Filed: Jul. 10, 2001
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT C.F. TRUST, INCORPORATED, Plaintiff-Appellee, v. BARRIE M. PETERSON, Trustee, Defendant-Appellant, and NANCY A. PETERSON, Defendant, CARNETT COMMERCIAL INVESTORS, INCORPORATED; FIRST FLIGHT LIMITED No. 00-2232 PARTNERSHIP, Parties in Interest, BIRCHWOOD HOLDINGS GROUP, INCORPORATED; BIRCHWOOD ORGANIZATION, INCORPORATED; MARYLAND AIR INDUSTRIES, INCORPORATED; MARYLAND AIR INTERNATIONAL, INCORPORATED, Garnishees. 2 C.F. TRUST
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT C.F. TRUST, INCORPORATED, Plaintiff-Appellee, v. BARRIE M. PETERSON, Trustee, Defendant-Appellant, and NANCY A. PETERSON, Defendant, CARNETT COMMERCIAL INVESTORS, INCORPORATED; FIRST FLIGHT LIMITED No. 00-2232 PARTNERSHIP, Parties in Interest, BIRCHWOOD HOLDINGS GROUP, INCORPORATED; BIRCHWOOD ORGANIZATION, INCORPORATED; MARYLAND AIR INDUSTRIES, INCORPORATED; MARYLAND AIR INTERNATIONAL, INCORPORATED, Garnishees. 2 C.F. TRUST,..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
C.F. TRUST, INCORPORATED,
Plaintiff-Appellee,
v.
BARRIE M. PETERSON, Trustee,
Defendant-Appellant,
and
NANCY A. PETERSON,
Defendant,
CARNETT COMMERCIAL INVESTORS,
INCORPORATED; FIRST FLIGHT LIMITED
No. 00-2232
PARTNERSHIP,
Parties in Interest,
BIRCHWOOD HOLDINGS GROUP,
INCORPORATED; BIRCHWOOD
ORGANIZATION, INCORPORATED;
MARYLAND AIR INDUSTRIES,
INCORPORATED; MARYLAND AIR
INTERNATIONAL, INCORPORATED,
Garnishees.
2 C.F. TRUST, INC. v. PETERSON
C.F. TRUST, INCORPORATED,
Plaintiff-Appellee,
v.
BARRIE M. PETERSON, Trustee,
Defendant-Appellant,
and
NANCY A. PETERSON,
Defendant,
CARNETT COMMERCIAL INVESTORS,
INCORPORATED; FIRST FLIGHT LIMITED
No. 00-2233
PARTNERSHIP,
Parties in Interest,
BIRCHWOOD HOLDINGS GROUP,
INCORPORATED; BIRCHWOOD
ORGANIZATION, INCORPORATED;
MARYLAND AIR INDUSTRIES,
INCORPORATED; MARYLAND AIR
INTERNATIONAL, INCORPORATED,
Garnishees.
C.F. TRUST, INCORPORATED,
Plaintiff-Appellee,
v.
BARRIE M. PETERSON, Trustee,
Defendant-Appellant, No. 00-2261
and
SCOTT W. PETERSON; JAMES G.
MCCLURE; JUBAL, INCORPORATED,
Defendants.
C.F. TRUST, INC. v. PETERSON 3
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-96-264-A, CA-96-265-A, CA-97-2003-A)
Argued: June 4, 2001
Decided: July 10, 2001
Before LUTTIG, WILLIAMS, and MICHAEL, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Benjamin C. Ackerly, Sr., HUNTON & WILLIAMS,
Richmond, Virginia, for Appellant. Harvey Alan Levin, BIRCH,
HORTON, BITTNER & CHEROT, Washington, D.C., for Appellee.
ON BRIEF: John Charles Thomas, Peter S. Partee, HUNTON &
WILLIAMS, Richmond, Virginia, for Appellant. Barbara A. Miller,
BIRCH, HORTON, BITTNER & CHEROT, Washington, D.C., for
Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
The district court entered an order setting the amount of C.F. Trust,
Inc.’s outstanding judgment balance against Barrie M. Peterson in his
4 C.F. TRUST, INC. v. PETERSON
individual capacity ("Peterson") and as trustee of a tract of land
known as "Fortuna" ("the Peterson Trust") at $4,326,590.03. Peterson
and the Peterson Trust now appeal. Finding no reversible error, we
affirm.
I.
In 1995, C.F. Trust purchased two bank notes made by DEP, Inc.,
a corporation wholly owned by Peterson. The notes were guaranteed
jointly and severally by Peterson, individually and as trustee for the
Peterson Trust,1 and Nancy Peterson.2 The notes were secured by two
deeds of trust which encumbered three separate properties: Elm Farm
Mobile Home Park, an unimproved tract of land known as Pick-A-
Pair, and Dominion Professional Center.
After DEP and the guarantors defaulted on the notes and subse-
quently failed to cure their defaults, C.F. Trust accelerated the obliga-
tions under the notes. DEP then filed for bankruptcy protection under
Chapter 11.3 On February 1, 1996, C.F. Trust obtained two judgments
by confession on the notes in the Circuit Court of Prince William
County, Virginia against the guarantors, who were not in bankruptcy,
in the aggregate amount of $6,117,813.00.4 In an attempt to vacate the
confessed judgments, the Petersons removed them to the United
States District Court for the Eastern District of Virginia where the
actions were designated Civil Action Nos. 96-264-A and 96-265-A.
The district court denied the Petersons’ motion to vacate the
confessed judgments, and this Court affirmed. C.F. Trust, Inc. v.
Peterson, Nos. 96-1656, 96-1704, 1997 WL 393996 (4th Cir. July 15,
1997) (unpublished).
1
All references to "Peterson" after this point refer collectively to Barrie
M. Peterson in his individual capacity and as trustee of the Peterson
Trust unless otherwise indicated.
2
Nancy Peterson is married to Barrie M. Peterson but is not a party to
this appeal.
3
The Chapter 11 bankruptcy case was later converted to a Chapter 7
case.
4
Both judgments accrued interest from the date of judgment at an
annual rate of 9% "until payment." (J.A. at 182.)
C.F. TRUST, INC. v. PETERSON 5
In an effort to satisfy the judgments on the notes, C.F. Trust filed
this action, Civil Action No. 97-2003-A, in the United States District
Court for the Eastern District of Virginia on December 12, 1997,
seeking to set aside the allegedly fraudulent conveyance of Fortuna
from the Peterson Trust to James G. McClure and Barrie Peterson’s
son, Scott. After a bench trial, the district court entered judgment for
C.F. Trust, thus setting aside the conveyance. On June 11, 1999, this
action was consolidated with Civil Action Nos. 96-264-A and 96-265-
A for purposes of enforcing the judgments that C.F. Trust had
obtained in those two actions by selling the Peterson Trust’s "undi-
vided one-half tenancy-in-common interest in the Fortuna property."
(J.A. at 37.) On August 16, 1999, the district court referred the case
to a magistrate judge for preparation of a Report and Recommenda-
tion addressing "the amount of the outstanding judgment" and "the
fair market value of [the Peterson Trust’s] undivided one-half
tenancy-in-common interest in the Fortuna property." (J.A. at 39-40.)
On March 28, 2000, after allowing the parties to conduct discovery
and to submit memoranda on the issue of the amount of the outstand-
ing judgment balance, the magistrate judge issued a thorough Report
and Recommendation concluding that the outstanding judgment bal-
ance against Peterson was $4,326,590.03. In reaching this figure, the
magistrate judge rejected several arguments raised by Peterson. First,
the magistrate judge rejected Peterson’s argument that C.F. Trust
improperly deducted attorneys’ fees "from the gross amount credited
for the foreclosure sales" of Elm Farm, Pick-A-Pair, and Dominion
Professional Center.5 (J.A. at 48.) The magistrate judge found that
"the notes and deeds of trust expressly allow [C.F. Trust] to recover
attorneys’ fees incurred in conducting a foreclosure sale" and that the
amount of attorneys’ fees sought by C.F. Trust were well below the
amount that it was authorized to seek under the notes and deeds of
trust. (J.A. at 53-54.) Second, the magistrate judge rejected Peterson’s
contentions that C.F. Trust improperly deducted certain costs and
expenses of foreclosure from the gross proceeds attributable to the
foreclosure sales. The magistrate judge reached this conclusion based
5
C.F. Trust "conducted a foreclosure sale under the Elm Farm/Pick-A-
Pair deed of trust on October 23, 1997," (J.A. at 47), and a separate
"foreclosure sale under the [Dominion Professional Center] deed of trust
on May 10, 1999," (J.A. at 51).
6 C.F. TRUST, INC. v. PETERSON
upon language in the notes and deeds of trust entitling C.F. Trust to
recover all costs and expenses incurred in collecting the note and all
costs and expenses incurred in the protection or enforcement of C.F.
Trust’s rights or remedies. Third, the magistrate judge rejected Peter-
son’s claimed entitlement to a $1,113,378.76 credit based on C.F.
Trust’s voluntary reduction of its unsecured claims against the DEP
bankruptcy estate to $2 million, as evidenced by the bankruptcy
court’s Final Report Order.6 Contrary to Peterson’s arguments claim-
ing that the Final Report Order was res judicata as to the amount of
C.F. Trust’s unsecured deficiency claim, the magistrate judge found
that C.F. Trust agreed to reduce its unsecured claim against the DEP
bankruptcy estate in an effort to avoid litigation and did not agree to
reduce the amount of DEP’s underlying debt. Moreover, the magis-
trate judge found that C.F. Trust’s "reduction of its unsecured claims
against DEP’s bankruptcy estate had no effect on [Peterson’s] inde-
pendent obligation as guarantor[ ] to pay the entire debt." (J.A. at 59.)7
Peterson noted a timely objection to the magistrate judge’s Report and
6
Section 704 of the Bankruptcy Code requires the trustee to "make a
final report and file a final account of the administration of the estate
with the court and with the United States trustee." 11 U.S.C.A. § 704(9)
(West 1993). As a result, "Chapter 7 cases come to an end in a final
report indicating the distribution of proceeds from liquidated assets."
Matter of Wade, 991 F.2d 402, 407 (7th Cir. 1993). As noted above, C.F.
Trust agreed to reduce its unsecured claims against the DEP bankruptcy
estate to $2 million in an effort to avoid litigation. Therefore, C.F. Trust
did not object to the trustee’s final report. Accordingly, the bankruptcy
court entered the Final Report Order acknowledging the trustee’s final
report and awarding compensation and reimbursement for certain
expenses incurred in administering the estate.
7
As implied by the magistrate judge’s findings, neither DEP’s obliga-
tion, nor that of Peterson as guarantor, was discharged in bankruptcy. See
11 U.S.C.A. § 727(a)(1) (West 1993) (noting that only individuals may
be granted a discharge in bankruptcy); see also 11 U.S.C.A. § 524(e)
(West 1993) (stating that "discharge of a debt of the debtor does not
affect the liability of any other entity on, or property of any other entity
for, such debt"); Matter of L & S Indus., 989 F.2d 929, 934-35 (7th Cir.
1993) ("Certainly, the interests of a principal and a guarantor are not
clearly aligned: If the principal defaults, the guarantor is obliged to per-
form. It follows that a trustee, as a representative of a bankrupt principal,
would also represent interests distinct from those of the guarantor.").
C.F. TRUST, INC. v. PETERSON 7
8
Recommendation. After a de novo review of the magistrate judge’s
findings of fact and conclusions of law, the district court issued an
opinion and order on August 11, 2000, which affirmed the magistrate
judge’s Report and Recommendation in all respects. Among other
things, the district court found that the merger doctrine9 did not pre-
vent C.F. Trust from setting off its attorneys’ fees, that "no reason-
ableness determination [was] necessary because the Notes themselves
assign a reasonable [attorneys’] fee,"10 (J.A. at 118), and that the Final
Report Order setting C.F. Trust’s unsecured claims against the DEP
bankruptcy case did not affect the amount of the underlying debt or
Peterson’s liability as guarantor.
Peterson raises several arguments on appeal. First, Peterson argues
that the district court erred in failing to give res judicata effect to the
8
The magistrate judge also held that C.F. Trust correctly credited cer-
tain payments by Peterson to C.F. Trust against the outstanding judgment
on the date the checks were received rather than, as Peterson asserted, on
the date that the checks were written. Peterson does not challenge this
holding on appeal.
9
Under the merger doctrine,
[t]he courts generally hold that a single or entire cause of action
may not be divided or split so as to make it the subject of several
actions, without the express or implied consent of the person
against whom the cause of action exists. If an action is brought
for a part of a cause of action, a judgment obtained in that pro-
ceeding precludes the plaintiff from recovering a second judg-
ment for the residue of that cause of action.
Gary Steel Products Corp. v. J.F. Kitchin, 90 S.E.2d 120, 122 (Va.
1955). Here, there is no evidence that there has been a separate suit for
attorneys’ fees. Rather, C.F. Trust merely exercised its rights under the
notes and deeds of trust and deducted attorneys’ fees from the gross pro-
ceeds of the foreclosure sales before crediting the proceeds of foreclosure
to the judgment. Like the district court, we find the merger doctrine inap-
plicable on these facts.
10
The notes provided that DEP and the Petersons were liable for "at-
torneys’ fees in the amount of 25% of the amount" due under the notes
if C.F. Trust "retain[ed] or use[d] the services of an attorney in connec-
tion" with "preserving, perfecting or disposing of any of the Collateral."
(J.A. at 175, 179.)
8 C.F. TRUST, INC. v. PETERSON
bankruptcy court’s Final Report Order, which allowed C.F. Trust’s
deficiency claim at $2 million, or to the bankruptcy court’s Dismissal
Order.11 Second, Peterson argues that the district court erred in per-
mitting C.F. Trust to deduct its attorney’s fees from the gross pro-
ceeds of foreclosure before crediting the proceeds to the outstanding
balance of the judgments. Finally, Peterson contends that the district
court erred in refusing to evaluate the reasonableness of C.F. Trust’s
attorneys’ fees.
II.
Because this appeal challenges only the district court’s legal con-
clusions, our review is de novo. Williams v. Sandman, 187 F.3d 379,
381 (4th Cir. 1999). We have reviewed the record, briefs, and perti-
nent case law on this matter, and we have had the benefit of oral argu-
ment. Our careful review persuades us that the rulings of the district
court were correct. Accordingly, we affirm the judgment in favor of
C.F. Trust on the reasoning set forth in the district court’s opinion.
See C.F. Trust, Inc. v. Peterson, CA-97 2003-A, 96-264-A, and 96-
265-A (E.D. Va. filed Aug. 11, 2000; entered Aug. 15, 2000).
AFFIRMED
11
The bankruptcy court’s Dismissal Order dismissed a complaint filed
by DEP against C.F. Trust challenging the sufficiency of the Elm Farm
Property foreclosure sale. The bankruptcy court held that DEP’s com-
plaint was "barred by res judicata in light of" the Final Report Order.
(J.A. at 232.) In so holding, the bankruptcy court found that DEP’s com-
plaint attacked C.F. Trust’s deficiency claim against DEP "and that defi-
ciency claim, the amount that should be paid [from the bankruptcy
estate] to C.F. Trust as well as to the other creditors was fully and finally
resolved by the [Final Report Order], which approved the trustee’s final
report and account before distribution." (J.A. at 229.)
