Filed: May 24, 2016
Latest Update: Mar. 02, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1338 MARTIN P. SHEEHAN, Trustee of the Bankruptcy Estate of AGS, Inc., Plaintiff - Appellant, v. ALLEN G. SAOUD, Defendant - Appellee, and GEORGIA D. DANIEL; FRED D. SCOTT; WEST VIRGINIA DERMATOLOGY ASSOCIATES, INC.; ROBERT R. FRASER; CENTRAL WEST VIRGINIA DERMATOLOGY ASSOCIATES, INC., Defendants, UNITED STATES OF AMERICA, Intervenor/Defendant. Appeal from the United States District Court for the Northern District of West V
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1338 MARTIN P. SHEEHAN, Trustee of the Bankruptcy Estate of AGS, Inc., Plaintiff - Appellant, v. ALLEN G. SAOUD, Defendant - Appellee, and GEORGIA D. DANIEL; FRED D. SCOTT; WEST VIRGINIA DERMATOLOGY ASSOCIATES, INC.; ROBERT R. FRASER; CENTRAL WEST VIRGINIA DERMATOLOGY ASSOCIATES, INC., Defendants, UNITED STATES OF AMERICA, Intervenor/Defendant. Appeal from the United States District Court for the Northern District of West Vi..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1338
MARTIN P. SHEEHAN, Trustee of the Bankruptcy Estate of AGS,
Inc.,
Plaintiff - Appellant,
v.
ALLEN G. SAOUD,
Defendant - Appellee,
and
GEORGIA D. DANIEL; FRED D. SCOTT; WEST VIRGINIA DERMATOLOGY
ASSOCIATES, INC.; ROBERT R. FRASER; CENTRAL WEST VIRGINIA
DERMATOLOGY ASSOCIATES, INC.,
Defendants,
UNITED STATES OF AMERICA,
Intervenor/Defendant.
Appeal from the United States District Court for the Northern
District of West Virginia, at Clarksburg. Irene M. Keeley,
District Judge. (1:11-cv-00163-IMK-JSK)
Argued: March 24, 2016 Decided: May 24, 2016
Before WILKINSON and NIEMEYER, Circuit Judges, and David C.
NORTON, United States District Judge for the District of South
Carolina, sitting by designation.
Affirmed by unpublished opinion. Judge Norton wrote the
opinion, in which Judge Wilkinson and Judge Niemeyer joined.
ARGUED: Martin Patrick Sheehan, SHEEHAN & NUGENT, P.L.L.C.,
Wheeling, West Virginia, for Appellant. Paul J. Harris, HARRIS
LAW OFFICES, Wheeling, West Virginia, for Appellee. ON BRIEF:
Patrick S. Cassidy, CASSIDY, COGAN, SHAPELL & VOEGELIN, L.C.,
Wheeling, West Virginia, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
NORTON, District Judge:
This case is on appeal from a post-trial judgment awarded
by the Honorable Irene M. Keeley, United States District Judge
for the Northern District of West Virginia. For the reasons set
forth below, we affirm the district court’s ruling.
I.
Appellant Martin P. Sheehan (“Sheehan”) is the trustee of
the bankruptcy estate of AGS, Inc. (“AGS”). Appellee Allen G.
Saoud (“Saoud”) was a licensed doctor of Osteopathic Medicine,
specializing in dermatology, who owned and operated AGS as a
medical corporation in West Virginia. On January 25, 2005, the
United States filed charges against Saoud, alleging that between
May 1998 and June 2004, Saoud submitted unsupported medical
billing claims to Medicare and Medicaid. Saoud entered into a
settlement agreement with the United States under which he was
required to pay $310,800.58 in penalties, but he was not
required to admit liability. The settlement agreement also
excluded Saoud from participating in Medicare, Medicaid, and all
other federal health programs, for ten years. Thereafter, on
March 31, 2006, Saoud sold AGS to Georgia G. Daniel (“Daniel”),
a nurse practitioner who previously worked in Saoud’s
dermatology practice, for $1,000,000.00. Under the terms of the
contract between Daniel and Saoud, Daniel would not be
3
personally liable for AGS’s liabilities. Daniel also would not
be personally liable to Saoud for the purchase price.
After Saoud sold AGS to Daniel, various transfers were made
from AGS to Saoud and Daniel. Relevant to this appeal, AGS paid
Saoud $50,000.00 in 2008. 1 Additionally, a certified copy of a
deed recorded in Harrison County, West Virginia shows that real
estate titled to AGS was sold to MedStar Real Estate Development
on March 23, 2005 for $460,000.00. The proceeds of the sale
were not paid to AGS but rather to AGS Development Company,
another entity controlled by Saoud. Further, Daniel received a
combined $418,675.00 from AGS in 2006, 2007, and 2008.
On May 9, 2009, AGS filed for Chapter 7 bankruptcy relief.
The Bankruptcy Court appointed Sheehan to serve as Trustee.
Saoud signed the original petition for bankruptcy relief, in
which he identified himself as the President and Owner of AGS.
However, during a meeting of creditors held on June 18, 2009,
Saoud subsequently indicated that he had sold his stock in AGS
to Daniel. Saoud confirmed that he was not an owner or officer
of AGS during a continued meeting of creditors held on August
18, 2009. On May 12, 2010, Saoud claimed that Daniel signed a
1 In the underlying action, Sheehan originally sought
$250,000.00 from Saoud, representative of the total value of all
transfers AGS made to Saoud after the sale to Danial. See J.A.
54–55. However, the only transfer subject to this appeal is the
2008 transfer of $50,000.00 from AGS to Saoud.
4
corporate resolution authorizing Saoud to file a bankruptcy
petition on behalf of AGS. On August 23, 2010, Daniel testified
that she did not authorize Saoud to seek bankruptcy relief on
behalf of AGS and denied that the signature on the corporate
resolution was in fact hers. Saoud filed a motion to dismiss
the bankruptcy petition, and Sheehan opposed the motion. On
November 11, 2010, the Bankruptcy Court for the Northern
District of West Virginia denied the motion to dismiss.
In December 2012, a federal grand jury returned a twenty-
three count indictment charging Saoud with health care fraud,
concealing a material fact in a health care matter, corruptly
endeavoring to obstruct and impede the due administration of the
internal revenue laws, making a false oath or account in
relation to a bankruptcy case, and making a false statement to a
federal agent. In May 2013, the grand jury returned a
superseding indictment containing no additional charges.
Subsequently, on June 4, 2013, the grand jury returned a third
superseding indictment, which added new charges of health care
fraud and aggravated identity theft. On June 25, 2013, Saoud
was convicted after a jury trial of thirteen counts of health
care fraud, one count of aggravated identity theft, one count of
concealing a material fact in a health care matter, one count of
corruptly endeavoring to obstruct and impede the due
5
administration of the internal revenue laws, five counts of
making a false oath or account in relation to a bankruptcy case,
and one count of making a false statement to a federal agent.
Saoud was sentenced to ninety-nine months’ imprisonment on March
25, 2014, and received a fine of $2,630,000.00. The Fourth
Circuit affirmed his convictions and sentence in December 2014.
United States v. Saoud, No. 14-4288, 2014 WL 7210734, at *1 (4th
Cir. Dec. 19, 2014).
Sheehan, in his capacity as trustee of AGS, filed a
complaint on October 13, 2011, in the United States District
Court for the Northern District of West Virginia. Sheehan
subsequently filed an amended complaint on October 6, 2014,
against Appellee Saoud, Daniel, Fred D. Scott (“Scott”), 2 Robert
R. Fraser (“Fraser”), 3 and Central West Virginia Dermatology
Associates, Inc. (“CWVDA”), asserting the following six causes
of action: Count I alleged that CWVDA failed to complete
payments to AGS and remains indebted to AGS for $634,159.00;
Count II alleged that the agreements between Saoud, Daniel, and
Scott were voidable as fraudulent transfers pursuant to 11
U.S.C. § 547, because the agreements constituted a scheme to
2
Scott practiced dermatology with Saoud at AGS, served as
director of CWVDA, and was involved in some of the transactions
at issue.
3 Fraser is an accountant who prepared tax returns for
Daniel and CWVDA.
6
defraud AGS’s creditors by transferring AGS’s assets for less
than reasonably equivalent value, causing AGS to become
insolvent; Count III alleged that the transfers were voidable by
a trustee in bankruptcy pursuant to the powers established under
11 U.S.C. § 544 and under the West Virginia Uniform Fraudulent
Transfer Act (“WVUFTA”), W. Va. Code §§ 41-1A-1 et seq.; Count
IV alleged that the actions outlined above constitute a civil
conspiracy to violate the WVUFTA and are actionable as a civil
conspiracy; Count V alleged that Fraser aided and abetted the
scheme to defraud AGS’s creditors under the WVUFTA; and Count VI
alleged that Saoud committed bankruptcy fraud and used the
United States mails to effectuate his scheme to defraud.
Sheehan sought to recoup the $50,000.00 that AGS paid to Saoud
in 2008, the $418,000.00 paid to Daniel after the sale, and the
$460,000.00 from the sale of certain real estate AGS owned.
Daniel and Fraser settled with Sheehan and were dismissed
as defendants on May 15, 2012. The district court therefore
dismissed Count V, against Fraser only, as moot. On October 20,
2014, Sheehan filed a motion for summary judgment against Saoud,
and Scott filed a motion for summary judgment against Sheehan’s
claims and Saoud’s cross claims. On January 28, 2015, the court
granted in part and denied in part Scott’s motion for summary
judgment and denied Sheehan’s motion for summary judgment. J.A.
7
111–161. The court granted Scott’s motion for summary judgment
as to Count IV, holding that a claim under the WVUFTA was based
in contract and not tort and therefore could not support a civil
conspiracy action. J.A. 133, 158–59. The court further found
that even if Sheehan had pleaded a tort, the factual allegations
contained in his amended complaint were “wholly inadequate” to
support a civil conspiracy claim. J.A. 133–34. Sheehan
thereafter abandoned Counts I, II, and VI and pursued only
Counts III and IV. J.A. 160, 187. Sheehan sought to recoup
the $50,000.00 that AGS paid to Saoud in 2008 and the
$460,000.00 from the sale of certain real estate AGS owned.
J.A. 314–315. However, in light of the court’s ruling on the
statute of limitations issues relating to the money transfers,
as fully set forth below, the only question submitted to the
jury involved the real estate transfer. J.A. 340.
A jury trial was held on March 2–3, 2015. The jury
returned a verdict on March 3, 2015. The jury found that
Sheehan did not “file suit within one year after he knew, or
reasonably could have discovered, the real estate transfer from
AGS to MedStar Real Estate and Development, LLC, for
$460,000.00 . . . .” J.A. 230. The jury unanimously found in
favor of Saoud. The district court affirmed the verdict, J.A.
8
233, and Sheehan filed a notice of appeal on April 1, 2015.
J.A. 236.
II.
We review the denial of summary judgment de novo, applying
the same standards as the district court. See Henson v. Liggett
Group, Inc., 61 F.3d 270, 274 (4th Cir.1995). In reviewing a
denial of summary judgment, we view all facts and reasonable
inferences drawn therefrom in the light most favorable to the
nonmoving party. PBM Prods., LLC v. Mead Johnson & Co.,
639
F.3d 111, 119–20 (4th Cir. 2011). Summary judgment is
appropriate if there is no genuine issue of material fact and
the movant is entitled to judgment as matter of law. Fed. R.
Civ. P. 56(a); Glynn v. EDO Corp.,
710 F.3d 209, 213 (4th Cir.
2013).
We review the denial of a motion for judgment as a matter
of law de novo, viewing the evidence in the light most favorable
to the nonmovant, and “draw[ing] all reasonable inferences in
her favor without weighing the evidence or assessing the
witnesses’ credibility.” Ocheltree v. Scollon Prod., Inc., 335
F.3d 325, 331 (4th Cir. 2003) (quoting Anderson v. G.D.C., Inc.,
281 F.3d 452, 457 (4th Cir. 2002)). Judgment as a matter of law
is proper only if “there can be but one reasonable conclusion as
9
to the verdict.” Id. (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 250 (1986)).
III.
Sheehan raises the following issues on appeal: “(1)
whether the district court erred when it concluded that the
doctrine of adverse domination did not toll the statute of
limitations/repose under the West Virginia Uniform Fraudulent
Transfer Act; (2) whether the district court erred in applying
the statute of limitations/repose to find that evidence of a
transfer in 2008 was outside the statute of limitations/repose
because it was a payment due under what purported to be a
contract signed in 2005; (3) whether the district court erred in
concluding that a cause of action for civil conspiracy under
West Virginia law could not be based on a violation of the West
Virginia Uniform Fraudulent Transfer Act even where plaintiff
attempted to prove a subjective violation of the statute with
‘actual intent to hinder, delay, or defraud.’” Appellant’s Br.
1.
A.
We turn first to Sheehan’s contention that the district
court erred when it concluded that the doctrine of adverse
domination did not toll the statute of limitations or repose
under the WVUFTA.
10
As a threshold matter, Sheehan failed to properly preserve
this issue for appeal. During the Rule 50 hearing on March 2,
2015, Sheehan’s attorney had the following exchange with Judge
Keeley:
Court: [M]y finding is that that is the transfer or
that is the obligation and that those later payments
are not the transfer and it certainly was, not only
could, but was reasonably discovered by the Trustee,
as pled in paragraph 18 of document 51 of the
bankruptcy proceedings on 9/9/10, discovered at least
at that point in time and therefore I am going to
grant the motion under Rule 50 and dismiss that part
of the claim and it will not carry to the jury. So—
and I’m ruling on that as a matter of law. So I think
that what’s left and what goes to the jury is the real
estate transaction, which is four hundred and sixty
thousand dollars. It goes to the jury. Is there
anything left? . . . Now in light of that, is the
question of adverse domination still in the case?
Mr. Cassidy: We don’t need it. We don’t need it now.
The Court: Okay. So there’s no adverse domination.
J.A. 340–41. Based on the aforementioned passage from the
hearing and the court’s entire discussion regarding adverse
domination with Mr. Cassidy, Sheehan’s trial counsel, it is
clear that Sheehan abandoned his adverse domination arguments
prior to the trial, and the court never made a ruling in that
regard. See J.A. 315–40. Therefore, Sheehan failed to properly
preserve this issue for appeal. See In re Under Seal, 749 F.3d
276, 285–86 (4th Cir. 2014) (discussing the consequences of
failing to preserve a claim for appeal); see also Corti v.
11
Storage Tech. Corp., 304 F.3d 336, 343 (4th Cir. 2002)
(Niemeyer, J., concurring) (“[I]t remains the law of this
circuit that when a party to a civil action fails to raise a
point at trial, that party waives review of the issue unless
there are exceptional or extraordinary circumstances justifying
review.”).
However, even if Sheehan had properly preserved the issue
for appeal, the statute of repose would still have expired one
month prior to Sheehan filing suit, regardless of the
application of adverse domination. A creditor must bring suit
to enforce the provisions of the WVUFTA, W. Va. Code § 40–1A–
4(a)(1)–(2), within “four years after the transfer was made or
the obligation incurred, or, if later, within one year after the
transfer or obligation was or could reasonably have been
discovered by the claimant.” W. Va. Code § 40-1A-9 (emphasis
added). Because Sheehan filed suit on October 13, 2011, October
13, 2007 is the latest date on which the alleged fraudulent
transfers could have occurred such that he may obtain relief,
unless Sheehan establishes that he could not reasonably have
discovered the alleged fraudulent transfer or obligation more
than one year before filing suit. Sheehan argues that the
statute of limitations should be tolled by the doctrine of
12
adverse domination, giving him four years from the date on which
he was appointed to bring suit.
“Adverse domination is an equitable doctrine that tolls
statutes of limitations for claims by corporations against its
officers, directors, lawyers and accountants for so long as the
corporation is controlled by those acting against its
interests.” Clark v. Milam, 452 S.E.2d 714, 718 (W. Va. 1994)
(citing Int’l Rys. of Central Am. v. United Fruit Co.,
373 F.2d
408, 412 (2d Cir. 1967)). The adverse domination doctrine tolls
the statute “so long as there is no one who knows of and is able
and willing to redress the misconduct of those who are
committing the torts against the corporate plaintiff.” Clark v.
Allen,
139 F.3d 888 (4th Cir. 1998) (quoting
Milam, 452 S.E.2d
at 719). “[T]he defendants have the burden of showing that
there was someone who had the knowledge, ability and motivation
to bring suit during the period in which defendants controlled
the corporation.”
Id. (quoting Hecht v. Resolution Trust Corp.,
635 A.2d 394, 408 (Md. 1994)) (internal quotation marks
omitted).
Sheehan cites several cases from the Tenth Circuit in
support of his appeal and relies on two unpublished Tenth
Circuit opinions as “particularly legally similar.” Appellant’s
Br. 15–16 (citing Wing v. Buchanan, 533 F. App’x 807 (10th Cir.
13
2013); Wing v. Dockstader, 482 F. App’x 361 (10th Cir. 2012)).
Both unpublished opinions involved a series of cases that
stemmed from the collapse of VesCor Capital and the receiver’s
subsequent attempts to recover VesCor’s alleged fraudulent
transfers to investors. Buchanan, 533 F. App’x at 809.
Analyzing statute of limitations issues in Buchanan, the court
recognized that under Utah’s Fraudulent Transfer Act, 4 a
plaintiff seeking to recoup transfers based on allegations of
actual fraud must file his complaint “within four years after
the transfer was made or the obligation was incurred or, if
later, within one year after the transfer or obligation was or
could reasonably have been discovered by the claimant.” Id. at
810. At issue was when the discovery period began to run.
Id.
The court applied the doctrine of adverse domination to hold
that the discovery period would not begin to run until the bad
actors controlling the entity were removed.
Id. The court held
that, based on the record, it could not determine how to apply
the discovery rule to the alleged fraudulent transfers.
Id. at
811. The court remanded the case back to the district court “to
determine which of the alleged fraudulent transfers ‘could
4
The Utah Uniform Fraudulent Transfer Act and the WVUFTA
have the same statute of limitations and repose provisions.
14
reasonably have been discovered’ by the bankruptcy trustee—thus
triggering the one-year statute of limitations.” Id.
In Dockstader, applying the statute of repose discussed
above, the court held that the receiver could not reasonably
have discovered any fraudulent transfer prior to his
appointment. 482 F. App’x at 364. The court recognized the
adverse domination doctrine and found that “[b]ecause the
[r]eceiver was appointed on May 5, 2008 and filed this action
just over five months later,” the receiver’s claims were timely.
Id. The Tenth Circuit’s holdings in Buchanan and Dockstader do
not support Sheehan’s position because even after recognizing
the doctrine of adverse domination, the court applied the one-
year statute of repose under Utah’s Fraudulent Transfer Act—the
same one-year statute of repose under the WVUFTA.
Applying the same reasoning as the Tenth Circuit in
Buchanan and Dockstader, Sheehan’s claims are barred. On
September 9, 2010, Sheehan filed an opposition to Saoud’s motion
to withdraw the bankruptcy petition in which he stated:
The Trustee has identified several valuable causes of
action to recover assets for the bankruptcy estate of
AGS, Inc. These include actions to recover fraudulent
and preferential transfers to Allen G. Saoud and
Georgia Daniel.
J.A. 337. The district court held that the statute of
limitations could only be tolled until this date because Sheehan
15
clearly had knowledge of the fraudulent transfers by that time.
The district court then applied the one-year statute of repose
outlined above. It is clear that not only could Sheehan
reasonably have discovered the fraudulent transfers by September
9, 2010, but that he did in fact discover the alleged fraudulent
transfers as of that date. Unlike the bankruptcy trustees in
Buchanan and Dockstader, Sheehan had knowledge of the alleged
fraudulent transfers more than a year before he filed suit.
Thus, even if the doctrine of adverse domination were to apply,
the statute of repose expired one year after Sheehan’s September
9, 2010 filing in the Bankruptcy Court and one month before
Sheehan filed suit on October 13, 2011.
Accordingly, even if Sheehan had properly preserved the
adverse domination issue for appeal, he would not be entitled to
the relief requested.
B.
Sheehan next argues that the district court erred by
concluding that his action to recover the $50,000.00 payment
from AGS to Saoud in 2008 was barred by the four-year statute of
limitations because the payment was made in connection with the
2006 sale to Daniel. Appellant’s Br. 17. 5
5 Although Sheehan states in his brief that the transfer at
issue occurred in 2005, it is clear from the entirety of
Sheehan’s brief that he is referring to the March 31, 2006 sale
16
To enforce the provisions of the WVUFTA, the creditor must
bring suit “within four years after the transfer was made or the
obligation was incurred or, if later, within one year after the
transfer or obligation was or could reasonably have been
discovered by the claimant.” W. Va. Code Ann. § 40-1A-9. West
Virginia Code section 40-1A-6(d) provides that:
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.
W. Va. Code Ann. § 40-1A-6(d) (emphasis added). The district
court found that the 2008 payment was made pursuant to AGS’s
obligation incurred on the 2006 sale instrument. Therefore, the
“transfer”—as defined under the WVUFTA—occurred in 2006,
beginning the running of the statute of limitations at that
time. The district court found that even if the discovery rule
as outlined in the statute of repose applies, the clock stopped
running on September 9, 2010. Once again, Sheehan’s knowledge
of the alleged fraudulent transfers by September 9, 2010, at the
latest, is evidenced by his filing with the bankruptcy court.
of AGS to Daniel, and therefore the 2008 payment of $50,000.00
to Saoud. See Appellant’s Br. 17–19. Further, during oral
argument, the parties clarified that the transfer in dispute is
indeed the $50,000.00 transfer from AGS to Saoud.
17
See J.A. 337. Therefore, because Sheehan did not file suit
until October 13, 2011, more than a month after the statute of
repose expired, the district court held that Sheehan’s WVUFTA
claims relating to the 2008 transfer were barred by the statute
of repose.
The district court based its ruling on LaRosa v. LaRosa,
482 F. App’x 750 (4th Cir. 2012), an unpublished Fourth Circuit
opinion. In LaRosa, two brothers loaned their cousin and his
wife (“the debtors”) $800,000.00. Id. at 751. The cousin was
the sole shareholder of a company called Cheyenne.
Id. In
2001, Cheyenne entered into a loan agreement with a bank that
permitted Cheyenne to borrow up to $950,000.00 on a line of
credit.
Id. at 753. The cousin pledged a series of securities
to secure the line of credit.
Id. In 2003, the cousin’s son
drew down $700,000.00 on the line of credit with the bank, and
Cheyenne purchased over a million dollars in annuities with the
money.
Id. The annuities were owned and controlled by Cheyenne
but the accounts were used to transfer money to the cousin’s son
according to a sham land renewal lease.
Id. The district court
found the scheme fraudulent under the WVUFTA and awarded the
creditors $700,000.00.
Id.
On appeal of the judgment, this Court addressed whether the
plaintiffs’ WVUFTA claim “based on a corporation’s drawdown on
18
its line of credit and purchase of annuities was time-barred.”
Id. at 751. This Court held that the “transfer” in question was
not the 2003 drawdown but rather the original establishment of
the line of credit in 2001.
Id. at 755. Therefore, the Court
held that because the creditors did not file their claim within
four years of the establishment of the line of credit, their
claim was barred by the WVUFTA statute of repose.
Id. at 753
(“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.”). Judge Keeley
relied on this Court’s reasoning in LaRosa to hold that the 2008
transfer was an obligation incurred under the 2006 sales
contract. J.A. 152; 339–40. Therefore, because Sheehan did not
file suit until October 13, 2011, his claim was barred by the
four year statute of limitations.
Id.
A dissenting opinion in LaRosa interpreted the term
“transfer” under the WVUFTA differently than the majority.
LaRosa, 482 F. App’x at 758–59. Analyzing the statute of
limitations provisions of the WVUFTA, the dissent stated the
following:
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
19
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.
LaRosa, 482 F. App’x at 759 (quoting W. Va. Code Ann. § 40-1A-
9). Because there was no suggestion in the record that there
was any fraudulent intent or purpose in creating the line of
credit, the dissent found that the actionable fraudulent
transfer occurred in 2003 when the $700,000.00 drawdown took
place. Id. Therefore, the creditors properly brought their
claim within the four-year statute of limitations.
Id.
Sheehan argues that LaRosa is easily distinguishable
because the sale of AGS to Daniel in 2006 was “of dubious
legality” because an “osteopath cannot transfer a medical
practice to a non-osteopath under West Virginia law.”
Appellant’s Br. 20. However, the district court never deemed
the sale illegal or voidable. Further, there is no indication
that the district court’s application of the holding in LaRosa
would be altered if the transfer was “illegal.” All fraudulent
transfers are “illegal”; thus, just because a transfer is made
pursuant to an illegal contract does not change the statute of
limitations analysis under the WVUFTA.
On March 31, 2006, Daniel and Saoud executed a document in
which Daniel agreed to purchase AGS from Saoud for
20
$1,000,000.00. J.A. 62. Under the purchase agreements, the
name, corporate standing, disposable medical supplies, and
goodwill were included; however, the cash in the account,
accounts receivable, equipment, and software were all excluded
from the sale. Id. Further, Daniel was not liable under the
agreement for “any liabilities that have been incurred by
[Saoud] while he has been President of [AGS] or any liabilities
that [AGS] currently has.”
Id. A second document, also signed
by Saoud and Daniel on March 31, 2006, recognizes Daniel’s
purchase of AGS and states: “Daniel is also not responsible
personally for payback of the purchase price.” J.A. 63.
Under the plain language of section 40A-1A-6, the statute
of limitations began to run in 2006. As stated above, “[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). 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. Id. Saoud and Daniel signed
documents transferring ownership in AGS to Daniel on March 31,
2006. Under the March 31, 2006 sale documents, Daniel acquired
rights in AGS and AGS incurred an obligation to pay Saoud the
purchase price. Sheehan does not dispute that the 2008 money
transfer was made pursuant to the March 31, 2006 sale documents.
21
Because the obligation was evidenced by a writing, AGS’s
obligation became effective that day. Therefore, the alleged
fraudulent “transfer”—as defined under the WVUFTA—took place on
March 31, 2006. The statute of limitations expired on March 31,
2010, and the statute of repose expired on September 9, 2011,
one month before Sheehan filed suit.
Notably, if applied to this case, the dissent’s reasoning
in LaRosa would also not alter the outcome, because Sheehan
alleged that Saoud’s 2006 sale of AGS to Daniel was fraudulent
in and of itself. See Appellant’s Br. 18. Therefore, unlike
the underlying facts in LaRosa, Sheehan alleges that both the
2008 money transfer and the 2006 sale were fraudulent. Thus,
the statute of limitations expired under the analysis of both
the majority and dissent in LaRosa. For these reasons, we
affirm the district court’s ruling that Sheehan’s WVUFTA claims
are barred by the statute of repose.
C.
Lastly, Sheehan argues that the district court erred in
holding that a cause of action for civil conspiracy could not be
based on a violation of the WVUFTA. Appellant’s Br. 21.
Sheehan argues that the statute makes actionable a transfer made
with “actual intent to hinder delay or defraud creditors” and is
therefore a tort. Id. (citing W. Va. Code § 40-1A-4(a)(1)).
22
First and foremost, because the district court had a valid
independent basis to support its ruling beyond holding that a
WVUFTA violation cannot support a civil conspiracy claim, it is
not necessary for the Court to decide this issue. In addition
to finding that the WVUFTA did not provide a basis for a civil
conspiracy claim, the district court alternatively held that
Sheehan failed to adequately plead fraud. In its order on
Scott’s and Sheehan’s motions for summary judgment, the district
court stated the following when it addressed Sheehan’s civil
conspiracy claim under Count IV:
Following a careful weighing of the matter, the Court
agrees with Scott that a violation of the WVUFTA
sounds in contract; thus, Sheehan, by having relief on
the WVUFTA, has failed to plead a tort. Moreover,
even if he had pleaded a tort by alleging a violation
of the WVUFTA, Sheehan’s factual allegations are
wholly inadequate regarding how and when the
defendants engaged in civil conspiracy.
J.A. 133–34 (emphasis added). 6 Addressing the same claim against
Saoud, the court stated as follows:
[A] violation of the WVUFTA does not sound in tort as
is required to establish a civil conspiracy claim
under West Virginia law. Therefore, Sheehan has
failed to plead adequately the claim of civil
6 Scott is not a party to this appeal. Although this quote
comes from the portion of the court’s order addressing Scott’s
motion for summary judgment, the court subsequently recognized
its prior discussion of the civil conspiracy claim and applied
the reasoning to its disposition of Sheehan’s motion for summary
judgment on Count IV. J.A. 158–59.
23
conspiracy alleged in Count IV of the amended
complaint.
J.A. 158–59. Further, during the final pretrial conference on
February 18, 2015, the court again addressed the civil
conspiracy claim in Count IV, stating the following:
Mr. Sheehan never pled a civil conspiracy and to the
extent that you’re arguing here today that he did, I
think you need to go take a look at the amended
complaint and if you think he pled a plain vanilla
fraud tort civil conspiracy, you ought to look at your
facts there because under Rule 9 I would have kicked
it out had anybody moved. . . . Had it been pled, it
is woefully inadequate. It’s never been fixed. It’s
not a claim that could ever go to trial.
J.A. 273–74. Notably, in his brief, Sheehan states in a
footnote: “The District Court also found a procedural default
to be applicable. That default is an independent basis for
decision [sic] and is not contested in this appeal.”
Appellant’s Br. 21 (emphasis added). Sheehan does argue, on the
other hand, that the district court’s ruling with respect to the
adequacy of the pleadings was an exercise in judicial activism
because Saoud never moved to dismiss the complaint. However,
the court is not required to ignore an obvious failure to allege
facts setting forth a plausible claim for relief. Weller v.
Dep’t of Soc. Servs., 901 F.2d 387, 391 (4th Cir. 1990). In
such a circumstance, the court is authorized to dismiss a claim
sua sponte under Federal Rule of Civil Procedure 12(b)(6), as
long as there is notice and an opportunity to be heard. See
24
United Auto Workers v. Gaston Festivals, Inc., 43 F.3d 902, 905–
06 (4th Cir. 1995) (affirming the district court’s sua sponte
dismissal of plaintiff’s claims); see also Saifullah v. Johnson,
1991 WL 240479 (4th Cir. Nov. 20, 1991) (unpublished) (“A court
may, on its own initiative, dismiss a civil complaint for
failing to state a claim.”). Therefore, the district court’s
alternative holding that Sheehan failed to adequately plead his
civil conspiracy claim, uncontested on appeal, was proper and
provides an independent basis for affirming the district court’s
ruling.
Notwithstanding the foregoing, the Court will address the
merits of Sheehan’s arguments. Sheehan argues that a violation
of the WVUFTA can support a civil conspiracy claim as sounding
in tort because the first prong deems fraudulent a transfer or
obligation incurred by a debtor “[w]ith actual intent to hinder,
delay or defraud any creditor of the debtor.” W. Va. Code Ann.
§ 40-1A-4(a)(1). West Virginia recognizes a cause of action
for civil conspiracy. Kessel v. Leavitt, 511 S.E.2d 720, 753
(W. Va. 1998) (“The law of this State recognizes a cause of
action sounding in civil conspiracy.”). “[A] civil conspiracy
is a combination of two or more persons by concerted action to
accomplish an unlawful purpose or to accomplish some purpose,
not in itself unlawful, by unlawful means.” Dixon v. Am. Indus.
25
Leasing Co., 253 S.E.2d 150, 152 (W. Va. 1979). “The cause of
action is not created by the conspiracy but by the wrongful acts
done by the defendants to the injury of the plaintiff.”
Id.
Therefore, civil conspiracy is not a stand-alone cause of
action, but is rather “a legal doctrine under which liability
for a tort may be imposed on people who did not actually commit
a tort themselves but who shared a common plan for its
commission with the actual perpetrator(s).” Dunn v. Rockwell,
689 S.E.2d 255, 269 (W. Va. 2009) (citing
Kessel, 511 S.E.2d at
754). As such, courts in West Virginia dismiss civil conspiracy
claims when they are not supported by an underlying tort. See,
e.g., Long v. M & M Transp., LLC,
44 F. Supp. 3d 636, 652
(N.D.W. Va. 2014) (“[B]ecause the Court granted summary judgment
as to the deliberate intent and outrage claims, there is no
underlying tort to support the civil conspiracy claim.
Accordingly, this claim fails as a matter of law.”).
The district court recognized that “case law in West
Virginia is bereft of guidance as to whether [a conspiracy claim
for violation of the WVUFTA] sounds in contract or tort.” J.A.
132. However, the district court looked for guidance elsewhere
and noted cases from other jurisdictions that have adopted the
Uniform Fraudulent Transfer Act and whose courts have held that
a violation of the act is not a tort. J.A. 132–33 (citing
26
F.D.I.C. v. S. Prawer & Co., 829 F. Supp. 453, 455 (D. Me. 1993)
(“The Court is satisfied that violation of . . . Maine’s Uniform
Fraudulent Transfers Act . . . is not a tort.”)). After
carefully weighing the matter, the district court determined
that a violation of the WVUFTA sounds in contract, and therefore
does not support a civil conspiracy claim. J.A. 133.
The WVUFTA provides two separate prongs under which a
transfer made by a debtor may be deemed fraudulent as to the
creditor. The first prong provides that a transfer is
fraudulent if the debtor made the transfer or incurred the
obligation “[w]ith actual intent to hinder, delay or defraud any
creditor of the debtor.” W. Va. Code Ann. § 40-1A-4(a)(1). A
transfer may also be deemed fraudulent under the second prong if
the debtor made the transfer or incurred the obligation:
Without receiving a reasonably equivalent value in
exchange for the transfer or obligation and the
debtor: (i) Was engaged or was about to engage in a
business or a transaction for which the remaining
assets of the debtor were unreasonably small in
relation to the business or transaction; or (ii)
Intended to incur, or believed or reasonably should
have believed that he (or she) would incur, debts
beyond his (or her) ability to pay as they became due.
W. Va. Code Ann. § 40-1A-4(a)(2). Therefore, a plaintiff is
only required to demonstrate actual intent to establish a
fraudulent transfer under the first prong.
27
Although the Fourth Circuit has not addressed the issue,
courts from varying jurisdictions have refused to recognize
violations of the Uniform Fraudulent Transfer Act as torts.
See, e.g., United States v. Neidorf, 522 F.2d 916, 917–18 (9th
Cir. 1975); Desmond v. Moffie,
375 F.2d 742, 743 (1st Cir. 1967)
(finding fraudulent conveyance claim under Massachusetts Uniform
Fraudulent Conveyance Act to be a contract rather than tort
action for purposes of applying appropriate statute of
limitations); S.
Prawer, 829 F. Supp. at 456 (finding fraudulent
conveyance claim not to be a tort claim for purposes of the
Federal Tort Claims Act); Branch v. Fed. Deposit Ins. Corp.,
825
F. Supp. 384 (D. Mass. 1993) (finding fraudulent conveyance claim
not to be a tort claim for purposes of the Federal Tort Claims
Act); Fed. Deposit Ins. Corp. v. Martinez Almodovar,
671 F. Supp.
851, 871 (D.P.R. 1987) (finding fraudulent conveyance claim not
to be a tort for purposes of choosing appropriate statute of
limitations); In re Fedders N. Am., Inc.,
405 B.R. 527, 549
(Bankr. D. Del. 2009) (“Likewise, the authorities are also clear
that there is no such thing as liability for . . . conspiracy to
commit a fraudulent transfer as a matter of federal law under
the Code.”); Freeman v. First Union Nat’l Bank,
865 So. 2d 1272,
1277 (Fla. 2004) (“We simply can see no language in FUFTA that
suggests an intent to create an independent tort for damages.”).
28
However, a handful of courts from other jurisdictions have
recognized violations of the Uniform Fraudulent Transfer Act as
torts. See, e.g., Alliant Tax Credit Fund 31-A, Ltd. v. Murphy,
2011 WL 3156339, at *8 (N.D. Ga. July 26, 2011) (“Although
Plaintiffs’ claim for civil conspiracy does not furnish an
independent cause of action on which to hold Defendants liable,
it can be used to establish some of Defendants’ liability for
fraudulent transfers under the UFTA.”); Valvanis v. Milgroom,
529 F. Supp. 2d 1190, 1203 (D. Haw. 2007) (“[T]he underlying
actionable tort for the conspiracy claim is the fraudulent
transfer of the Hawaii Property [under the HUFTA].”); Gutierrez
v. Givens,
1 F. Supp. 2d 1077, 1087 (S.D. Cal. 1998) (“The Court
finds that a triable issue of fact exists as to whether Colonial
may be found liable for a civil conspiracy to violate the
UFTA.”); In re Advanced Telecomm. Network, Inc.,
2013 WL 414654,
at *3 (Bankr. M.D. Fla. Feb. 4, 2013) (“The Amended Complaint
properly pleads civil conspiracy against the Defendants to the
extent it alleges they knowingly agreed and aided the Allens in
violating the UFTA’s constructive fraudulent transfer
provisions.”); In re Penn Packing Co.,
42 B.R. 502, 505 (Bankr.
E.D. Pa. 1984) (Pennsylvania’s fraudulent conveyance act claim a
tort for purposes of choosing Pennsylvania statute of
limitations); Banco Popular N. Am. v. Gandi,
876 A.2d 253, 263
29
(N.J. 2005) (recognizing a claim for civil conspiracy for aiding
and abetting a fraudulent transfer under the UFTA); Double Oak
Const., LLC v. Cornerstone Dev. Int’l, LLC, 97 P.3d 140, 146
(Colo. App. 2003) (“[W]e conclude that a transfer in violation
of CUFTA is a legal wrong which will support a conspiracy
claim.”); McElhanon v. Hing,
728 P.2d 256, 263 (Ariz. Ct. App.
1985) aff’d in part, vacated in part,
728 P.2d 273 (Ariz. 1986)
(“[U]pon passage of the Uniform Fraudulent Conveyances Act, a
conveyance to defraud a general creditor became a legal wrong,
properly the subject of a suit for civil conspiracy.”).
Further, while very few have addressed the issue, some
circuit courts have recognized a cause of action for civil
conspiracy based on a violation of the Uniform Fraudulent
Transfer Act. See, e.g., CNH Capital Am. LLC v. Hunt Tractor,
Inc., 568 F. App’x 461, 473 (6th Cir. 2014), as amended (July 2,
2014) (recognizing that Kentucky law allows recovery from a
transferee or transferor for civil conspiracy to commit a
fraudulent conveyance, but denying relief because defendant was
neither the transferee nor the transferor); Chepstow Ltd. v.
Hunt, 381 F.3d 1077, 1090 (11th Cir. 2004) (recognizing a cause
of action for civil conspiracy based on the UFTA under Georgia
law against non-transferee defendants); Forum Ins. Co. v.
Comparet, 62 F. App’x 151, 153 (9th Cir. 2003) (“California
30
allows for a cause of action for conspiracy to commit fraudulent
transfers, and allows a plaintiff to recover legal damages on
such a cause of action.”). However, in these cases, the circuit
courts applied the law as already decided by state courts
recognizing such civil conspiracy claims.
As outlined above, there are two prongs of the WVUFTA, only
one of which requires proof of fraudulent intent. Conceivably,
a plaintiff could adequately plead a violation of the WVUFTA
under the first prong with actual intent to hinder, delay, or
defraud, sufficient to support a civil conspiracy claim.
However, a violation of the second prong would not be sufficient
to support a civil conspiracy claim. Therefore, the Court
cannot hold, as a matter of law, that a violation of the WVUFTA
can support a claim for civil conspiracy in all circumstances.
Further, the Court is reticent to expand the bounds of West
Virginia policy by recognizing a civil conspiracy claim for
violation of the WVUFTA for the first time. “Absent a strong
countervailing federal interest, the federal court . . . should
not elbow its way into this controversy to render what may be an
uncertain and ephemeral interpretation of state law.” Time
Warner Entm’t–Advance/Newhouse P'ship v. Carteret-Craven Elec.
Membership Corp., 506 F.3d 304, 314 (4th Cir. 2007) (quoting
Mitcheson v. Harris,
955 F.2d 235, 238 (4th Cir. 1992)).
31
Therefore, the Court declines to make such a policy
determination to recognize that a violation of the WVUFTA sounds
in tort.
Regardless, even if the court were to recognize that a
violation of the WVUFTA sounds in tort, Sheehan’s civil
conspiracy claim would be barred by the statute of repose as
fully set forth above. In West Virginia, “the statute of
limitation for a civil conspiracy claim is determined by the
nature of the underlying conduct on which the claim of
conspiracy is based.” Dunn v. Rockwell, 689 S.E.2d 255, 269 (W.
Va. 2009). Therefore, because the statute of limitations for
Sheehan’s WVUFTA claim expired, it necessarily must follow that
the statute of limitations for Sheehan’s civil conspiracy claim
has also expired. Thus, the Court affirms the district court’s
dismissal of Sheehan’s claims for violation of the WVUFTA.
IV.
For the reasons set forth above, we conclude that Sheehan’s
WVUFTA and civil conspiracy claims are barred by the applicable
statute of limitations. We therefore affirm the district
court’s dismissal of Sheehan’s claims.
AFFIRMED
32
