LaRosa v. LaRosa

Summarized by Cullen Drescher Speckhart , Cooley LLP
13 years 10 months ago

Citation:

LaRosa v. LaRosa, No. 11-1306 (4th. Cir. April 30, 2012).

Tag(s):

Ruling:

On appeal and cross-appeal from the judgment of the United States District Court for the Northern District of West Virginia, the Fourth Circuit considered whether the plaintiff's West Virginia Uniform Fraudulent Transfer Act ("WVUFTA") claim was time barred. Second, whether the district court's denial of the plaintiff's Rule 59(e) motion to increase a damage award was an abuse of discretion. As to the first issue, the Fourth Circuit reversed the district court's determination that the WVUFTA claim was not time-barred. Regarding the second issue, the Fourth Circuit vacated the district court's denial of the plaintiff's Rule 59(e) motion and remanded the case to the district court for further proceedings consistent with its opinion.

Procedural context:

On September 15, 2010, the district court issued a memorandum opinion finding that Virgil and Sandra LaRosa (the "Transferees") engaged in a series of intentionally fraudulent tansfers designed to hinder, delay, and defraud Joseph and Dominick LaRosa (the "Creditors")' efforts to collect their judgment against Virgil LaRosa and Joan LaRosa (the "Debtors"). The district court found that three transfers violated the WVUFTA, the first of which was not disputed on appeal. The second (the "Second Transfer") was a purchase of annuities by Cheyanne Sales Company ("Cheyanne"), a corporation wholly owned by Debtor Virgil LaRosa until the time of Virgil's death in 2006. At that point, Cheyanne became wholly owned by Debtor Joan La Rosa. The accounts of the purchased annuities were used for the benefit of Virgil LaRosa and Regal. The third (the "Third Transfer") was a series of business dealings between Cheyenne and Regal Coal Company ("Regal"), a corporation wholly owned by the Debtors' son. The district court found that both the Second Transfer and the Third Transfer constituted violations of the WVUFTA. Both parties filed Rule 59(e) motions. The Creditors requested an increased judgment, and the Transferees requested a reduction of the attachment to the amount of the district court's judgment - $1,191,609. The court agreed with the Transferees. The parties appealed and cross-appealed.

Facts:

In January, 2001, Cheyenne entered into a loan agreement that permitted Cheyanne to borrow up to $950,000 on a line of credit. Debtor Virgil LaRosa pledged a series of sercurities to the line of credit. On June 26, 2003, Transferee Virgil LaRosa drew down $700,000 on the line of credit. With this money he purchased over a million dollars in annuities, which were owned and controlled by Cheyanne but whose accounts were used to transfer money to Virgil LaRosa and to Regal. The district court found this Second Transfer to be fraudulent under the WVUFTA and awarded the Creditors $700,000 on the claim. On appeal, the Transferees contended that there could be no liability stemming from the Second Transfer because Virgil LaRosa's pledge of securities that served as a guaranty of the line of credit occurred more than four years before the Creditors filed the fraudulent transfer action. Therefore, according to the Transferees, the claim was time-barred by the WVUFTA. Observing that the WVUFTA's statute of repose makes clear that it runs from the date of the security pledge (as opposed to the drawdown of funds), the Fourth Circuit reversed the district court's decision and held that the Creditors' WVUFTA claim on the line of credit was time-barred. In its extensive statutory interpretation, the Fourth Circuit noted that the WVUCC specifically provides that a person gives "value" for rights when he acquires the rights in return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon. Because the Creditors did not file their claim within four years of the establishment of the line of credit, the Fourth Circuit held that the claim was time-barred. As to the Third Transfer, the district court declined to assign a value to the transfers fraudulently made, and denied the Creditors' Rule 59(e) motion to increase the amount of the judgment. On appeal, the Fourth Circuit reviewed for abuse of discretion, ultimatley vacating and remanding the district court's denial of the Rule 59(e) motion for two reasons. First, the Fourth Circuit held that it was an abuse of discretion for the district court to find a violation of the WVUFTA but refuse to assign an award to the Creditors in the amount fraudulently transferred. Second, the Fourth Circuit opined that the district court must make specific findings as to which property of the Debtors was transferred that brought the Third Transfer within the reach of the WVUFTA. In his dissent, Judge Neimeyer explained that as to the Second Transfer, the fraudulent transfer at issue did not occur until 2003, when LaRosa ordered the drawdown for the purpose of avoiding creditors' efforts to seize his pledged stock. Prior to that point, LaRosa had not acted wtih a fraudulent intent or purpose. According to the dissent, because the fraudulent transfer in this case took place in 2003, not 2001, the subsequent suit filed within four years of that transfer was timely filed.

Judge(s):

Neimeyer, J., Gregory, J., Floyd, J.

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