Petition for Writ of Certiorari — Highland Construction Management Services, LP, et al., Petitioners v. Wells Fargo Bank, N.A.

No. _______

In The

Supreme Court of the United States

-------------------------- ♦ ---------------------------

HIGHLAND CONSTRUCTION

MANAGEMENT SERVICES, LP;

JOSEPH L. BANE, JR.,

Petitioners,

v.

WELLS FARGO BANK, N.A.,

for the benefit of Jerome Guyant IRA,

Respondent.

-------------------------- ♦ --------------------------

ON PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

-------------------------- ♦ --------------------------

PETITION FOR WRIT OF CERTIORARI

-------------------------- ♦ -------------------------

John P. Flannery, II

Counsel of Record

James P. Campbell

CAMPBELL FLANNERY, P.C.

1602 Village Market Boulevard

Suite 220

Leesburg, Virginia 20175

(703) 771-8344

jonflan@aol.com

jcampbell@campbellflannery.com

Christopher L. Rogan

ROGANMILLERZIMMERMAN, PLLC

50 Catoctin Circle

Suite 333

Leesburg, Virginia 20176

(703) 777-8850

crogan@rmzlawfirm.com

Counsel for Petitioners

Dated: March 12, 2018

THE LEX GROUPDC i 1050 Connecticut Avenue, N.W. i Suite 500, #5190 i Washington, D.C. 20036

(202) 955-0001 i (800) 856-4419 i www.thelexgroup.com

i

QUESTIONS PRESENTED FOR REVIEW

Pursuant to the Erie Doctrine, must federal

courts use state interpretation methodologies when

recognizing novel state common law causes of

action?

Recognizing the important federalism issues

articulated in Expressions Hair Design v.

Schneiderman, 137 S. Ct. 1144, 197 L. Ed. 2d 442

(2017), is it time for bright line rules regarding

certification of novel state common law causes of

action, as adopted by the Second Circuit Court of

Appeals, rather than the subjective discretion

standard, as exists in the remaining Circuits?

ii

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of the Rules of the

Supreme Court, Petitioner, Highland Construction

Management Services, LP hereby states that it has

no parent company, and no public company holds

any of its equity interests.

iii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ........................................ i

CORPORATE DISCLOSURE STATEMENT ............ ii

TABLE OF AUTHORITIES ...................................... vi

OPINIONS BELOW ................................................... 1

JURISDICTION ......................................................... 1

STATEMENT OF THE CASE ................................... 2

REASONS FOR GRANTING THE PETITION ......... 4

A.

THE ERIE DOCTRINE AND

NOVEL ISSUES OF STATE

LAW ....................................................... 6

i.

Common law in the

Federal Courts after Erie ........... 7

ii

The

Fourth

Circuit

standard when deciding to

predict novel causes of

action arising from state

law ............................................... 8

iv

B.

QUESTIONS RELATING TO

THE EXISTENCE OF “NOVEL”

COMMON LAW CAUSES OF

ACTION ARE SUBSTANTIVE

RATHER THAN PROCEDURAL ....... 11

C.

THE FAILURE TO APPLY THE

METHODOLOGY REQUIRED

BY WYATT v. MCDERMOTT,

283 Va. 685, 725 S.E.2d 55 (2012)

IS THE FAILURE TO APPLY

THE SUBSTANTIVE LAW OF

VIRGINIA ............................................ 13

D.

BRIGHT LINE RULES FOR

CERTIFICATION SHOULD BE

ESTABLISHED ................................... 15

CONCLUSION ......................................................... 22

APPENDIX:

Unpublished Opinion and Judgment

The United States Court of Appeals

For the Fourth Circuit

entered November 3, 2017 .................. 1a

Memorandum Opinion of

The United States District Court for the

Eastern District of Virginia

entered March 20, 2017 ...................... 4a

v

Order of

The United States Court for the

Eastern District of Virginia

Re: Affirming Decision of the Bankruptcy

Court

entered March 20, 2017 .................... 24a

Order of

The United States Bankruptcy Court

For the Eastern District of Virginia

Re: Granting Judgment as to Count I and II

of the Complaint and Denying Defendant’s

Motion for Summary Judgment

entered October 25, 2016 .................. 26a

Order of

The United States Court of Appeals

For the Fourth Circuit

Re: Denying Defendant’s Petition for

Rehearing

entered December 11, 2017............... 29a

vi

TABLE OF AUTHORITIES

Page(s)

CASES

Bayer Corporation v. Masco Tech, Inc.

(In Re AutoStyle Plastics, Inc.),

269 F.3d 726 (6th Cir. 2001) .......... 4, 11, 12, 15

Besserman Trust Co., NA v. Branin,

618 F.2d 76 (2010)................................ 6, 20, 21

Blue Cross & Blue Shield of N.J., Inc. v.

Phillip Morris USA, Inc.,

344 F.3d 211 (2d Cir. 2003) ........................... 21

Bosserman v. Bosserman,

9 Va. App. 1, 385 S.E. 2d 104

(Va. Ct. App. 1989) ..................................... 9, 10

Colavito v. N.Y. Organ Donor Network, Inc.,

438 F.3d 214 (2d Cir. 2006) ........................... 21

Erie R.R. v. Tompkins,

304 U.S. 64, 58 S. Ct. 817 (1938) ........... passim

Expressions Hair Design v. Schneiderman,

2017 U.S. App. LEXIS 24667

(2d Cir. N.Y., Dec. 6, 2017) .................... passim

Fairchild Dornier GmbH v.

Official Comm. of Unsecured Creditors

(In re Dornier Aviation (N. Am.), Inc.),

453 F.3d 225 (4th Cir. 2006) .......... 4, 11, 12, 15

vii

Guarantee Trust Company v. York,

326 US 99, 65 S.Ct. 1464,

89 L. Ed. 2079 (1945) ..................................... 12

Highland Constr. Mgmt. Servs., LP v. Wells Fargo

(In re Highland Constr. Mgmt. Servs., LP),

569 B.R. 673 (E.D. Va. 2017) ........................... 3

Kuhne v. Cohen & Slamowitz, LLP,

579 F.3d 189, 198 (2d Cir. 2009) ................... 21

Lehman Brothers v. Schein,

416 U.S. 386, 94 S.Ct. 1741,

40 L. Ed. 2d 215 (1974) .................................... 5

O’Mara v. Town of Wappinger,

485 F.3d 693 (2d Cir. 2007) ........................... 21

Rhodes v. E.I. du Pont de Nemours & Co.,

636 F.3d 88 (2011)........................................ 8, 9

Shady Grove Orthopedic Associates, P.A. v.

Allstate Insurance Company,

559 U.S. 393 (2010) ........................................ 12

Wyatt v. McDermott,

283 Va. 685, 725 S.E.2d 555 (2012) ........... 3, 13

STATE CONSTITUTIONAL PROVISIONS

DEL. CONST. art. IV, § 11(9) .................................. 16

FLA. CONST. art. V, § 3(b) (6) ................................. 16

viii

STATUTES

ARIZ. REV. STAT. ANN. § 12-1861 (West 1994)........... 16

CONN. GEN. STAT. ANN. § 51-199b (West 2002) ....... 16

D.C. CODE ANN. § 11-723 (1981 & 1987 Supp.) ....... 16

FLA. STAT. ANN. § 25.031 (West 1997) ..................... 16

GA. CODE ANN. § 15-2-9 (1999) ................................. 16

IND. CODE ANN. § 33-2-4-1 (Michie 1998) ................ 16

IOWA CODE ANN. §§ 684.A.l-A.11 (West 1998) ......... 16

KAN. STAT. ANN. §§ 60-3201 to -3212 (1994) ............ 16

LA. REV. STAT. ANN. § 13:72.1 (West 1999) .............. 16

MD. CODE ANN., CTS. & JUD. PROC.

§§ 12-601 to -609 (1998) ............................................ 16

MINN. STAT. ANN. § 480.065 (West Supp. 2000) ...... 16

MO. ANN. STAT. § 477.004 ......................................... 16

NEB. REV. STAT. §§ 24- 219 to -225 (1997) ............... 16

N.M. STAT. ANN. §§ 39-7-1 to 7-13

(Michie 1997 & Supp. 1999) ..................................... 16

OKLA. STAT. ANN. tit. 20, §§ 1601-11

(West 1991) ............................................................... 16

ix

OR. REV. STAT. §§ 28.200-.255 (1997) ....................... 16

S.D. CODIFIED LAWS

§§ 15-24A-1 to 15-24A-1 I (Michie 1994)............. 16-17

WASH. REV. CODE §§ 2.60.010 to 2.60.900

(West 1998) ............................................................... 17

W. VA. CODE §§ 51-lA-1 to -13 (1994) ....................... 17

WIS. STAT. ANN. §§ 821.01 to.12 (West 1994) .......... 17

WYO. STAT. ANN. § 1-13-106 (Michie 1994) .............. 17

RULES

Ala. R. App. P. 18 ...................................................... 16

Alaska R. App. P. 407 ............................................... 16

Ark. R. Sup. Ct. 6-8(a)(1) .......................................... 16

Ariz. Sup. Ct. R. 27 ................................................... 16

Cal. R. Ct. 29.8 .......................................................... 16

Colo. App. R. 21.1...................................................... 16

Conn. R. App. P. §§ 82-1 to -7................................... 16

Del. Sup. Ct. R. 41 .................................................... 16

D.C. Ct. App. R. 54 ................................................... 16

Fla. R. App. P. 9.150 ................................................. 16

x

Ga. Sup. Ct. R. 46 ..................................................... 16

Haw. R. App. P. 13 .................................................... 16

Idaho App. R. 12.2 .................................................... 16

Ill. Sup. Ct. R. 20 ...................................................... 16

Ind. App. R. 64 .......................................................... 16

Ky. R. Civ. P. 76.37 ................................................... 16

La. Sup. Ct. R. XII .................................................... 16

Me. R. App. P. 25 ...................................................... 16

Mass. Sup. Jud. Ct. R. 1:03 ...................................... 16

Mich. Ct. R. 7.305 ..................................................... 16

Miss. R. App. P. 20.................................................... 16

Mont. R. App. P. 44 ................................................... 16

Nev. R. App. P. 5 ....................................................... 16

N.H. Sup. Ct. R. 34 ................................................... 16

N.J. Ct. R. 2:12A-1 .................................................... 16

N.M. R. App. P. 12-607 ............................................. 16

N.Y. Ct. R. § 500.17 .................................................. 16

xi

N.Y. Comp. Code, Rules & Regs., tit. 22,

Rule 500.27(a) (2016) ................................................ 18

N.D. R. App. P. 47 ..................................................... 16

R. Prac. Sup. Ct. Ohio XVIII .................................... 16

OR. R. App. P. 12.20 ................................................. 16

P.R. Sup. Ct. R. 27 .................................................... 16

RI. Sup. Ct. Rules, art. I, R. 6 .................................. 16

S.C. App. Ct. R. 228 .................................................. 16

S.D. S. Ct. R. 85-7 ..................................................... 17

Tenn. R. Sup. Ct. 23 ................................................. 17

Tex. R. App. P. 214 ................................................... 17

Tex. R. App. P. 114 ................................................... 17

Utah R. App. P. 41 .................................................... 17

Va. Sup. Ct. R. 5:42 .................................................. 17

Vt. R. App. P. 14 ....................................................... 17

Wash. R. App. P. 16.16 ............................................. 17

Wyo. R. App. P. 11.01-07 .......................................... 17

xii

OTHER AUTHORITIES

Abbe R. Gluck,

Intersystemic Statutory Interpretation:

Methodology as “Law” and the Erie Doctrine,

120 Yale L.J. 1898 (2011).................................. 4

Benjamin C. Glassman,

Making State Law in Federal Court,

41 Gonz. L. Rev. 237 (2005) .............................. 5

Bradford R. Clark,

Ascertaining the Laws of the Several States:

Positivism and Judicial Federalism after Erie,

15 U.Pa.L.Rev. 1459 (1997) .............................. 5

Bradford R. Clark,

Erie’s Constitutional Source,

95 Cal. L. Rev. (2007) ........................................ 4

Jennifer M. Bandy,

Note, Interpretive Freedom: A Necessary Component

of Article III Judging,

61 Duke L.J. 651 (2011) .................................... 4

Judge Dolores K. Sloviter,

A Federal Judge Views Diversity Jurisdiction

Through the Lens of Federalism”,

78 Va. L. REV. 167 (1992) ................................. 7

xiii

J. Stephen Tagert,

To Erie or not to Erie: Do Federal Courts Follow

State Statutory Interpretation Methodologies?,

66 Duke L.J. 211 (2011) .................................... 4

Michael C. Dorf,

Prediction and the Rule of Law,

42 UCLA L. Rev. 651 (1995) ............................. 5

1

PETITION FOR WRIT OF CERTIORARI

Highland Construction Management Services,

LP (“Highland”) and Joseph Lee Bane, Jr. (“Bane”)

(collectively “Appellants”) respectfully petition for a

writ of certiorari to review the judgment of the United

States Court of Appeals for the Fourth Circuit.

(“Court of Appeals”)

OPINIONS BELOW

The Opinion of the Court of Appeals was issued

on November 3, 2017. (1a-3a) The Opinion of the

United States District Court for the Eastern District

of Virginia (“District Court”) affirming the decision of

the United States Bankruptcy Court, Alexandria

Division (“Bankruptcy Court”) is reported at 569 B.R.

673 *; 2017 U.S. Dist. LEXIS 39848. The Order of the

Bankruptcy Court granting respondent’s motion for

summary judgment was entered on October 25, 2016.

(26a-28a)

JURISDICTION

This appeal arises from an order entered by the

Bankruptcy Court on October 25, 2016, granting

summary judgment in favor of the Appellee, Wells

Fargo NA FBO Jerome Guyant IRA (“Guyant” or

“Appellee”), as to Counts I and III of an Adversary

Complaint filed in Adversary Proceeding No. 1501030-RGM (“Summary Judgment Order”), over

Appellants’ objection. (26a-28a) The Bankruptcy

Court’s Summary Judgment Order was timely

appealed to the District Court by Notice of Appeal

filed on November 2, 2016. The District Court

2

affirmed the Bankruptcy Court’s Summary Judgment

Order, by Memorandum Opinion and Order entered

on March 20, 2017. (24a-25a) A timely Notice of

Appeal was filed with the Court of Appeals on April 4,

2017. By Opinion and Order entered on November 3,

2017 the Court of Appeals affirmed the District Court.

(1a-3a) Appellants filed a Petition for Rehearing on

November 17, 2017. On December 11, 2017, the Court

of Appeals entered an Order denying the Petition for

Rehearing. (29a) This Court has jurisdiction for this

Petition pursuant to Article III of the Constitution.

STATEMENT OF THE CASE

Appellants appeal the December 11, 2017

Order of the Court of Appeals refusing rehearing of

the Court’s November 3, 2017 Order affirming the

decision of the District Court.

Highland and Bane are both reorganized

debtors, having achieved confirmation of their joint

plan of reorganization on October 25, 2016.

Appellants filed an adversary proceeding seeking

recharacterization of the claim of Guyant in the

Bankruptcy Court.

In that proceeding, the

Bankruptcy Court granted Summary Judgment in

favor of Guyant on the basis of res judicata and

concluded that Highland should have brought the

recharacterization cause of action in a an action filed

and litigated in the Loudoun County, Virginia Circuit

Court prior to the filing of the Appellants’ Chapter 11

cases.

The Bankruptcy Court acknowledged that the

Virginia Supreme Court has not recognized

3

recharacterization as a common law cause of action in

Virginia, but predicted that the Virginia Supreme

Court would recognize such a cause of action if

presented with the question. The Bankruptcy Court

did not explain any basis for this prediction and cited

no authority from any Virginia Supreme Court case

on this issue.

The gravamen of this Petition is that the

Virginia Supreme Court has clearly held that judges

in Virginia, including the Virginia Supreme Court,

are without authority to create “new” common law

causes of action. Newly “recognized” common law

causes of action in Virginia must have jurisprudential

existence in either Virginia common law or English

common law to be properly “recognized.” See Wyatt v.

McDermott, 283 Va. 685, 725 S.E.2d 555 (2012).

The District Court affirmed the Bankruptcy

Court on a different basis. The District Court

acknowledged that the Virginia Supreme Court had

not addressed a state law cause of action to

recharacterize an otherwise allowed claim. However,

then the District Court concluded expressly that the

Bankruptcy Court’s prediction about what the

Virginia Supreme Court might decide on the

“recharacterization” cause of action was “pure

speculation and irrelevant.” See Highland Constr.

Mgmt. Servs., LP v. Wells Fargo (In re Highland

Constr. Mgmt. Servs., LP), 569 B.R. 673, 681-682

(E.D. Va. 2017). The Court of Appeals affirmed the

District Court’s determination that predicting what

the Virginia Supreme Court might do if presented the

question was irrelevant.

4

Recharacterization is a cause of action first

acknowledged and applied by the Fourth Circuit

Court of Appeals in Fairchild Dornier GmbH v.

Official Comm. of Unsecured Creditors (In re Dornier

Aviation (N. Am.), Inc.), 453 F.3d 225 (4th Cir.

2006). In Dornier, the Fourth Circuit recognized a

recharacterization cause of action in a bankruptcy

proceeding arising out of Section 105(a) of the United

States Bankruptcy Code. The Fourth Circuit also

adopted an 11 factor test which was first established

by the Sixth Circuit in Bayer Corporation v. Masco

Tech, Inc. (In Re AutoStyle Plastics, Inc.), 269 F.3d

726 (6th Cir. 2001). The recharacterization claim

filed by the Appellants in the case now before the

court alleged that Guyant’s claim against the Debtors’

estates should be recharacterized as equity pursuant

to the 11 factor test as defined by In Re AutoStyle

Plastics, Inc. and adopted by the Fourth Circuit in

Dornier.

REASONS FOR GRANTING PETITION

Since this Court’s decision in Erie R.R. v.

Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938), the

application of state law in federal courts has been a

matter of contention, confusion, and extensive

academic discussion. (See Jennifer M. Bandy, Note,

Interpretive Freedom: A Necessary Component of

Article III Judging, 61 Duke L.J. 651 (2011); J.

Stephen Tagert, To Erie or not to Erie: Do Federal

Courts Follow State Statutory Interpretation

Methodologies?, 66 Duke L.J. 211 (2011); Abbe R.

Gluck, Intersystemic Statutory Interpretation:

Methodology as “Law” and the Erie Doctrine, 120 Yale

L.J. 1898 (2011); Bradford R. Clark, Erie’s

5

Constitutional Source, 95 Cal. L. Rev. (2007);

Benjamin C. Glassman, Making State Law in Federal

Court, 41 Gonz. L. Rev. 237 (2005); Bradford R. Clark,

Ascertaining the Laws of the Several States:

Positivism and Judicial Federalism after Erie, 15

U.Pa.L.Rev. 1459, 1516 (1997); Michael C. Dorf,

Prediction and the Rule of Law, 42 UCLA L. Rev. 651

(1995). This case provides an opportunity for direction

to the federal courts on an issue of regular conflict.

This Court should order that the methodology

adopted by the applicable state court for recognizing

novel and previously unrecognized common law

causes of action must be applied by federal courts.

A process to certify questions of state law from

federal courts to the state courts has been adopted in

49 of the 50 states. This Court has long concluded

that the decision to certify is within the discretion of

the federal courts. See Lehman Brothers, 416 U.S.

386, 945 S.Ct. 1741 40 L. Ed. 2d 215 (1974). Within

this context however, the Second Circuit has adopted

bright line rules to determine when discretion should

be exercised in favor of certification of state law

issues. The remaining Circuits continue to apply an

amorphous “discretion standard.”

In Expressions Hair Design all eight Justices

concurred in the decision, while three Justices

preferred certification. This Court has frequently

confirmed the wisdom of certification. While circuit

splits may be a customary reason that this Court

grants certiorari, both the majority and concurring

opinions in Expressions Hair Design, make clear the

“importance” of this issue from a jurisprudential

standpoint.

6

Your Appellants respectfully assert that

federal judges should not be utilizing a crystal ball to

predict what state Supreme Court’s might decide

about novel causes of action, under common law,

particularly where certification is readily available,

as it is in Virginia. This case presents the Court with

the opportunity, consistent with the concurring

opinions in Expressions Hair Design, to adopt bright

line rules for the exercise of discretion as adopted by

the Second Circuit in Besserman Trust Co., NA v.

Branin, 618 F.2d 76 (2010).

A.

THE ERIE DOCTRINE

ISSUES OF STATE LAW.

AND

NOVEL

The Erie doctrine is most often applied most

commonly when issues of state law are relevant to

diversity cases. This case is a bit unusual in that the

case arose under federal law, specifically bankruptcy

law, and in a federal bankruptcy court. The state law

issue presented itself by Motion for Summary

Judgment, when Guyant, a creditor having a claim in

Appellants’ bankruptcy cases, asserted that the

recharacterization cause of action filed in the

bankruptcy proceeding could have and should have

been alleged and resolved in pre-bankruptcy state

court litigation in a Virginia Circuit Court. Guyant

argued that recharacterization should have been

alleged when the parties litigated with each other

regarding the underlying claims identified in the

recharacterization complaint.

7

i.

Common law in the Federal Courts

after Erie.

Although Erie has been frequently praised and

criticized to guide a federal court’s interpretation of

state law questions, the simple mandate from Erie is

often misunderstood:

There is no federal general common law.

Congress has no power to declare

substantive rules of common law

applicable in a state whether they be

local in their nature or general, be they

commercial law or a part of the law of

torts. And no clause in the Constitution

purports to confer such power upon the

federal courts. See Erie at 78.

In her 1992 University of Virginia Law Review

article entitled “A Federal Judge Views Diversity

Jurisdiction Through the Lens of Federalism”, 78 Va.

L. REV. 167 (1992), Judge Dolores K. Sloviter, of the

Third Circuit Court of Appeals described the elusive

job of a federal judge in determining issues of state

law, when the answer is not easy to determine. Judge

Sloviter noted that “despite our best efforts to predict

the future thinking of the state Supreme Courts with

jurisdiction on the basis of all the available data,” the

Third Circuit and its District Courts “have guessed

wrong” on several issues of state law. Sloviter at

1676-1677.

8

ii.

The Fourth Circuit standard when

deciding to predict novel causes of

action arising from state law.

In Rhodes v. E.I. du Pont de Nemours & Co.,

636 F.3d 88 (2011) the Fourth Circuit expressed the

standard for review of a novel state law cause of

action in a federal court:

In the absence of such action by the

highest state court in West Virginia,

our role in the exercise of our diversity

jurisdiction is limited. A federal court

acting under its diversity jurisdiction

should respond conservatively when

asked to discern governing principles of

state law. See Day & Zimmerman Inc.

v. Challoner, 423 U.S. 3, 4, 96 S. Ct.

167, 46 L. Ed 2d 3 (1975) (per curiam).

Therefore, in a diversity case, a federal

court should not interpret state law in a

manner that may appear desirable to

the federal court, but has not been

approved by the state whose law is at

issue. See id. Mindful of this principle,

we decline the plaintiff's invitation to

predict that the West Virginia Supreme

Court of Appeals would adopt the

specific provisions of the Restatement

advanced by the plaintiffs. Accordingly,

under existing West Virginia law, we

affirmed the district court's award of

summary judgment to DuPont on the

plaintiff's battery claims. Id at 96.

9

In Rhodes the Fourth Circuit declined to

predict whether a novel cause of action would exist

under West Virginia law, and in the absence of

guidance from the West Virginia Supreme Court

concluded that no such cause of action existed as a

matter of that state’s law. Rather than predicting

what the Virginia Supreme Court might do regarding

the asserted recharacterization common law cause of

action, in this case the Fourth Circuit adopted the

District Court’s conclusion that “predicting” what the

Virginia Supreme Court would do was irrelevant – as

if the common law was a universal concept

independent of state law:

Appellant’s focus on the Bankruptcy

Court’s prediction that the Virginia

Supreme

Court

would

adopt

recharacterization if presented with the

question is a red herring. The

prediction was pure speculation

and was irrelevant to the Court's

conclusion that res judicata applied

notwithstanding

the

fact

that

recharacterization is not formally

recognized as a cause of action

under Virginia law. Emphasis added.

(18a, FN8)

The District Court specifically acknowledged

that no recharacterization cause of action had been

acknowledged or recognized by the Virginia Supreme

Court. The Court also concluded that Virginia courts

had recharacterized equity as debt, specifically in a

domestic relations equitable distribution proceedings.

See Bosserman v. Bosserman, 9 Va. App. 1, 385 S.E.

10

2d 104 (Va. Ct. App. 1989). The Virginia Court of

Appeals is an intermediate appellate court with

limited jurisdiction which does not include civil

actions such as the state court litigation between

Appellants and Guyant. Further, the issue before the

court

in

Bosserman

was

not

whether

“recharacterization” consistent with Section 105 of

the Bankruptcy Code and the Dornier factors was a

recognized common law cause of action in Virginia.

Instead, the issue in Bosserman related to the value

of a closely held corporation at equitable distribution

in a divorce. The contention by the husband in

Bosserman was that the trial court improperly

considered a $16,000 transfer from Mr. Bosserman

and his three brothers as a “capital contribution”

(equity) rather than as a promissory note (debt) due

to the four brothers. The Virginia Court of Appeals

concluded that “whether a corporate debt existed or

the amount thereof is of no consequence in this case

since presumably a proportionate share of the alleged

debt was owed Basil Bosserman and would increase

the marital property to the same degree it reduced the

value of the stock.” Bosserman at 9-10. Bosserman

did not recognize a new common law cause of action,

but stands for the proposition that either way the

value of the marital interest was $4,000. It is also

important to recognize that the Virginia Court of

Appeals could not and did not have jurisdiction to

declare a common law of cause of action, as it would

be beyond the limited jurisdiction conferred on that

court by Virginia’s General Assembly.

Further examination of the District Court’s

opinion highlights the misunderstanding of the role of

the federal court after the application of Erie:

11

Because all courts have inherit equitable

authority consistent with the scope of

their jurisdiction, Porter v. Warner

Holding Company, 328 U.S. 395, 396, 66

S. Ct. 1086, 90 L. Ed. 1332 (1946), there

is

no

reason

to

believe

recharacterization

is

unique

to

bankruptcy courts. Highland at 681.

The reference to “all courts” clearly indicates

misunderstanding of the mandate of Erie. The extent

of “common law” is always a question of state law, as

there is no federal common law. How the Virginia

Supreme Court might act, if presented with a

recharacterization cause of action, an action allegedly

arising under common law, is the prediction the

District Court and the Court of Appeals were required

to make. The failure to do so is an unconstitutional

assumption of state authority that Erie sought to

redress.

B.

QUESTIONS

RELATING

TO

THE

EXISTENCE OF “NOVEL” COMMON LAW

CAUSES OF ACTION ARE SUBSTANTIVE

RATHER THAN PROCEDURAL.

The Courts below appear to have applied a

theory of generalized common law which was rejected

long ago in Erie. The recharacterization cause of

action first was recognized in bankruptcy courts

arising from the Bankruptcy Code in In Re AutoStyle

Plastics, Inc. and adopted by the Fourth Circuit in

Dornier.

No Virginia statute provides for a

recharacterization cause of action; nor is there a

Virginia law counterpart to Bankruptcy Code Section

12

105(a).

Consequently, whether or not a

recharacterization action exists as a matter of

Virginia State Law is necessarily a question of

Virginia common law.

In Shady Grove Orthopedic Associates, P.A. v.

Allstate Insurance Company, 559 U.S. 393 (2010), this

Court concluded that “Erie involves the constitutional

power of federal courts to supplant state law with

judge made rules.” In that context, it made no

difference whether the rule was technically one of

substance or procedure; the touchtone was whether it

“significantly affects the result of litigation.” Id at

406. (Quoting Guarantee Trust Company v. York, 326

US 99, 109 65 S.Ct. 1464, 89 L.Ed. 2079 (1945)).

The touchstone here is whether or not a

recharacterization cause of action as defined by In Re

AutoStyle Plastics, Inc. and Dornier, and the 11

factors contained therein, was a Virginia common law

cause of action available in the state court litigation

between the parties that predated the bankruptcy

filing. This case presents a question of whether or not

a methodology expressly adopted by the Virginia

Supreme

Court

for

recognizing

previously

unrecognized common law causes of action in

Virginia, is a question of substance or procedure. This

question cannot be properly resolved with the

suggestion that the view of the Virginia Supreme

Court is irrelevant because the question at issue

regarding a recharacterization cause of action under

Virginia common law is a question of substantive

state law.

13

C.

THE FAILURE TO APPLY THE

METHODOLOGY REQUIRED BY WYATT

v. MCDERMOTT, 283 Va. 685, 725 S.E.2d

55 (2012) IS THE FAILURE TO APPLY

THE SUBSTANTIVE LAW OF VIRGINIA.

Federal Courts addressing novel issues of state

common law must utilize the process or methodology

of the highest court in any such state to answer the

question. In Wyatt v. McDermott, 283 Va. 685, 725

S.E.2d 555 (2012), the Virginia Supreme Court

considered a certified question from the United States

District Court for the Eastern District of Virginia

regarding a previously unrecognized tort.

The

Virginia Supreme Court explained that, as a matter

of Virginia common law jurisprudence, there is no

such thing as a “new” common law claim. To be a

common law claim in the Commonwealth of Virginia

the “cause of action” must already be “present” at

either Virginia or English common law. The required

methodology to determine the existence of such a

cause of action as a matter of Virginia common law is

clear:

A

statutory

basis

for

tortious

interference with parental rights is

clearly absent from the Virginia Code;

we therefore focus our analysis on

whether this tort exists at common law.

Wyatt at 692.

***

In the analagous case of Chaves v.

Johnson, 230 Va. 112, 335 S.E.2d 97

14

(1985), we have explicitly recognized the

common law tort of tortious interference

with contract rights for the first time,

noting its historical basis in the

Commonwealth.

***

In this case, following the

blueprint set forth in Chaves, we would

not be creating a new tort, but rather

recognizing that the common law right

to establish and maintain a relationship

with one’s child necessarily implies a

cause of action for interference with that

right. To hold otherwise in this case

would be to recognize “a right without a

remedy – a thing unknown to the law.”

Norfolk City v. Cooke, 68 Va. (27 Gratt.)

430, 439 (1876).

***

We have previously stated that

“our adoption of English common law…

ends in 1607 upon the establishment of

the first permanent English settlement

in America, Jamestown. From that time

forward, the common law we recognize is

that which has been developed in

Virginia.” Commonwealth v. Morris, 281

Va. 70, 82, 705 S.E.2d 503 (2011). Prior

to 1607, a comparable cause of action did

lie in England, providing a father with

recourse for the abduction of his heir or

15

sons rendering services. See Pickle v.

Page, 252 N.Y. 474, 169 N.E. 650, 651

(N.Y. 1930) (citing Barham v. Dennis,

(1599) 78 Eng. Rep. 1001 (K.B.); Cro.

Eliz. 770). Wyatt at 694.

The Court of Appeals nevertheless specifically

affirmed the District Court’s conclusion that the view

of the Virginia Supreme Court was “irrelevant.”

D.

BRIGHT

LINE

CERTIFICATION

ESTABLISHED.

RULES

SHOULD

FOR

BE

In the state courts there is a jurisprudential

difference between “unsettled” issues of state law and

“novel” causes of action under the common law. When

state law is said to be unsettled, there are frequently

conflicting lower court decisions that draw opposite

conclusions.

A novel cause of action is an altogether

different issue. The recharacterization cause of

action, as recognized under In Re AutoStyle Plastics,

Inc., was a “novel” cause of action when first adopted

by the Sixth Circuit, and was “novel” within the

Fourth Circuit until Dornier. The recharacterization

cause of action arising from Section 105 of the

Bankruptcy Code was first “recognized” in 2001 when

In Re AutoStyle Plastics, Inc. was decided.

In 1938 when Erie was decided, certification

from a federal court to a state supreme court was

unknown. Florida was the first state to adopt a

certification process, in response to the predictable

16

problem created by Erie. Since then, a total of 49

states have adopted a certification process, with the

State of North Carolina being the only state not to

adopt a certification process from the federal courts

relating to issues of state law.1

1 See ALA. R. APP. P. 18; ALASKA R. APP. P. 407; ARK. R. SUP.

CT. 6-8(a)(1); ARIZ. REV. STAT. ANN. § 12-1861 (West 1994);

ARIZ. SUP. CT. R. 27; CAL. R. CT. 29.8; COLO. APP. R. 21.1;

CONN. GEN. STAT. ANN. § 51-199b (West 2002); CONN. R.

APP. P. §§ 82-1 to -7; DEL. CONST. art. IV, § 11(9); DEL. SUP.

CT. R. 41; D.C. CODE ANN. § 11-723 (1981 & 1987 Supp.); D.C.

CT. APP. R. 54; FLA. CONST. art. V, § 3(b) (6); FLA. STAT.

ANN. § 25.031 (West 1997); FLA. R. APP. P. 9.150; GA. CODE

ANN. § 15-2-9 (1999); GA. SUP. CT. R. 46; HAW. R. APP. P. 13;

IDAHO APP. R. 12.2; ILL. SUP. CT. R. 20; IND. CODE ANN.

§ 33-2-4-1 (Michie 1998); IND. APP. R. 64, available at

http://www.in.gov/judiciary/rules/appellate/; IOWA CODE ANN.

§§ 684.A.l-A.11 (West 1998); KAN. STAT. ANN. §§ 60-3201 to 3212 (1994); KY. R. CIV. P. 76.37; LA. REV. STAT. ANN.

§ 13:72.1 (West 1999); LA. SUP. CT. R. XII; ME. R. APP. P. 25;

MD. CODE ANN., CTS. & JUD. PROC. §§ 12-601 to -609 (1998);

MASS. SUP. JUD. Ct. R. 1:03; MICH. CT. R. 7.305; MINN.

STAT. ANN. § 480.065 (West Supp. 2000); MISS. R. APP. P. 20;

Mo. ANN. STAT. § 477.004 (West Supp. 2000) (held

unconstitutional by Grantham v. Mo. Dept. of Corr., No. 72576,

1990 WL 602159 (Mo. 1990); MONT. R. APP. P. 44; NEB. REV.

Stat. §§ 24- 219 to -225 (1997); NEV. R. APP. P. 5 available at

http://www.leg.state.nv.us/CourtRules/NRAP.html; N.H. SUP.

CT. R. 34;N.J. CT. R. 2:12A-1; N.M. STAT. ANN. §§ 39-7-1 to 713 (Michie 1997 & Supp. 1999); N.M. R. APP. P. 12-607; N.Y. CT.

R. § 500.17; N.D. R. APP. P. 47 available at

http://www.court.state.nd.us/Rules/appellattframeset.htm;

R.

PRAC. SUP. CT. OHIO XVIII; OKLA. STAT. ANN. tit. 20,

§§ 1601-11 (West 1991); OR. REV. STAT. §§ 28.200-.255(1997);

OR. R. APP. P. 12.20 at http://www.ojd.state.or.us/Web/

OJDPublications.nsf/ORAPOpenView&count-1000; P.R. SUP.

CT. R. 27; In re Certification of Questions of Law, No. 197

Judicial Admin. Docket No. I (Penn. Super. Ct. 2000) available

at http://caselaw.lp.findlaw.com/data2/pennsylvaniastatecases

/supreme/197-rul.pdf; RI. SUP. CT. RULES, art. I, R. 6; S.C.

APP. CT. R. 228; S.D. CODIFIED LAWS §§ 15-24A-1 to 15-24A-

17

Heretofore, whether or not to certify the

question to the state supreme court has been an issue

of discretion. However, there is little guidance as to

when and how that discretion is properly exercised,

and when it is not.

The tension regarding

certification is particularly apparent in Expressions

Hair Design, involving the interpretation of a newly

adopted New York statute and whether the statute

regarding surcharges for credit card transactions

impaired speech or conduct.

Expressions Hair Design was an 8-0 decision

with Chief Justice Roberts writing for the Court and

Justices Breyer and Sotomayor filing concurring

opinions. Justice Alito joined Justice Sotomayor’s

concurring opinion. The court remanded the case to

the Second Circuit Court of Appeals for further

consideration of the state law issues presented,

specifically the interpretation of the credit card

surcharge regulation.

The concurring opinions

endorsed by three Justices of this Court, Justices

Breyer, Sotomayor and Alito, endorsed certification of

the question to the New York Court of Appeals.

1 I (Michie 1994); S.D. S. CT. R. 85-7; TENN. R. SUP. CT. 23;

TEX. R. APP. P. 214 (used for certification to Texas Court of

Criminal Appeals); TEX. R. APP. P. 114 (used for certification to

Texas Supreme Court); UTAH R. APP. P. 41; VA. SUP. CT. R.

5:42; VT. R. AP. P. 14 (extended until Dec. 12, 2003 by Vt.

Supreme Court Order No. 02-02); WASH. REV. CODE

§§ 2.60.010 to 2.60.900 (West 1998); WASH. R. APP. P. 16.16; W.

VA. CODE §§ 51-lA-1 to -13 (1994); WIS. STAT. ANN. §§ 821.01

to.12 (West 1994); WYO. STAT. ANN. § 1-13-106 (Michie 1994);

WYO. R. APP. P. 11.01-07.

18

This case is an opportunity to create a new and

clear rule when the issues of state law are “novel”

causes of action pursuant to common law rather than

the interpretation of the state statute or resolution of

conflicting decisions of intermediate state courts of

appeal. When the issue is a novel cause of action, the

federal courts should certify the question in deference

to each states’ right to develop its own common law.

The rationale for certification was summarized by

Justice Sotomayor:

Certification offers a more precise tool.

In States that have authorized

certification, a federal court may “put

that [state-law] question directly to the

State’s highest court, reducing the delay,

cutting the cost, and increasing the

assurance of gaining an authoritative

response.” The rule relevant here is

typical of certification statutes. New

York allows a federal court of appeals to

certify “determinative questions of New

York law … involved in a case pending

before that court for which no controlling

precedent of the Court of Appeals exists

… to the New York Court of Appeals.”

N.Y. Comp. Code, Rules & Regs., tit. 22,

Rule 500.27(a) (2016). Id at 1156.

Justice

Sotomayor’s

concurrence

also

acknowledged that certification rests in the sound

discretion of the federal court. However, the

concurring opinion foreshadows the importance for

more significant guidance and bright line rules:

19

While the decision to certify “rests in the

sound discretion of the federal court,”

Lehman Brothers v. Schein, 416 U.S.

386, 391, 94 S. Ct. 1741, 40 L. Ed. 2d 215

(1974), this Court has repeatedly

emphasized that certification offers

clear advantages over abstention.

“[M]ere difficulty in ascertaining local

law is no excuse for” abstaining and

“remitting the parties to a state tribunal

for the start of another lawsuit.” Id., at

390, 94 S. Ct. 1741, 40 L. Ed. 2d 215.

Keeping the case, waiting for an answer

on the certified question, and then fully

resolving the issues “in the long run

save[s] time, energy, and resources and

helps build a cooperative judicial

federalism.” Id., at 391, 94 S. Ct. 1741,

40 L. Ed. 2d 215. As a result, “the

availability of certification greatly

simplifies the analysis” of whether to

abstain. Bellotti v. Baird, 428 U. S. 132,

151, 96 S. Ct. 2857, 49 L. Ed. 2d 844

(1976); see also Arizonans for Official

English, 520 U.S., at 75, 117 S. Ct. 1055,

137 L. Ed. 2d 170 (“Certification today

covers territory once dominated by a

deferral

device

called

Pullman

abstention” (internal quotation marks

omitted)). And this Court has described

abstention as particularly problematic

where, as here, a challenge to a state

statute rests on the First Amendment.

Cf. Virginia v. American Booksellers

Assn., Inc., 484 U.S. 383, 396 108 S. Ct.

20

636, 98 L. Ed. 2d 782 (1988)

(“Certification, in contrast to the more

cumbersome and (in this context)

problematic abstention doctrine, is a

method by which we may expeditiously

obtain that construction”); Houston v.

Hill, 482, U. S. 451, 467-468, 107 S. Ct.

2502, 96 L. Ed. 2d 398 (1987). Id at

1157.

Following remand, the Second Circuit certified

the question to the New York Court of Appeals.

Expressions Hair Design v. Schneiderman, 2017 U.S.

App. LEXIS 24667 (2d Cir. N.Y., Dec. 6, 2017)

[Document Number 283]. On January 18, 2018, the

New York Court of Appeals agreed to consider the

certified question.

While this Court has concluded that the

decision to certify a question is within the sound

discretion of the court, predicting novel causes of

action where there is no guidance from a state

Supreme Court should be guided by a different star.

Strong preference for certification as demonstrated by

three Justices of this Court in Expressions Hair

Design foreshadows the importance of addressing a

bright line rule for certification.

The Second Circuit in Bessemer has adopted a

three part test for considering whether to certify to

the senior appellate court of any state, with respect to

a state law issue. In Bessemer, the rule is simple,

straightforward and created a bright line rule that is

easy to follow. Bessemer confirmed three bright line

factors. The first bright line factor supporting

21

certification is that the senior appellate court of the

state in question has not squarely addressed the

issue. Bessemer at 93 citing Kuhne v. Cohen &

Slamowitz, LLP, 579 F.3d 189, 198 (2d Cir. 2009);

O’Mara v. Town of Wappinger, 485 F.3d 693, 698 (2d

Cir. 2007); Colavito v. N.Y. Organ Donor Network,

Inc., 438 F.3d 214, 229 (2d Cir. 2006); Blue Cross &

Blue Shield of N.J., Inc. v. Phillip Morris USA, Inc.,

344 F.3d 211, 221 (2d Cir. 2003). In this case it is

undisputed that the Virginia Supreme Court has not

addressed “recharacterization” as a common law

cause of action whatsoever.

The second bright line factor is the public policy

considerations of state law. Bessemer at 93; Colavito

v. N.Y. Organ Donor Network, Inc., 438 F.3d 214, 229

(2d Cir. 2006); Blue Cross & Blue Shield of N.J., Inc.

v. Phillip Morris USA, Inc., 344 F.3d 211, 221 (2d Cir.

2003). Again, applied to the case at bar this factor

also favors certification.

The third and final factor is whether the

question certified will determine the outcome of the

case. Bessemer at 93; O’Mara, 485 F.3d at 698. Once

again, this factor clearly supports certification.

22

CONCLUSION

Federalism and the importance of state courts

determining their own state common law is no less

important today than it was 80 years ago when Erie

was decided. Determinations of novel state common

law causes of action should only be made in federal

courts after appropriate respect for and deference to

the common law of each such state. As a matter of

Virginia law, judges do not “create” novel common law

causes of action, but rather “recognize” such causes of

action if they are found to exist pursuant to Virginia

law or in the English common law existing as of to

1607.

Because certification is now broadly available

in the United States, bright line rules should be

established in the 49 states where the certification

process is available to the federal courts. Whether a

cause of action exists under state common law should

be presented to the applicable state high court,

consistent with the constitutional mandate of Erie

and as endorsed in the concurring opinions in

Expressions Hair Design.

23

Respectfully submitted,

HIGHLAND CONSTRUCTION

MANAGEMENT SERVICES, LP

and

JOSEPH L. BANE, JR.

By Counsel

/s/ John P. Flannery

John P. Flannery, II, Esq. (VSB No. 22742)

Counsel of Record

James P. Campbell, Esq. (VSB No. 25097)

Campbell Flannery, PC

1602 Village Market Boulevard, Suite 220

Leesburg, Virginia 20175

703-771-8344/Telephone

703-777-1485/ Facsimile

jonflan@aol.com

jcampbell@campbellflannery.com

Counsel to Highland Construction Management

Services, LP

Christopher L. Rogan, Esq. (VSB No. 30344)

RoganMillerZimmerman, PLLC

50 Catoctin Circle, Suite 333

Leesburg, Virginia 20176

(703) 777-8850/Telephone

(703) 777-8854/Facsimile

crogan@RMZLawFirm.com

Counsel to Joseph L. Bane, Jr.