MARTINSVILLE, VIRGINIA — A Virginia state judge will decide whether Carter Bankshares in Martinsville, Virginia, can compel West Virginia Gov. Jim Justice to
Attorneys for the $4.5 billion-asset Carter Bankshares, founded in 1974 by the late Worth Harris Carter, and for Justice, a Republican reportedly seeking the U.S. Senate seat currently occupied by Sen. Joe Manchin, D-West Virginia, plead their cases in a hearing Monday before Judge G. Carter Greer in a Martinsville courthouse. Greer serves as presiding judge for Virginia's 21st Judicial Circuit.
At issue are a series of confessions of judgment Carter Bank & Trust, Carter Bankshares' bank subsidiary, filed in April, after the Justice Companies reportedly failed to repay a short-term loan obtained in February. The Justice Companies are a group of hospitality, mining and agriculture businesses owned by the West Virginia governor and his family.
Confessions of judgment are provisions included in loan agreements that allow creditors to obtain a judgment against a debtor without a trial. Though their legality was upheld by the U.S. Supreme Court in a 1972 case, D.H. Overmyer v. Frick, confessions of judgment are considered by many to be controversial, since they seemingly require borrowers to waive due process protections in order to obtain loans.
Virginia is one of a handful of states that continue to enforce confessions of judgment, according to Aaron Houchens, the attorney representing Justice. Judge Greer, commenting from the bench Monday, said confessions of judgment are used "very infrequently."
"They owe the money," Jonathan Hauser, Carter Bankshares' attorney, said. "There's no question they signed the note Feb. 1 and it came due April 15."
The $301 million relationship with Justice is by far Carter Bankshares' largest. The next largest totals about $54 million, according to the bank. The Justice relationship accounted for approximately 9% of loans outstanding and more than 60% of risk-based capital as of Sept. 30. Carter Bankshares has classified all of its loans to Justice as nonperforming. The dispute is costing it the opportunity to collect $122,000 of interest each day, Hauser said. "We are the ones being prejudiced by these delays," Hauser argued in court on Monday.
Houchens argued that the Justice Companies needed only to present what he termed "an adequate defense" for the bank's confessions of judgment to be set aside. The Justice Companies met that burden in November, when they filed a federal lawsuit alleging Carter Bankshares blocked it from refinancing its borrowings with another lender in violation of the Bank Holding Company Act, Houchens argued. The Justice Companies are seeking damages of at least $1 billion in the action they filed Nov. 10 in the U.S. District Court for the Southern District of West Virginia.
Virginia law requires confessions of judgment to be set aside "when the movant raises any ground which could have been an adequate defense," Houchens claimed in a brief filed earlier this year. The adequate-standard applies even in instances where a borrower's argument may be difficult to prove, Houchens added.
Hauser argued that the Justice Companies entered into the Feb. 1 loan agreement voluntarily, and that Greer has the authority to make exceptions to the adequate-defense rule. "Even if there is an adequate defense, the court has the authority to accept or reject it," Hauser said.
At the conclusion of Monday's half-hour hearing, Greer said he would work to render a decision as quickly as possible, though holiday closures might delay it until Jan. 31.
Justice enjoyed a strong bond with Worth Harris Carter, even delivering a eulogy at the late banker's 2017 funeral. His relationship with Carter Bankshares has soured in recent years, however, as the bank sought to reduce its exposure. The Justice Companies filed a federal lawsuit against Carter Bankshares in May 2021, but the two sides appeared to resolve their differences later that year. That resolution collapsed in April when the confessions of judgment were filed.
