Filed: Jun. 11, 2014
Latest Update: Mar. 02, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 13-1459 JOSEPH LAROSA; DOMINICK LAROSA, Plaintiffs - Appellants, v. VIRGIL D. LAROSA; SANDRA LAROSA,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. Appeal from the United States District Court for the Northern District of West
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 13-1459 JOSEPH LAROSA; DOMINICK LAROSA, Plaintiffs - Appellants, v. VIRGIL D. LAROSA; SANDRA LAROSA,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. Appeal from the United States District Court for the Northern District of West V..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1459
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.
Appeal 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: May 13, 2014 Decided: June 11, 2014
Before NIEMEYER, GREGORY, and FLOYD, Circuit Judges.
Affirmed by unpublished opinion. Judge Gregory wrote the
opinion, in which Judge Niemeyer and Judge Floyd joined.
ARGUED: Paul A. Prados, DAY & JOHNS, PLLC, Fairfax, Virginia,
for Appellants. Matthew Pearsall Heiskell, SPILMAN THOMAS &
BATTLE, PLLC, Morgantown, West Virginia, for Appellees. ON
BRIEF: James Strother Crockett, Jr., SPILMAN THOMAS & BATTLE,
PLLC, Charleston, West Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
GREGORY, Circuit Judge:
Before us is the latest in a series of appeals concerning
an intrafamilial dispute stemming from an unpaid debt incurred
more than thirty years ago. In this appeal, we consider whether
transfers between corporations violate the West Virginia Uniform
Fraudulent Transfer Act where the transferor corporation is
owned entirely by the debtor. Finding that the transfers do not
originate from and involve assets of the debtor, we affirm.
I.
In 1982, Joseph and Dominick LaRosa (“Creditors”) loaned
$800,000 to their cousin Virgil B. LaRosa and his wife Joan
(“Debtors”). Virgil B. LaRosa was the sole shareholder of
Cheyenne Sales Company, Incorporated (“Cheyenne”) until his
death in 2006, at which time Joan LaRosa became the sole owner
of Cheyenne. In 2004, this Court settled, by unpublished
opinion, disputes concerning a 1994 judgment against the
Debtors. LaRosa v. LaRosa, 108 F. App’x 113 (4th Cir. 2004).
Subsequently, the Creditors attempted to collect on the debt in
West Virginia, where the Debtors owned real property. The
Debtors then initiated a series of transactions using Cheyenne
to funnel some of their assets toward Virgil D. LaRosa, the
Debtors’ son, and his wife Sandra (“Transferees”). These
transactions included a transfer of Virgil B. LaRosa’s personal
3
funds to Cheyenne and ultimately placed the Debtors’ assets
beyond the Creditors’ reach.
Cheyenne also entered into a series of transactions with
Regal Coal Company, Incorporated (“Regal”), which was owned
entirely by Virgil D. LaRosa. From the 1980s until 2009, when
it ceased operations, Cheyenne maintained a business
relationship with Regal. Cheyenne’s business involved, among
other things, buying raw coal and processing it for sale.
Processing involved some amount of preparation that may have
required cleaning or washing the coal. Cheyenne occasionally
charged a separate fee for washing, although it only did so for
a relatively small proportion of all the coal it processed
during its existence. Regal purchased coal from Cheyenne and
would sell the coal to other customers. After Virgil B.
LaRosa’s death, these sales were largely a product of Virgil D.
LaRosa’s work as an employee for both corporations. 1 Rather than
conducting sales transactions directly with the end users of the
1
Although Joan LaRosa assumed presidency of Cheyenne after
Virgil B. LaRosa’s death, she deferred to Virgil D., who was
Cheyenne’s general manager, regarding Cheyenne’s financial
decisions. As general manager of Cheyenne, Virgil D. sold coal
on Cheyenne’s behalf and, as president of Regal, purchased coal
for Regal. Virgil D. assessed coal quality and the prices
Cheyenne paid for coal. Virgil D. would negotiate sales prices
with his father, then with Joan after his father’s death.
Virgil D. “was probably doing the negotiating on behalf of both
Regal and Cheyenne” for certain types of coal, and Joan never
rejected his proposals. J.A. 2384-85.
4
coal, “Cheyenne allowed Regal to make sales to the ultimate
customer rather than compete for that business because Virgil D.
LaRosa, as he testified, was carrying out the wishes of Virgil
B. LaRosa.” J.A. 2380-84. According to Virgil D. LaRosa,
Cheyenne’s reputation was so poor that it could not enter into
contracts with end users of the coal.
In 2007, Creditors filed suit alleging violations of the
West Virginia Uniform Fraudulent Transfer Act (“WVUFTA”). The
suit named Transferees as defendants, along with Cheyenne and
other individuals not party to this appeal. After a bench
trial, the district court found in Creditors’ favor. The
district court explained that “Cheyenne [was] operated as a
conduit through which a portion of the debtor’s wealth [was]
passed on its way to defendants or others.” The court separated
the alleged transactions into three categories and found that
all three categories involved intentionally fraudulent transfers
designed to hinder, delay, and defraud the Creditors’ efforts to
collect on their judgment against the Debtors. The third
category of transfers, the only one relevant to this appeal,
implicated the business dealings between Cheyenne and Regal
referenced above. 2 The district court assigned monetary values
2
The first two categories were (1) a transfer from Virgil
B. LaRosa to Cheyenne within weeks of the Creditors executing
the judgment against the Debtors, and (2) Cheyenne’s purchase of
(Continued)
5
to the first two categories but not the third, and, as a result,
awarded judgment only in the amount of the first two series of
transactions.
On appeal, this Court remanded with respect to the
Cheyenne-Regal transactions. LaRosa v. LaRosa, 482 F. App’x 750
(4th Cir. 2012). We held that the district court abused its
discretion in finding a WVUFTA violation but failing to assign
an award for the amount fraudulently transferred. Id. at 757.
While there were findings demonstrating that Cheyenne and Regal
operated as a single entity, we emphasized the district court’s
failure to “make a factual finding as to what was transferred
away from the Debtors--a necessary precondition of the WVUFTA.”
Id. In remanding for further factfinding, we explained that
[a]ssuming 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 specify
what asset of the Debtors was transferred in
connection with the Cheyenne–Regal transactions that
brought them within the purview of the WVUFTA.
Id. at 758 (emphasis added).
On remand, the district court modified its earlier findings
and held that the Cheyenne-Regal transactions did not involve a
annuities, the accounts of which benefited Virgil D. LaRosa and
Regal, using funds from Cheyenne’s line of credit that
encumbered Debtors’ securities.
6
transfer of Virgil B. LaRosa’s property. Creditors timely
appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291.
II.
After a bench trial, we review findings of fact for clear
error and conclusions of law de novo. 3 See, e.g., Helton v. AT&T
Inc., 709 F.3d 343, 350 (4th Cir. 2013).
Under the WVUFTA, a transfer is fraudulent if a debtor
transfers property “without receiving a reasonably equivalent
value in exchange.” W. Va. Code. Ann. § 40-1A-5(a). A transfer
is “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.”
Id. § 40-1A-1(l). An asset is the property of a debtor, except,
inter alia, property encumbered by a valid lien.
Id. §§ 40-1A-
1(b). A transfer can only occur after the debtor acquires
rights in the asset transferred.
Id. § 40-1A-6(d).
3
Creditors contend that de novo review applies because
whether an item is an asset within the WVUFTA is a legal
conclusion. Debtors argue for clear error review because the
existence of a transfer is a factual question and the district
court’s latest opinion indicated that it was modifying its prior
findings. Resolution of this dispute is unnecessary, as the
result is the same under either standard.
7
The issue before us turns on the following questions: (1)
whether the transactions involved assets of Virgil B. LaRosa,
the debtor, and (2) whether those assets were transferred as
defined by statute, i.e., from Virgil B. LaRosa. The Creditors’
stake their position on the notion that Cheyenne’s profits and
business opportunities are assets subject to the WVUFTA because
they constitute the value of Cheyenne’s stock, and Virgil B.
LaRosa, having owned the entirety of Cheyenne stock, owned the
right to receive Cheyenne’s profits. Creditors further maintain
that diversion of profits and opportunities, through managerial
decisions that avoided potential increases in profits, amounted
to Virgil B. LaRosa effectively transferring his property.
We find that the transfers neither involved the Debtors’
assets nor originated from the Debtors. As we previously noted,
“the WVUFTA does not prohibit the fraudulent transfer of assets
from Cheyenne to Regal; it prohibits fraudulent transfers from
the Debtors to others. . . . [T]here must nevertheless be a
transfer from the shareholder to the corporation of some asset.”
LaRosa, 482 F. App’x at 757. The transfers now before us were
not from shareholder to corporation; they originated from
Cheyenne. To the extent those transfers involved property
belonging to any entity, such property belonged to Cheyenne, not
the Debtors. Corporations, not stockholders, hold legal title
to corporate property. See City of Huntington v. Public Serv.
8
Comm’n, 110 S.E. 192, 198 (W. Va. 1921). Creditors contend that
the assets were opportunities for profit that Cheyenne would
have realized had it either sold coal directly to customers or
charged Regal for certain processing tasks. Any opportunities
for profit, which are arguably too speculative to constitute
property, belonged to Cheyenne. Virgil B. LaRosa could not have
personally acquired rights to those unrealized corporate
opportunities. Any transfer of such assets were not his own and
could not, under the WVUFTA, originate from him, even assuming
he might benefit from an increase in Cheyenne’s revenue. 4 Not
having originated from a debtor and not having involved debtor
assets, the Cheyenne-Regal transfers do not violate the WVUFTA.
III.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
4
Virgil B. LaRosa pledged certain Cheyenne assets,
including its accounts receivable, as collateral for a series of
loans. Thus, it is uncertain to what extent he would have
benefited from any increased profits. Perhaps more importantly,
the collateralization of these loans would implicate the
encumbrance exception and thereby prevent Cheyenne’s accounts
receivable from being assets under the WVUFTA.
9
