Virginia Electric and Power Company v. Peters

Filing 27

OPINION. See Opinion for details. Signed by District Judge John A. Gibney, Jr. on 3/22/2018. (sbea, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
VIRGINIA ELECTRIC AND POWER COMPANY,
d/b/a DOMINION VIRGINIA POWER.,
Plaintiff,
Civil Action No. 3:17-cv-259-JAG

V.

MICHAEL PETERS,
Defendant.
OPINION
In 2014, Virginia Electric and Power Company ("Dominion") obtained a $24.5 million
judgement in this Court against Bransen Energy, Inc. ("Bransen"). Dominion has not been able
to collect on its judgment and now brings this action to pierce Bransen's corporate veil and
impose liability on Michael Peters, Bransen's owner and sole shareholder.

Dominion also

alleges that Peters breached his fiduciary duty to Dominion as a creditor.
Peters has moved to dismiss this action based on a lack of personal jurisdiction, res

f udicata, statute of limitations grounds, and other theories. The Court denies the motion. First,
the Court has jurisdiction over Peters as an alter ego of Bransen. Res f udicata does not bar the
present claims because the issues presented in the prior litigation differ from those here. The
statute of limitations also does not bar any of Dominion's claims based on the face of the
complaint. Finally, none of Peters' novel theories concerning marshalling assets or the law of
the case doctrine bar Dominion's suit.

I. BACKGROUND
In 2011, Dominion and Bransen signed a $27 million contract for the sale of coal.
Bransen breached that contract by delivering piles of unusable product-essentially black mudhidden beneath a sheath of real coal. On February 15, 2012, Peters admitted wrongdoing during

1

an interview with Dominion and recognized that he needed to replace the coal. Rather than
make good the breach, Peters looted more than $2.66 million from Bransen between 2012 and
2015. He did this even though the company lacked any operating income after 2012. In the
same time frame, Peters added his wife as a signatory on Bransen' s account and transferred
thousands of dollars to her accounts even though she had no business connection to Bransen.
Peters' mother, who also had no connection to Bransen, wrote two checks using Bransen' s
account between April and May 2013. Peters also founded a number of companies unrelated to
Bransen, including Taylor Rose (June 2012), Bransen Holdings (July 2012), Primitive Creations
(now Coal Stone) (September 2013), TR Nichols LLC (February 2014), and RPM Solutions
LLC (June 2015), and diverted significant amounts of Bransen's money to each of them. To top
off the decimation of Bransen, Peters unconditionally pledged its corporate assets to secure a $9
million note for Taylor Rose in July 2014.
On July 30, 2014, Dominion filed suit in this Com1 alleging that Bransen, a North
Carolina corporation, breached its coal delivery contract. 1

The Court ultimately awarded

compensatory damages of nearly $23 million and an additional $1.6 million in attorney's fees.
Not surprisingly, Dominion has not collected this judgment because Bransen had no operating
income after 2012 and started winding down operations around that time. Bransen now claims
insolvency.

1

The Com1 takes judicial notice of the 2014 case. A Rule l 2(b)(6) motion gauges the
sufficiency of a complaint. Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165 (4th Cir. 2016).
Accordingly, in evaluating such a motion, courts typically focus only on the complaint,
documents attached to the complaint, and documents explicitly incorporated into the complaint
by reference. Id. at 166. In appropriate cases, however, courts may also ( 1) take judicial notice
of public records, such as state court records, and (2) consider documents submitted by the
movant if the documents are integral to the complaint and indisputably authentic. Id.; Witthohn
v. Fed. Ins. Co., 164 F. App'x 395, 396 {4th Cir. 2006).

2

II. DISCUSS10N2
Peters has moved to dismiss Dominion's complaint, claiming that ( 1) this Court Jacks
personal jurisdiction over him, (2) due process precludes suit against him, (3) res judicata bars
Dominion's claims, (4) the doctrine of marshalling assets bars Dominion's claims, (5) the statute
of limitations bars the claims, (6) the law of the case doctrine bars the claims, and (7) Dominion
fails to make a showing for punitive damages. For the reasons outlined below, the Court rejects
each ground and denies this motion.
A. Personal Jurisdiction 3

Where a court rules on personal jurisdiction without the aid of an evidentiary hearing, the
plaintiff must only make a prima facie showing of jurisdiction, and the court must "resolve all
factual disputes in the plaintiffs favor." Mylan Laboratories, Inc. v. Akzo, N. V., 2 F.3d 56, 60
(4th Cir. 1993). In corporate veil piercing actions, due process permits personal jurisdiction over
individuals if (1) they are the alter ego of a corporation and (2) that corporation would have been
subject to the court's personal jurisdiction. Newport News Holding Corp. v. Virtual City Vision,
Inc., 650 F.3d 423, 433 (4th Cir. 2011). Peters satisfies both requirements.

2

Peters moves to dismiss under Rule 12(b)(2) and 12(b)(6) of the Federal Rules of Civil
Procedure. A Rule 12(b)(6) motion gauges the sufficiency of a complaint without resolving any
factual discrepancies or testing the merits of the claim(s). Republican Party of N.C. v. Martin,
980 F.2d 943, 952 (4th Cir. 1992). In considering the motion, a court must accept all allegations
in the complaint as true and must draw all reasonable inferences in favor of the plaintiff. Nemet
Chevrolet, Ltd v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009) (citing Edwards
v. City of Goldsboro, 178 F .3d 231, 244 (4th Cir. 1999)). The principle that a court must accept
all allegations as true, however, does not apply to legal conclusions. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). To survive a Rule 12(b)(6) motion to dismiss, a complaint must state facts that,
when accepted as true, "state a claim to relief that is plausible on its face." Id. (quoting Bell At/.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
3
Peters claims that this Court cannot exercise jurisdiction over him without violating his due
process rights because he is not subject to personal jurisdiction in Virginia. This section,
however, establishes that he is subject to personal jurisdiction, and the Court denies his motion to
dismiss on constitutional grounds.
3

Virginia law dictates whether Peters acted as Bransen' s alter ego for the purpose of
establishing jurisdiction. Int 'l Bancorp, LLC. v. Societe Des Baine De Mer Et Du Cerc/e Des

Estrangers A Monaco, 192 F. Supp. 2d 467, 477 (E.D. Va. 2002); see Newport News Holding
Corp., 650 F.3d at 433-34 (applying Virginia's corporate veil piercing statute to establish
personal jurisdiction over an Alabama corporation). 4 Under Virginia law, a court may pierce the
corporate veil "to find that an individual is the alter ego of a corporation where it finds '(i) a
unity of interest and ownership between [the individual and the corporation], and (ii) that [the
individual] used the corporation to evade a personal obligation, to perpetrate fraud or a crime, to
commit an injustice, or to gain an unfair advantage."' Newport News Holding Corp., 650 F .3d at
434 (alterations in original) (quoting C.F. Trust, Inc. v. First Flight Ltd P'ship, 306 F.3d 126,
132 (4th Cir. 2002)). 5 Piercing the corporate veil is an "extraordinary act" permitted only when
"necessary to promote justice." C.F. Trust, Inc. v. First Flight L.P., 266 Va. 3, 10, 580 S.E.2d
806, 809 (Va. 2003). To pierce the veil, a court must make a "fact-specific determination" that
requires it to "closely scrutinize" the factual circumstances surrounding the allegations. Id at 10,
810.
Here, the facts support corporate veil piercing. The complaint shows that Peters used his
unity of ownership and interest to gain an unfair advantage. First, Peters' role as Bransen's
president, owner, and sole shareholder establishes a unity of ownership. Peters also showed a
unity of interest by siphoning more than $2.66 million away from Bransen for his personal
4

Dominion incorrectly claimed, and Peters did not contest, that the law of North Carolina-the
state of Bransen' s incorporation-determines whether the Court can pierce the corporate veil for
the purpose of establishing personal jurisdiction. While North Carolina law will ultimately
determine whether the Court can pierce the corporate veil to impose liability, the substantive law
of the state of incorporation does not affect questions of personal jurisdiction in the forum state.

See Int 'l Bancorp, LLC. v. Societe Des Baine De Mer Et Du Cercle Des Estrangers A Monaco,
192 F. Supp. 2d 467,477 n.18 (E.D. Va. 2002).
5
See also Cheatle v. Rudd's Swimming Pool, 234 Va. 207, 360 S.E.2d 828 (Va. 1987).
4

benefit. Peters knew on February 15, 2012, that he had breached the contract and needed to
replace the coal. Despite this admission, Peters and his family used Bransen as a personal
checking account: Peters' wife and mother each wrote checks from Bransen' s account without
any business connection to the company; Peters also created new companies with no connection
to Bransen and funded them with Bransen's money; and Peters unconditionally pledged
Bransen's assets to secure a $9 million note for another company. These facts establish a unity
of ownership and interest.
These allegations make a prima facie showing that Peters used the corporate structure to
avoid liability to Dominion by making corporate decisions that benefited him and not his
corporation. See A.G. Dillard, Inc. v. Stonehaus Construction, LLC, 2016 WL 3213630, at *3
(Va. 2016). Since the Court has jurisdiction over Bransen, it also has jurisdiction over Peters as
its alter ego. Newport News Holding Corp., 650 F.3d at 433.
B. Res J udicata

Virginia's res judicata rules apply to determine whether the prior case in this Court
precludes Dominion's claims. Q Intern. Courier Inc. v. Smoak, 441 F.3d 214, 218 (4th Cir.
2006) ("[T]he preclusive effect, if any, of the first action on the second action should have been
decided under the res judicata law of the state of Virginia-the law of the state where the federal
district court sat in the first action.") (citation omitted). In Virginia, no party may sue the same
opposing party for any cause of action arising from the same "conduct, transaction, or
occurrence" after a final judgment has been issued. Supreme Court of Virginia Rule 1.6.
Res judicata does not apply to the corporate veil piercing claim. Corporate veil piercing

is not a separate cause of action, but instead a means to impose liability on an underlying cause
of action. See Shearson Lehman Hutton, Inc. v. Venners, 165 F.3d 912, 1998 WL 761505 (4th

5

Cir. 1998).

Even if this case were a separate cause of action, the operative facts for both

Dominion's veil piercing claim and breach of fiduciary duty claim differ from Dominion's
earlier breach of contract claim. The 2014 case alleged that Bransen improperly delivered coal
containing coke breeze. The current suit involves separate actions by Peters to siphon money
away from Bransen and render it incapable of paying Dominion. Res judicata does not apply
here and the Court denies the motion to dismiss on this ground.
C. Doctrine of Marshalling Assets

In Virginia, the doctrine of marshalling assets "is applied only where one creditor has a
lien against two funds or estates, belonging to the same person, and a junior lienor has a lien
against only one of the same funds or estates." National Valley Bank of Staunton v. Kanawha

Banking & Trust Co., 151 Va. 446, 451, 145 S.E. 432, 434 (1928). The doctrine allows junior
lienors to compel senior lienors to foreclose on only that property necessary to satisfy the senior
lienor's debt, without invading on property in which the junior lienor has an interest. In re

Virginia Block Co., 6 B.R. 670, 673 (Bankr. W.D. Va. 1980). This case does not involve
competing lienors, and the doctrine does not apply.
Further, Peters' defense depends on the existence of liens outside the scope of the
complaint. When a defendant raises an affirmative defense in a motion to dismiss, a court may
rule on the motion only where the necessary facts appear on the face of the complaint. Goodman

v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007).
The Court denies the motion to dismiss on this ground.

D. Statute of Limitations
A federal court sitting in diversity must apply the forum state's statute of limitations
whenever the forum state would apply it, even in cases where the forum state applies a different

6

state's substantive law to the underlying claim.

See Fiber/ink Communications Corp. v.

Magarity, 24 Fed. App'x. 178, 181 (4th Cir. 2001).

Virginia applies its own statute of

limitations with few exceptions, and the parties do not dispute that Virginia's statutes of
limitations apply to this case. Id. Virginia's statutes of limitations do not bar any of Dominion's
claims at this stage.
It remains unclear whether Virginia uses }aches or applies the 20-year statute of
limitations for collecting judgments in corporate veil piercing cases. Flame S.A. v. Industrial

Carriers, Inc., 24 F. Supp. 3d 493, 502 (E.D. Va. 2014). 6 In any event, the facts do not, on their
face, show that either period would limit Dominion's claims. For laches to bar an equitable
claim, the defendant must demonstrate prejudice as a result of the plaintifrs delay in filing the
case. Id. at 502-03. Peters has shown no such prejudice at this stage. Moreover, all of the facts
alleged in the complaint occurred well within the 20-year period.

Neither doctrine bars

Dominion's veil piercing claim.
The statute of limitations does not bar Dominion's breach of fiduciary duty claim at the
pleadings stage. Virginia's statute of limitations for a breach of fiduciary duty claim is two
years. Informatics Applications Group, Inc. v. Shkolnikov, 836 F. Supp. 2d 400, 424 (E.D. Va.
2011). The complaint alleges that Peters founded or obtained a membership interest in RPM
Solutions in June 2015, and that he transferred significant sums of money from Bransen to this
business. These transactions occurred within the two year period. Discovery may show that the
statute of limitations bars some of Dominion's claims related to breach of fiduciary duties, but
the claim survives the motion to dismiss.

6

Contrary to Peters' claims, Virginia's two-year statute of limitations for common law fraud
does not apply to veil piercing actions. Flame S.A., 24 F. Supp. 3d at 502.
7

E. Law of the Case Doctrine

The law of the case doctrine "restricts a court to legal decisions it has made on the same
issues in the same case." MacDonald v. Moose, 710 F.3d 154, 161 n.10 (4th Cir. 2013). It also
applies where an appellate court establishes a rule and remands to the lower court for further
adjudication. See Sejman v. Warner-Lambert Co., Inc., 845 F.2d 66, 69 (4th Cir. 1988). As
discussed above, the present case involves issues separate and apart from the breach of contract
issues involved in the 2014 case. Issue preclusion may resolve certain factual disputes during the
course of litigation, but the law of the case doctrine does prevent Dominion from claiming that
Peters fraudulently siphoned money away from Bransen for his own gain-an issue not
addressed in the prior litigation. The Court denies the motion to dismiss on this ground.
F. Punitive Damages 7

North Carolina law governs the availability of punitive damages because the state of
incorporation determines issues related to corporate internal affairs, including fiduciary duties.
See U.S. v. Ko/on, 926 F. Supp. 2d 794 (E.D. Va. 2013). Under North Carolina law, "[c]onduct

underlying a breach of fiduciary duty claim can supply the basis for an award of punitive
damages" if the plaintiff can show fraud, malice, or willful or wanton conduct. Folmar v.
Harris, 650 Fed. App'x. 818, 824 (4th Cir. 2016) (applying North Carolina law). For the reasons

outlined in the personal jurisdiction section above, Dominion has made a prima facie showing
that Peters engaged in willful conduct aimed at preventing Bransen from satisfying its
obligations to Dominion.

Accordingly, the Court denies the motion to dismiss Dominion's

request for punitive damages.

7

Defendants may dismiss punitive damages usmg a Rule l 2{b)(6) motion. Gutierrez v.
Kigelman, 2014 WL 1255282 (E.D. Va. 2014).
8

III. CONCLUSION
For the reasons stated above, the Court denies Peters' motion to dismiss.
The Court will enter an appropriate Order.
Let the Clerk send a copy of this Opinion to all counsel of record.

Isl
John A. Gibney, Jr.
United States Distric

Date: March ~2018
Richmond, VA

9