concluding that the UBS
Settlement could not, as a matter of law, constitute a double
recovery for the damages Wells Fargo sought from Nizan, and in
adopting the rationale that the defense of double recovery
required a common liability instead of common damages.
Accordingly, we will reverse the judgment of the circuit court
12
Nothing in our opinion restricts the circuit court’s
oversight into the scope, means, and method of discovery into
the UBS Settlement. Upon remand, the circuit court can hear the
parties’ arguments on this issue and provide reasonable
protection for confidentiality, including in camera review, if
the need be shown.
27
and remand the case for further proceedings consistent with the
views expressed in this opinion.13
Reversed and remanded.
13
In view of our resolution of the other assignments of
error, we do not address Nizan’s fifth assignment regarding the
language in the Protective Order, which “adopt[ed] in their
entirety” the “reasons set forth in [Wells Fargo’s] Motion for
Protective Order, Reply in Support of Motion for Protective
Order and Brief in Support of Court’s Ruling.”
To the extent that the circuit court’s judgment in favor of
Wells Fargo relied on any of Wells Fargo’s additional trial
argument opposing the applicability of the double recovery
defense, none merit discussion or stand as an independent basis
to sustain the circuit court’s judgment at this stage of the
proceedings.
28