The Court of Appeals clarifies the adverse witness rule
J&R Enters. v. Ware Creek Real Estate Corp., Record No. 097-23-2 (Va. Ct. App. Apr. 23, 2024)
Facts. J&R Enterprises received an award of over $75,000 in attorney fees and costs against W. Walker Ware (Ware), Ware Creek Real Estate Corp. (Real Estate Corp.), and Ware Creek Building Corp. (Building Corp.). Ware was the sole owner and shareholder of the corporate entities. Both corporate entities had been winding down and had not earned revenue for several years. Their only source of funds was loans from Ware. To collect its judgment then, J&R filed a complaint to pierce Real Estate Corp.’s corporate veil and reverse pierce Building Corp.’s corporate veil.
In a bench trial, J&R presented evidence through the corporate entities’ financial records to allege that Ware was using their assets to pay for personal expenses. J&R called Ware as its sole witness, and the circuit court declared him an adverse witness. Ware testified that even though the corporate entities had not earned profits, had no employees, and did not perform work, all his expenses were business related. Ware and the corporate entities moved to strike at the close of J&R’s evidence. Though the circuit court found that Ware’s testimony was “inherently incredible,” it sustained the motion. It found that although the financial records “may raise questions” regarding the legitimacy of the corporate entities’ expenses, the adverse witness rule prevented it from “inferring anything” about those records.
Issue. Whether the trial court erred in applying the adverse witness rule to Ware’s testimony.
Holding. Yes. The court should have “sifted” through the testimony to determine what was and was not credible or contradicted.
Notes. An adverse witness’s testimony is generally “binding on the calling party” unless that testimony is contradicted or inherently improbable. Thus, a trial court “reviews adverse witness testimony differently from the way it weighs the sufficiency of ordinary evidence.” The trial court must examine the adverse witness’s testimony and “sift what is uncontradicted from what is contradicted (or inherently incredible).” The adverse witness’s testimony is only binding to the extent the circuit court determines that it is “clear, logical, reasonable, and not in conflict with” the calling party’s evidence. A trial court, however, does not consider the witness’s credibility globally, but must consider each factual point.
Here, the court found Ware’s testimony to be “inherently incredible,” but did not make a finding whether this incredibility applied to each factual point in his testimony. Because the trial court did not parse Ware’s testimony, the Court of Appeals remands the case for it to do so. To the extent that Ware’s testimony is inherently incredible on a factual point, J&R is not bound by it and the court can draw reasonable inferences from the financial records entered into evidence.