Filed: Apr. 30, 2012
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-1234 JOSEPH LAROSA; DOMINICK LAROSA, Plaintiffs - Appellants, v. VIRGIL D. LAROSA; SANDRA LAROSA, Defendants – Appellees, and ANDREA PECORA, a/k/a Andrea Fucillo; JENNIFER LAROSA WARD; CHRIS WARD; CHEYENNE SALES COMPANY, INCORPORATED, Defendants, JOAN LAROSA, individually and as the Executrix of the Estate of Virgil B. LaRosa, Party-in-Interest. No. 11-1306 JOSEPH LAROSA; DOMINICK LAROSA, Plaintiffs - Appellees, v. VIRGIL D
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-1234 JOSEPH LAROSA; DOMINICK LAROSA, Plaintiffs - Appellants, v. VIRGIL D. LAROSA; SANDRA LAROSA, Defendants – Appellees, and ANDREA PECORA, a/k/a Andrea Fucillo; JENNIFER LAROSA WARD; CHRIS WARD; CHEYENNE SALES COMPANY, INCORPORATED, Defendants, JOAN LAROSA, individually and as the Executrix of the Estate of Virgil B. LaRosa, Party-in-Interest. No. 11-1306 JOSEPH LAROSA; DOMINICK LAROSA, Plaintiffs - Appellees, v. VIRGIL D...
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1234
JOSEPH LAROSA; DOMINICK LAROSA,
Plaintiffs - Appellants,
v.
VIRGIL D. LAROSA; SANDRA LAROSA,
Defendants – Appellees,
and
ANDREA PECORA, a/k/a Andrea Fucillo; JENNIFER LAROSA WARD;
CHRIS WARD; CHEYENNE SALES COMPANY, INCORPORATED,
Defendants,
JOAN LAROSA, individually and as the Executrix of the Estate
of Virgil B. LaRosa,
Party-in-Interest.
No. 11-1306
JOSEPH LAROSA; DOMINICK LAROSA,
Plaintiffs - Appellees,
v.
VIRGIL D. LAROSA; SANDRA LAROSA,
Defendants – Appellants,
and
CHEYENNE SALES COMPANY, INCORPORATED; ANDREA PECORA, a/k/a
Andrea Fucillo; JENNIFER LAROSA WARD; CHRIS WARD,
Defendants,
JOAN LAROSA, individually and as the Executrix of the Estate
of Virgil B. LaRosa,
Party-in-Interest.
Appeals from the United States District Court for the Northern
District of West Virginia, at Clarksburg. Frederick P. Stamp,
Jr., Senior District Judge. (1:07-cv-00078-FPS-JSK)
Argued: March 21, 2012 Decided: April 30, 2012
Before NIEMEYER, GREGORY, and FLOYD, Circuit Judges.
Reversed, vacated, and remanded by unpublished opinion.
Judge Gregory wrote the opinion, in which Judge Floyd joined.
Judge Niemeyer wrote a dissenting opinion.
ARGUED: David Bruce Salzman, CAMPBELL & LEVINE, LLC, Pittsburgh,
Pennsylvania, for Joseph LaRosa and Dominick LaRosa. James
Strother Crockett, Jr., SPILMAN, THOMAS & BATTLE, PLLC,
Charleston, West Virginia, for Virgil D. LaRosa and Sandra
LaRosa. ON BRIEF: Mark S. Frank, Frederick D. Rapone, Jr., Erik
Sobkiewicz, CAMPBELL & LEVINE, LLC, Pittsburgh, Pennsylvania,
for Joseph LaRosa and Dominick LaRosa. Matthew P. Heiskell,
SPILMAN, THOMAS & BATTLE, PLLC, Morgantown, West Virginia, for
Virgil D. LaRosa and Sandra LaRosa.
Unpublished opinions are not binding precedent in this circuit.
2
GREGORY, Circuit Judge:
On appeal and cross-appeal from the district court’s
judgment, we address two issues. First, whether the plaintiffs’
West Virginia Uniform Fraudulent Transfer Act (“WVUFTA”) claim
based on a corporation’s drawdown on its line of credit and
purchase of annuities was time-barred. Second, whether the
district court’s denial of the plaintiffs’ Rule 59(e) motion to
increase the damage award was an abuse of discretion. As to the
first issue, we reverse the district court’s determination that
the WVUFTA claim was not time-barred. Regarding the second
issue, we vacate the district court’s denial of the plaintiffs’
Rule 59(e) motion, and we remand this case to the district court
for further proceedings consistent with this opinion.
I.
This case has an extensive history. Because in an
unpublished opinion we write for only the parties, we set forth
the facts only as necessary to treat the issues in this appeal.
Brothers Joseph LaRosa and Dominick LaRosa (the
“Creditors”), made a loan in 1982 to their cousin Virgil B.
LaRosa and his wife Joan LaRosa (the “Debtors”) for $800,000.
Debtor Virgil B. was the sole shareholder of defendant Cheyenne
Sales Company, Incorporated (“Cheyenne”) until his death in
2006, at which time Debtor Joan LaRosa became the sole owner of
3
Cheyenne, which is not a party here. The Debtors never made a
payment on the loan, and on November 3, 1994, the Creditors
obtained a judgment against them for $2,844,612.87 plus $10,000
in attorneys’ fees.
On November 19, 2003, the Debtors filed for a Chapter
11 bankruptcy. Three reorganization plans filed by the Debtors
in their bankruptcy proceedings proposed that Cheyenne’s
operations would allow the Debtors’ estate to make payments of
$7,000 per month for 60 months to repay the Debtors’ obligation
to the Creditors. As far as this Court is aware, none of the
plans were confirmed, and the bankruptcy case was converted to a
Chapter 7 bankruptcy.
After a series of disputes about the finality of the
Creditors’ judgment against the Debtors, settled by this Court’s
per curiam opinion LaRosa v. LaRosa, 108 F. App’x 113 (4th Cir.
2004), the Creditors tried to collect on the judgment by
indexing it in counties in West Virginia where the Debtors owned
real property.
Around that time, however, the Debtors initiated a
series of transactions that fraudulently put their assets beyond
the reach of the Creditors. Debtors used Cheyenne to funnel
some of their assets toward Virgil D. LaRosa and Sandra LaRosa
(the “Transferees”). Transferee Virgil D. is the son of the
Debtors and the sole shareholder of Regal Coal Company, Inc.
4
(“Regal”), though the company is not a party to this litigation
because the claims against it have been severed due to a
bankruptcy stay.
The Creditors sued the Transferees in the Northern
District of West Virginia on June 12, 2007, to recover the
alleged fraudulently transferred assets. After extensive
discovery, a bench trial occurred in mid-2009. The parties
filed proposed findings of law and fact and written closing
arguments. At that time, the Creditors settled with the non-
party defendants, and the parties filed supplemental proposed
findings of fact and law.
On September 15, 2010, the district court issued its
memorandum opinion, finding that the Transferees engaged in a
series of intentionally fraudulent transfers designed to hinder,
delay, and defraud the Creditors’ efforts to collect on their
judgment against the Debtors -- violations of the WVUFTA. The
district court found that “Cheyenne [was] operated as a conduit
through which a portion of debtor’s wealth is passed on its way
to defendants or others.” J.A. 3669. There were three types of
transfers alleged to be violations of the WVUFTA, and the
district court found all three types were indeed violations.
The court ordered judgment against the Transferees for
$1,191,609 but attached the Transferees’ property worth
5
$6,799,161.42. The amount of the attachment was the amount owed
to the Creditors by the Debtors after including interest.
The judgment in the amount of $1,191,609 is based on
two categories of transfers. The first of these is based on a
$491,609 transfer from Virgil B. LaRosa to Cheyenne, which
eventually found its way to the Transferees. Virgil B. LaRosa’s
transfer occurred a few weeks after the Creditors began to
execute judgment against the Debtors. This transfer is not
disputed on appeal. The second transfer was Cheyenne’s purchase
of annuities, the accounts of which were used for the benefit of
Virgil D. LaRosa and Regal, using $700,000 obtained from
Cheyenne’s line of credit that encumbered Debtors’ securities.
These transfers total the judgment awarded: $1,191,609.
The district court also found that the third category
of transfers -- a series of business dealings between Cheyenne
and Regal -- likewise constituted violations of the WVUFTA. The
district court did not award an increased judgment consistent
with that finding. This failure to assign a value to the
Cheyenne-Regal transfers forms the basis of the Creditors’
appeal.
Both parties filed Rule 59(e) motions. The Creditors
requested a judgment worth $6,799,161.42, and the Transferees
requested a reduction of the attachment to the amount of the
judgment -- $1,191,609. The court agreed with the Transferees
6
and reduced the amount of the attachment accordingly. The
instant appeal and cross-appeal followed.
II.
The Transferees’ contention on cross-appeal is that
there can be no liability stemming from Cheyenne’s annuities
purchase based on Cheyenne’s $700,000 drawdown of its credit
line. They argue that because Virgil B. LaRosa’s pledge of
securities that served as guaranty of the line of credit
occurred more than four years before the Creditors filed the
instant action, the claim is time-barred by the WVUFTA. We
review de novo the construction and application of the statute
of repose. See Higgins v. E.I. DuPont de Nemours & Co., 863
F.2d 1162, 1167 (4th Cir. 1988). Because the language and
history of the statute of repose make clear that it runs from
the date of the security pledge, we reverse the district court
and hold that the Creditors’ WVUFTA claim on the line of credit
was time-barred.
On January 25, 2001, Cheyenne entered into a Loan
Agreement with Huntington National Bank (the “Bank”), that
permitted Cheyenne to borrow up to $950,000 on a line of credit.
Debtor Virgil B. LaRosa pledged a series of securities to secure
the line of credit. On June 26, 2003, Transferee Virgil D.
LaRosa drew down $700,000 under Cheyenne’s line of credit with
7
the Bank. With this money Cheyenne purchased over a million
dollars in annuities, which were owned and controlled by
Cheyenne but whose accounts were used to transfer money to
Virgil D. LaRosa and Regal. The transfers were made according
to a sham land renewal lease. The district court found the
scheme to be fraudulent under the WVUFTA and awarded the
Creditors $700,000 on this claim.
The Transferees argue that the statute of repose had
passed on this transaction. Crucial to the argument is the
interpretation of W. VA. CODE § 40-1A-6(d), which provides:
A transfer is not made until the debtor has acquired
rights in the asset transferred and an obligation is
incurred. If the obligation is oral, a transfer is
made when the obligation becomes effective. If the
obligation is evidenced by a writing, the obligation
becomes effective when the writing is delivered to or
for the benefit of the obligee.
The Transferees argue that while the drawdown occurred
in 2003, the written security agreements that established the
collateral pledge were delivered to the Bank on January 30,
2001. The WVUFTA’s statute of repose should therefore run from
the January 30, 2001 date. Because the Creditors filed their
action in 2007, the Transferees argue, the statute of repose
period had passed. See W. VA. CODE § 40-1A-9(a), (b)
(establishing a four-year statute of limitations period for
violations of W. VA. CODE §§ 40-1A-4(a)(1)-(2), 40-1A-5).
Creditors respond that the statute of repose did not begin until
8
the securities were actually encumbered by a drawdown on the
credit line, which occurred at the time of the $700,000 drawdown
in 2003.
We agree with the the Transferees. According to the
WVUFTA, the securities were encumbered at the time they were
pledged as collateral for the line of credit because the written
credit-facility agreement created a security interest held by
the Bank on the pledged securities. See W. VA. CODE § 40-1A-
6(a)(1) (defining a “transfer” as occurring for real property
“when the transfer is so far perfected that a good-faith
purchaser of the asset from the debtor against whom applicable
law permits the transfer to be perfected cannot acquire an
interest in the asset that is superior to the interest of the
transferee”); W. VA. CODE § 40-1A-6(a)(2) (defining a “transfer”
as occurring for other assets “when the transfer is so far
perfected that a creditor on a simple contract cannot acquire a
judicial lien otherwise than under this article that is superior
to the interest of the transferee”).
As the West Virginia Code states, “A transfer is not
made until the debtor has acquired rights in the asset
transferred and an obligation is incurred.” W. VA. CODE § 40-1A-
6(d). Cheyenne’s obligation is contained in the promissory
note. At the time the note was created, Cheyenne incurred the
obligation to pay back, at whatever time the Bank should demand
9
it, the full value of the Note outstanding at the time of the
demand, and in return, Cheyenne received the benefit of being
able to obtain advances on the $950,000 at will. The line of
credit extended to Cheyenne was a revolving credit line; under
the terms of the promissory note, Cheyenne could request
advances without further due diligence by the Bank. J.A. 2270
(promissory note). “If the obligation is evidenced by a
writing” -- here, the writing is the promissory note -- “the
obligation becomes effective when the writing is delivered to or
for the benefit of the obligee,” and the note was delivered in
2001. W. VA. CODE § 40-1A-6(d). No other party could “on a
simple contract . . . acquire a judicial lien . . . that is
superior to the interest of the transferee.” W. VA. CODE § 40-1A-
6(a)(2). The security interests held by the Bank were perfected
and attached at the time the credit-facility agreement was
signed because value had been given by the Bank: the Bank was
now required to make advances at the request of the Debtors on
the full $950,000 value of the note. See W. VA. CODE § 46-9-
203(a)(1) (stating that attachment of the security interest
occurs when “value has been given” by the security holder).
Furthermore, the West Virginia codification of the Uniform
Commercial Code (“WVUCC”) specifically provides that a person
gives “value” for rights when he acquires the rights “[i]n
return for a binding commitment to extend credit or for the
10
extension of immediately available credit, whether or not drawn
upon.” W. VA. CODE § 46-1-204(1). The note and security pledges
are indisputably transfers under the WVUFTA.
Because the original commitment made by the Bank to
Cheyenne contained in the promissory note constitutes the
transfer of the full value -- Cheyenne thereafter had a right
under the agreement to $950,000 -- the subsequent advances are
not transfers within the meaning of the WVUCC and the WVUFTA.
Furthermore, because “asset” does not include “[p]roperty to the
extent it is encumbered by a valid lien,” W. VA. CODE § 40-1A-
1(b)(1), the text of the WVUFTA does not support the argument
that the transfer is the movement of value from the encumbered
security to Cheyenne upon each advance. Thus, the assets were
transferred for purposes of the WVUFTA only on January 30, 2001,
the date the credit agreement was signed and the security
interests were perfected and attached; the advances themselves
did not constitute transfers under the WVUFTA. See Steven L.
Schwarcz, The Impact of Fraudulent Conveyance Law on Future
Advances Supported by Upstream Guaranties and Security
Interests, 9 CARDOZO L. REV. 729, 740 (1987) (arguing that a future
advance made pursuant to a committed loan agreement does not
constitute a transfer of value under the Uniform Fraudulent
Transfer Act, the Uniform Commercial Code, or the federal
11
bankruptcy code’s fraudulent transfer prohibition, 11 U.S.C.
§ 548).
The conclusion that the credit agreement constituted
the only transfer with respect to the credit line for WVUFTA
purposes is bolstered by the comments to the Uniform Fraudulent
Transfer Act’s (“UFTA”) 1984 amendments. Prior to 1984, the
UFTA’s predecessor statute said, “A transfer is not made until
the debtor has acquired rights in the asset transferred and an
obligation is incurred.” The statute was amended in 1984 to add
§ 6(5), which says, “If the obligation is oral, a transfer is
made when the obligation becomes effective. If the obligation
is evidenced by a writing, the obligation becomes effective when
the writing is delivered to or for the benefit of the obligee.”
Uniform Fraudulent Transfer Act § 6(5) (1985). The current West
Virginia Code includes the 1984 amendments. W. VA. CODE § 40-1A-
6(d) (2010).
Reading the comments to the UFTA, one learns that
§ 6(5) was added to “resolve the uncertainty arising from Rubin
v. Manufacturers Hanover Trust Co., 661 F.2d 979, 989-91 (2d
Cir. 1981), insofar as that case holds that an obligation of
guaranty may be deemed to be incurred when advances covered by
the guaranty are made rather than when the guaranty first became
effective between the parties.” Uniform Fraudulent Transfer Act
§ 6, cmt. 3 (1985). The amendment drafters likely considered
12
the significant costs that inure to loan creditors who, under
the Rubin model, would be responsible for doing due diligence or
seeking professional opinions every time a drawdown on a
revolving credit facility occurred, which is precisely the sort
of extra diligence that revolving facilities are meant to
bypass. The UFTA makes “the relevant time for testing the
transfer . . . the outset of the transaction when the writings
are delivered,” and thereby “assure[s] that with respect to
guarantors, a separate fraudulent conveyance analysis will not
be made each time an advance is made to the principal debtor --
which could be over a period of months or years -- but only at
the time the guaranty is signed.” 1-3 COLLIER LENDING INSTITUTIONS &
THE BANKRUPTCY CODE ¶ 3.06 (2011). See Schwarcz, supra, at 740
(noting that Rubin would essentially force banks to “obtain, as
a condition to making each future advance, the same
representations and warranties as to the subsidiary’s financial
condition . . . as was obtained at the time the loan facility
was originally extended. . . . A lender could gain additional
comfort by performing the same level of due diligence regarding
these financial tests as was made originally”). 1 These opinions
1
There is a strong argument that Rubin itself does not
stand for the principle that drawdowns on credit facilities
always create new obligations. The credit facility in Rubin did
not allow for advances at the sole insistence of the borrower;
the creditor decided each time an advance was requested whether
(Continued)
13
and investigations cost lenders money and therefore increase the
cost of credit by an amount incommensurate with the benefit of
protecting potential defrauded plaintiffs -- that was the
judgment of the drafters of the UFTA amendment. The four-year
repose period is best understood as balancing the potential
injuries to banks and defrauded creditors. Within four years of
the establishment of the credit line, banks bear the burden of
fraudulent conveyance; the guaranty to the bank could be set
aside if made with fraudulent intent or for less than equivalent
value. Afterwards, plaintiffs bear the risk. Of course, even
in the latter case, there is no windfall for the debtor because
the bank still has its security interest in the debtor’s
property. 2
We reverse the judgment of the district court on this
issue and hold that because the Creditors did not file their
claim within four years of the establishment of the line of
to extend the advance, and therefore the creditor had the
ability to analyze the risk that the borrower was skirting legal
obligations to pay. See Schwarcz, supra, at 733-36.
2
This admittedly becomes more complicated in the case of
preferential payment of creditors’ claims in which the debtor
receives an indirect benefit when some claims are paid before
others.
14
credit, their claim was barred by the WVUFTA’s statute of
repose. 3
III.
The Creditors argued below that the Debtors and
Transferees instituted a scheme that channeled assets from
Cheyenne to Regal through a series of transfers for which
Cheyenne received little value from Regal in exchange for assets
of significant value. The district court found that the
transfers violated the WVUFTA but did not assign a value to the
transfers fraudulently made and did not award the Creditors a
remedy on this issue. The parties filed cross Rule 59(e)
motions, and the court granted the Transferees’ motion to lower
3
Although not raised by the parties, we decline to affirm
on the alternative grounds -- that the transfer occurred when
Cheyenne purchased the annuities -- because to do so would
violate the purpose of statutes of repose: to provide a strict
maximum time limit for causes of action. Certainly, we may
collapse “a series of transactions and treat[] them as a single
integrated transaction.” In re Sunbeam Corp., 284 B.R. 355, 370
(Bankr. S.D.N.Y. 2002). But we do not think it appropriate in
this case to use the collapse doctrine to count the dates of the
withdrawals from the annuity accounts, or some other Cheyenne-
Transferee transfer date, as the start of the statute of repose
for the challenged series of transactions. See Mills v. Everest
Reinsurance Co.,
410 F. Supp. 2d 243, 255 (S.D.N.Y. 2006)
(rejecting the use of the collapse doctrine for statute of
limitations purposes in the fraudulent conveyance context).
Quite simply, Cheyenne is not a debtor to the Creditors; even a
fraudulent transfer by Cheyenne to another party would not start
the clock under the WVUFTA. The clock must start with a
transfer from the covered parties, the Debtors.
15
the amount of the attachment and denied the Creditors’ motion to
increase the amount of the judgment. The Creditors appeal the
denial of the Rule 59(e) motion. We review for abuse of
discretion. Collison v. International Chem. Workers Union, 34
F.3d 233, 236 (4th Cir. 1994).
We vacate and remand the district court’s denial of
the Rule 59(e) motion for two reasons. First, we hold that it
was an abuse of discretion for the district court to find the
transfers violated the WVUFTA but refuse to assign an award to
the Creditors in the amount fraudulently transferred. We remand
so that the district court may engage in further fact-finding to
determine the amount of the award owed to the Creditors.
Second, assuming the district court maintains its finding that
the Cheyenne-Regal transfers violated the WVUFTA, we remand in
order for the district court to make specific findings as to
which property of the Debtors was transferred that brought the
Cheyenne–Regal transactions within the reach of the WVUFTA.
Rule 59(e) is used, as relevant here, to correct a
clear error of law or prevent manifest injustice. Pacific Ins.
Co. v. Am. Nat’l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir.
1998). The judgment awarded by the court totaled $1,191,609,
“which is based upon the aggregate value of the cash infusion of
$461,609.00 and the draw down of $700,000.00.” J.A. 3681. The
court did not include a figure for the Cheyenne–Regal transfers
16
despite having found that the transfers violated the WVUFTA.
This discrepancy was raised by the Creditors in their Rule 59(e)
motion, but the court did not give a clear statement as to why
it did not award damages for this claim. The court apparently
was under the impression that it did not need to resolve the
dispute between the parties’ experts as to the value of
fraudulently transferred assets between Cheyenne and Regal. 4 See
J.A. 3649 (“For the purposes of a complete ruling in this civil
action, this Court does not believe that it is necessary to
resolve this disputed testimony.”).
We agree with the Creditors. Given that the district
court found a violation of the WVUFTA, that the amount of the
outstanding judgment against the Debtors is greater than the
amount awarded to the Creditors in the decision below, and that
the Creditors asked for damages against the Transferees in the
amount of the judgment against the Debtors, the district court
needed to resolve the factual discrepancy as to the value of the
4
It is possible that the district court believed that it
need not reach the issue because it thought it gave the
Creditors everything that they had asked for when it awarded a
judgment of $1,191,609.00. Although the Creditors admittedly
omitted the larger amount in its supplemental findings of fact
and law, they sought the larger amount in their initial findings
of fact and law. It is clear that they recognized that the
district court could rule against them on some of the issues and
award a lesser amount, so they asked for alternative judgments.
The Creditors’ poor draftsmanship should not prevent the factual
resolution needed to determine the amount of the award to which
they are entitled in accordance with the law.
17
fraudulently transferred assets between Cheyenne and Regal. It
was an abuse of discretion for the district court to not give a
reason why it chose one damages award over another. To simply
state that the Creditors asked for this award does not suffice
given that the Creditors also requested a larger amount in their
proposed findings. It would be a “manifest injustice” to allow
the ruling to stand given the district court’s findings that the
Cheyenne-Regal transactions violated the WVUFTA and the lack of
a corresponding remedy.
We also remand so that the district court can make
specific findings as to what asset of the Debtors was
transferred in conjunction with the Cheyenne–Regal transfers.
The district court said that it “has examined the transactions
between Cheyenne and Regal and regards these transactions as a
transfer of assets away from the debtors. Cheyenne was operated
to avoid the accrual or distributions of substantial profits and
other entitlements which could have been made available to [the
Debtors].” The court went on to say
The transactions between Cheyenne and Regal, whether
or not ‘collapsed,’ must be viewed as a transfer of
wealth away from the debtors because Cheyenne was
operated so as to avoid the accrual or distributions
of substantial profits and other opportunities or
entitlements to [the Debtors]. Debtors either
directed or permitted their son, Virgil D. LaRosa, to
operate their business and that of Regal, their son’s
corporation, as essentially a single business
enterprise to transfer business opportunities and
profits from Cheyenne to Regal in such a way as to
18
hinder, delay and defraud the [judgment-creditors].
. . . Debtors did not receive reasonable equivalent
value in exchange for these profits and business
opportunities from Cheyenne through Regal to Virgil
David LaRosa and Sandra LaRosa.
J.A. 3678-69.
While the court certainly made findings with respect
to the treatment of Cheyenne and Regal as a single entity, the
court did not make a factual finding as to what was transferred
away from the Debtors -- a necessary precondition of the WVUFTA.
In other words, the WVUFTA does not prohibit the fraudulent
transfer of assets from Cheyenne to Regal; it prohibits
fraudulent transfers from the Debtors to others. See W. VA. CODE
§ 40-1A-1(b) (“‘Asset’ means property of a debtor.”); W. VA. CODE
§ 40-1A-1(b) (“‘Transfer’ means every mode, direct or indirect,
absolute or conditional, voluntary or involuntary, of disposing
of or parting with an asset or an interest in an asset, and
includes payment of money, release, lease and creation of a lien
or other encumbrance.”). And while the collapse doctrine can be
used to show that seemingly innocuous transfers from a sole
shareholder to his corporation were in fact part of a nefarious
scheme that defrauded the shareholder’s creditors, there must
nevertheless be a transfer from the shareholder to the
corporation of some asset.
The district court said that the Debtors “either
directed or permitted their son, Virgil D. LaRosa, to operate
19
their business and that of Regal, their son’s corporation, as
essentially a single business enterprise to transfer business
opportunities and profits from Cheyenne to Regal in such a way
as to hinder, delay, and defraud the debtors’ creditors.” J.A.
3678-79. So far the district court has not specified what asset
of the Debtors was transferred that would enable the instant
Creditors to have a cause of action under West Virginia law. In
order to perform our function as an appellate court, we need to
know what we are reviewing. On remand, the district court
should make explicit what were the specific assets transferred
away from the Debtors in violation of the WVUFTA.
We vacate and remand the district court’s denial of
the Creditors’ Rule 59(e) motion for reconsideration of the
motion consistent with this opinion. Assuming that the district
court maintains its view that the Cheyenne–Regal transactions
violated the WVUFTA, the court will have to resolve the
significant factual dispute surrounding the amount fraudulently
transferred through these transactions and specificy what asset
of the Debtors was transferred in connection with the Cheyenne-
Regal transactions that brought them within the purview of the
WVUFTA. If the district court alters its judgment, it will
likely, of course, need to alter the amount of the attachment.
IV.
20
We reverse the district court on the statute of repose
issue, vacate the court’s denial of the Creditors’ Rule 59(e)
motion, and remand this case to the district court for further
proceedings consistent with this opinion.
REVERSED, VACATED, AND REMANDED
21
NIEMEYER, Circuit Judge, dissenting:
I
In addressing West Virginia’s statute of repose, W.V.
Code § 40-1A-9, the majority has, I respectfully suggest,
focused on the wrong transaction and thus has applied the
statute of repose in a manner that could bar causes of action
for fraudulent transfers under West Virginia’s Uniform
Fraudulent Transfers Act even before the fraudulent transfers
had been made.
While it is true that Virgil B. LaRosa created a line
of credit for Cheyenne Sales Company with its bank in 2001,
pledging his stock to secure the line, the line of credit was
like a bank account on which Cheyenne could in the future draw
as needed. There is no suggestion in the record, or by counsel,
that in creating this line of credit, LaRosa acted with any
fraudulent intent or purpose. The line of credit was simply a
standing source of funds on which Cheyenne could thereafter draw
for any purpose, legitimate or illegitimate.
The fraudulent transfer at issue in this case took
place in 2003 when LaRosa ordered the bank to pay Cheyenne
$700,000 from its line of credit for the purpose of avoiding
creditors’ efforts to seize his pledged stock. The effect of
this payment to Cheyenne was a sale of the stock for $700,000 to
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place it beyond the reach of creditors. And it was this 2003
transaction that the district court found was fraudulent, in
violation of West Virginia’s Uniform Fraudulent Transfers Act,
W. Va. Code § 40-1A-4(a), not the 2001 transaction that created
the line of credit.
To find now that the limitations period for bringing a
suit on the 2003 fraudulent transfer began before the cause of
action accrued results in an absurdity, which we should not
impute to the West Virginia legislature. More importantly, the
language of the limitation provision does not support this
construction. The statute provides in relevant part:
A cause of action with respect to a fraudulent
transfer . . . under this article is extinguished
unless action is brought . . . [u]nder [§ 40-1A-4(a)]
. . . within four years after the transfer was made.
W.V. Code § 40-1A-9(b) (emphasis added). By employing the
definite article, the last clause, “within four years after the
transfer was made,” refers back to the opening clause -- “[a]
cause of action with respect to a fraudulent transfer.” West
Virginia’s statute, therefore, does not extinguish fraudulent
transfer suits by reference to related, but nonfraudulent,
transfers. Instead, like any sensible statute of repose, the
provision only bars causes of action for fraudulent transfers
that have accrued. Because the fraudulent transfer in this case
took place in 2003, as the district court found, the subsequent
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suit, filed within four years of that transfer to obtain relief
from it, was therefore timely filed.
I respectfully conclude that the district court
analyzed the statute of repose correctly and would therefore
affirm its ruling on this issue.
II
In calculating the amount of relief, the majority has
again focused, I respectfully submit, on the wrong transactions
-- those between Cheyenne and a related corporation, Regal Coal
Company, and between Regal and its principals. In doing so, the
majority has lost sight of the fact that the only transactions
that could be addressed for purposes of relief are those by
which assets were transferred from Virgil B. LaRosa to others.
See W.V. Code § 40-1A-1(b) (limiting the definition of
“[a]sset[s]” covered by the statute to “property of a debtor”)
(emphasis added). LaRosa was the judgment debtor (along with
his wife, Joan), and only transfers from him could be considered
fraudulent with respect to the judgment creditors.
To be sure, the subsequent transfers from Cheyenne to
Regal and from Regal to its principals are necessary links in
the story, connecting the judgment debtor’s initial transfer to
Cheyenne with the eventual receipt of assets by Regal’s
principals. But no evaluation of those transactions would be
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relevant to the amount of relief that could be granted, as the
amount of relief would be limited by the amount of the transfers
from LaRosa as the judgment debtor to others, which, as the
district court found, was $1,191,609. Accordingly, I also
conclude that the district court analyzed this issue correctly
and therefore would affirm its judgment.
In short, I would affirm entirely the judgment of the
district court.
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