Opinion ID: 1058593
Heading Depth: 2
Heading Rank: 2

Heading: Availability of Double Recovery Defense to Nizan

Text: 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 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 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., 499 F.Supp.2d 314, 2007 U.S. Dist. Lexis 13566, No. 04 Civ. 9890(SAS) (S.D.N.Y. Feb. 27, 2007), 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 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 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. 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 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.