Editor’s note, Jan. 25: This story was updated to include comments from Carter Bank & Trust.
A judge has denied a request by West Virginia Gov. Jim Justice’s family to be granted a trial over legal actions taken by Martinsville-based Carter Bank & Trust as the bank seeks repayment of more than $300 million in loans.
Martinsville Circuit Judge G. Carter Greer’s opinion this week followed a Dec. 11 court hearing in which an attorney for Justice; his wife, Cathy; and their son, Jay, asked Greer to set aside confessions of judgment filed against the family by the bank and instead schedule the case for a trial.
A confession of judgment is a clause in a loan document that allows a creditor to obtain judgment against a non-paying debtor without having to go to trial. The bank filed multiple confessions of judgment against the Justices on April 20 in Martinsville Circuit Court in connection with the unpaid loans, which were due April 15, and soon followed up with similar filings against multiple Justice-owned companies.
Greer wrote in a letter dated Monday that the Justices do not deny that they owe the money, do not dispute the amounts owed and did not put forth “any well-recognized defense,” such as fraud or duress, when asking for a trial instead of allowing the confessions of judgment to stand.
“Surely, if any such defense existed, the defendants would have alleged the facts to support it,” Greer wrote in the four-page letter, which was addressed to attorneys in the case and which concluded with Greer denying the Justices’ motion to set aside the confessed judgments. A copy of the letter was filed in Martinsville Circuit Court.
In a document filed Thursday morning with the U.S. Securities and Exchange Commission, Carter Bank & Trust (NASDAQ:CARES) said it “expects to be repaid by the Justice Entities in full all amounts due and owing although the timing of such payment in full in these matters is presently indeterminate.”
“Carter Bank believes that it is fully secured on all claims it has outstanding against the Justice Entities,” the bank said. “All of these claims are backed by personal guarantees from James C. Justice, II and his wife, Cathy L. Justice. A number of them are also backed by personal guarantees from James C. Justice, III, Governor Justice’s son. This Circuit Court ruling is an important step in the collection process. Carter Bank plans to pursue aggressively all remedies afforded it to collect all amounts due and owing by the Justice Entities.”
Greer’s opinion marks the latest development in a yearslong dispute between Carter Bank and the family of Jim Justice, who has served as the Republican governor of West Virginia since 2017 and who is running for the U.S. Senate seat being vacated by Democrat Joe Manchin.
The Justices have more than 100 coal mining, agricultural and hospitality companies in Virginia and West Virginia, many of which are operated by Jay Justice. Companies named in the confessions of judgment include the Justice Family Group, the James C. Justice Companies and the Greenbrier Hotel Corp.
Carter Bank & Trust is a community bank with $4.5 billion in assets and more than 60 locations in Virginia and North Carolina.
In various court filings in recent years, the Justices have accused Carter Bank’s management of “predatory” and “unlawful” conduct, including actively preventing the family from repaying the loans in order to preserve millions of dollars in annual interest revenue.
Carter Bank has called the Justices’ allegations “inflammatory and baseless.” The bank has said in court filings that for years it worked “repeatedly and cooperatively” with the Justice family on their loans but that the Justices are stalling on repaying the money they owe.
Aaron Houchens, a Salem-based attorney representing the Justices, argued on Dec. 11 that Greer had the discretion to set aside the confessions of judgment and proceed with a trial if the Justices could show they had a defense.
Houchens said the Justices’ primary defense is their allegation that Carter Bank & Trust has violated federal banking regulations in its dealings with the family.
Jonathan Hauser, a Virginia Beach-based attorney who represents Carter Bank, said in court on Dec. 11 that the Justices signed multiple documents stating they would repay the loans by April 15 and said the bank loses $122,000 in interest each day that the loans remain unpaid.
Hauser also argued that day that although the law allowed Greer to set aside the confessions of judgment, it remained up to the judge’s discretion whether to do so.
With the Justices’ motion denied, it’s unclear what the exact next steps in the case will be. Generally speaking, Virginia law offers creditors several options when judgment is in their favor, including seizing a debtor’s property and subjecting it to public auction, garnishing a debtor’s bank accounts, or requiring a debtor to undergo a deposition to answer questions about their assets.
In its SEC filing Thursday, Carter bank said it “anticipates that subsequent creditor process will be issued to collect on these claims from the judgment debtors, including Governor Justice.”
Justices, Carter Bank have long history
Court filings describe a lending relationship between the Justice family and Worth Carter Jr., who later founded Carter Bank & Trust, that began in 2001 when Worth Carter gave Jim Justice a $4.5 million real estate loan.
In 2006, Carter combined 10 banks to form Carter Bank & Trust, and by 2016 the Justice family’s loan portfolio with the bank had grown to a peak of around $775 million.
The Justices allege that Worth Carter’s 2017 death marked a turning point after new management took over and their banking relationship — previously often based on handshake deals — grew contentious.
The Justices claim that after Carter’s death, Carter Bank executives engaged in a pattern of orally agreeing to give the Justices more time to repay loans but then ignoring their calls and emails, leading them to default on those loans.
The bank then demanded repayment within days on loans that previously had 20-year terms and used powers granted by those defaults to exercise greater control over the family’s businesses, the Justices claim.
The bank has denied the Justices’ allegations and has maintained in court filings that it worked extensively with the Justices to restructure and extend their loans as it sought to reduce its credit exposure to the Justice family. The Justices have said they are the bank’s largest borrower.
Over a period of several years, Carter Bank has said, the bank and the Justices worked together on hundreds of loan agreements, signed promissory notes and other documents related to the Justices’ loans, including Jim and Cathy Justice’s personal guarantees on the loans, all while the Justices were represented by legal counsel.
Early in 2021, Carter Bank told the Justices that the bank would not renew or extend two loans totaling about $57 million that were due to mature on June 1, 2021, according to the bank’s court filings.
On May 31, 2021, the day before those loans were set to mature, the Justices sued Carter Bank & Trust in federal court for $421 million, claiming that the bank engaged in anticompetitive behavior and breach of contract and that the bank was preventing the Justices from working with other lenders.
Carter Bank has said in court filings that this lawsuit came despite the Justices agreeing multiple times not to sue and that the Justices filed the suit “purely as a delay tactic.”
Carter Bank, in turn, pursued its own legal actions against the Justices in an effort to recover the approximately $57 million in unpaid loans.
In September 2021, the Justices announced that they had reached a resolution with Carter Bank and that the legal actions would be dropped.
Dispute is renewed
This past spring, the conflict between the Justices and Carter Bank came back into the public spotlight when the Justices distributed a news release immediately after the bank filed confessions of judgment.
On April 21, the Justices issued the news release under the banner of the Jay Justice-led Justice Companies, saying they had a plan to pay Carter Bank $250 million immediately and repay more than $50 million in remaining loans within months.
But, the Justices said in their news release, Carter Bank was engaging in “obstructive conduct” with its confessions of judgment, which the Justices said were “a last-ditch effort to retain a revenue stream that routinely accounts for a large portion of the bank’s revenue.”
“It is unimaginable that a bank would deny a customer the ability to pay off a loan,” the news release quoted Jay Justice as saying.
Days later, Carter Bank sought an injunction against Jay Justice to prevent him from “disclosing further confidential information about the credit relationships and ongoing business negotiations” between the bank and the Justices’ companies.
The injunction motion cited the Justices’ press release as well as news articles that referenced it, including an April 24 article in Cardinal News.
“Through its publication of the Improper Press Release, the Justice Entities have caused and will continue to cause damage to Carter Bank’s reputation, goodwill, and standing in the community,” Carter Bank’s motion stated.
On May 2, Greer, the judge in Martinsville, granted the injunction.
On May 12, the Justices asked Greer to set aside the confessions of judgment and grant a trial instead. That set in motion the Dec. 11 hearing that led to Greer issuing his opinion Monday.
Justices involved in multiple cases
The Carter Bank case is not the only legal or financial challenge the West Virginia governor’s family faces in Virginia.
The family has seen property in Virginia and West Virginia go to auction over unpaid taxes.
Earlier this month, a federal judge in Virginia issued an order that a Justice-owned helicopter housed at the Roanoke-Blacksburg Regional Airport should be prepared for sale to creditors as partial repayment of debts.
On May 30, the U.S. Justice Department announced it was filing a civil action against Jay Justice and 13 coal companies he owns or operates. The DOJ seeks $7.6 million in unpaid fines stemming from more than 130 federal violations of health, safety or environmental regulations.
On Monday, U.S. District Judge Robert Ballou heard arguments in that case. He then took the case under advisement and plans to rule on it in the near future.
Bank’s earnings take a hit
On Oct. 26, Carter Bank & Trust reported its third-quarter earnings. While it posted a profit of $3.6 million, it said it had to place just over $300 million in loans in nonaccrual status, which is when a borrower no longer makes payments on a loan and therefore the loan is no longer earning interest for the bank.
That move cost the bank $11.3 million in interest income in the second quarter and $9.3 million in the third quarter, according to the bank’s earnings news release.
While the bank didn’t mention the Justices or their companies by name, it said the loans in question stemmed from “our largest lending relationship.”
“However, aside from this issue, our financial performance for the quarter continued to be solid,” the bank said in a news release.
In that news release, Carter Bank & Trust CEO Litz Van Dyke said: “I want to reiterate that we continue to be focused on resolving our large [nonperforming loans]. We are committed to pursuing all remedies to resolve this matter in a manner that best protects the Company and its shareholders.”
New $1 billion lawsuit echoes 2021 case
The Justices and Carter Bank & Trust continue to clash in federal court.
On Nov. 10, the Justices filed a federal lawsuit in the Southern District of West Virginia seeking at least $1 billion from Carter Bank & Trust and its board of directors.
That lawsuit echoes many of the Justices’ claims in their 2021 federal lawsuit — Carter Bank asserts that in the Justices’ latest suit, “[s]ome of the paragraphs have simply been copied and pasted from the first to the second case” — but in a twist, large portions of the lawsuit are redacted from public view.
In a footnote in the suit, the Justices say Carter Bank forced them to sign a nondisclosure agreement in 2021. So, “in an abundance of caution,” they redacted the public version of their legal complaint and plan to file an unredacted, sealed version as well, their suit states.
During the Dec. 11 court hearing, Houchens attempted to present the latest federal lawsuit to Greer, saying it provided “factual basis and further support” for the Justices’ allegations that the bank is violating federal regulations.
At that time, Hauser objected to Houchens presenting the suit. In a footnote in his letter Monday, Greer said he did not rule on Hauser’s objection during that day in court but later decided to sustain the objection “in view of the paucity of facts alleged in the motions and the redactions in the complaint itself.”
