LaRosa et al v. Pecora et al
Filing
322
ORDER FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Senior Judge Frederick P. Stamp, Jr. on 9/15/10. (mh)
<. a. The Trust Account shall provide that the deposited Reclamation Fees may only be withdrawn upon the signature of an authorized representative of both Lessee and Lessors. b. The Reclamation Fees shall be disbursed from Trust Account to Lessors as is necessary to implement reclamation of the effected portion of the property in accordance with the reclamation plans approved by the West Virginia Department of Environmental Protection ("DEP"). Lessors shall only use the money in Trust Account for such reclamation purposes and shall provide Lessee with an accounting of all monies disbursed from the Trust Account within 45 days of any such disbursement. c. Any excess monies that are required for reclamation shall be paid to Lessor as deferred rent. d. The Lessee shall not have any right to sell, assign, pledge, mortgage or in any other manner encumber, alienate or dispose of the Trust Account, nor shall such Trust Account in any way become liable any indebtedness of the Lessee or be subject to any legal process, bankruptcy proceeding, or the claims, interference or control of the creditors of the Lessee. 76. Paragraph 22 of the renewal lease contains a guaranty
provision with Virgil B. LaRosa and Joan LaRosa as guarantors. 77. The renewal lease was signed on November 3, 2003, four
months after the plaintiffs began serving suggestions of personal
20
property in an effort to collect on their judgment as well as sixteen days before debtors filed for bankruptcy. 78. Chris Ward, Jennifer Ward, Andrea Pecora Fucillo and
Sandra LaRosa knew nothing about the renewal lease until just before they signed it. 79. Virgil D. LaRosa testified that he signed the 2003
renewal lease because Virgil B. LaRosa wanted him and his siblings to sign the renewal lease. Chris Ward, Jennifer Ward and Andrea
Pecora Fucillo, three of the lessors, indicated limited if any knowledge about the renewal lease, including the various terms and conditions thereof. Jennifer Ward and Andrea Pecora Fucillo
testified that they signed the renewal lease because their father, Virgil B. LaRosa, requested them to do so and Chris Ward testified that he signed the renewal lease only because his wife, Jennifer Ward, requested that he do so. Sandra LaRosa did not believe that
she read the renewal lease before signing and knew nothing about an account that was supposed to be funded with $700,000.00. 80. Virgil D. LaRosa did not know how the terms of the
renewal lease were determined because he was not involved in the making of the renewal lease. 81. Pursuant to the terms of the renewal lease, Cheyenne
posted reclamation bonds.
21
D.
Cheyenne's Line of Credit 82. On January 25, 2001, the debtors pledged assets having a
net value of $1,602,995.00 as collateral for a line of credit of $950,000.00. On January 26, 2001, Cheyenne increased its line of This line of
credit with Huntington National Bank to $950,000.00. credit therefore encumbered the debtors' assets. 83.
This is not the first line of credit Cheyenne had
obtained through Huntington National Bank or its predecessor banks. These lines of credit had been renewed on other occasions. 84. The January 25, 2001 line of credit was collateralized
from Cheyenne and the debtors by shares of stock and mutual funds, certificates of deposit, equipment, fixtures, and miscellaneous securities. The line of credit was renewed on several occasions
approximately every six months after it was extended and Huntington National Bank required the same amount of collateral even though the outstanding balance of the line of credit was between
$300,000.00 and $400,000.00. During that time, Huntington National Bank did not release any collateral from the line of credit. 85. The interest rate on Cheyenne's line of credit with
Huntington National Bank as determined by a January 30, 2001 Loan Facility Request was: prime - 1% adj. Daily. 86. The outstanding balance on Cheyenne's line of credit was
$684,230.08 on April 2, 2009, the date that Cheyenne filed for bankruptcy. 22
87.
Virgil
D.
LaRosa
testified
that
he
guessed
that
Cheyenne's line of credit could have been used by Cheyenne to purchase sufficient amounts of coal to meet requirements of
contracts that Regal had. 88. While there were times when the interest rate on the
annuities described above and the interest rate on the line of credit were the same, the amount of money being earned on the annuities was never greater than the interest being paid on the line of credit. 89. The contents of each exhibit admitted during the trial
are also adopted as parts of these findings of fact. 90. Any finding made by this Court which is not a finding of
fact shall be deemed a conclusion of law. III. 1. a Conclusions of Law
Plaintiffs Joseph LaRosa and Dominick LaRosa have filed complaint against the above-named individual
three-count
defendants and Cheyenne under the West Virginia Uniform Fraudulent Transfers Act. W. Va. Code §§ 40-1A-1, et seq. In Count I of
their complaint, plaintiffs assert their claims under subsection 4(a)(1) of that Act; in Count II, plaintiffs assert claims under subsection 4(a)(2) of that Act; and in Count III, they assert claims under subsection 5(a)(1) of that Act. At all times involved in this civil action, Joseph LaRosa and Dominick LaRosa have been creditors of the debtors as a result of 23
the above-described August 8, 1982 promissory note, which went unpaid, and the subsequent November 3, 1994 judgment entered in the United States District Court for Maryland against the debtors in the amount of $2,844,612.87 plus $10,000.00 in attorneys' fees for the unpaid August 1982 promissory note. 2. Joseph LaRosa and Dominick LaRosa are creditors of the
debtors as they have a claim against the debtors since the judgment gave the plaintiffs a right to payment from the debtors. Code § 40-1A-1(c)-(d). 3. As of July 31, 2009, the amount of the judgment is W. Va.
$6,799,161.42 together with the $10,000.00 in attorneys' fees. Interest on that amount has accrued since July 31, 2009. Debtors
are liable to plaintiffs for this amount pursuant to West Virginia Code § 40-1A-1(e) (defining a "debt"). For purposes of the West
Virginia Uniform Transfers Act, Virgil B. LaRosa and Joan LaRosa are debtors, liable to the plaintiffs for the judgment. Code § 40-1A-1(f) (defining a "debtor"). 4. For purposes of the West Virginia Uniform Fraudulent W. Va.
Transfers Act, Virgil D. LaRosa, Sandra LaRosa, Andrea Pecora Fucillo, insiders Chris of Ward, the Jennifer Ward, Cheyenne, to West and Regal are Code
debtors
pursuant
Virginia
§ 40-1A-1(g)(1)(i), (iv), (k). 5. Under the West Virginia Uniform Transfers Act, a
"transfer" is defined as "every mode, direct or indirect, absolute 24
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." 6. W. Va. Code § 40-1A-1(l).
The debtors were insolvent from at least November 19,
2009 within the provisions of the West Virginia Uniform Fraudulent Transfers Act. 7. W. Va. Code § 40-1A-2(a)-(b).
The Uniform Fraudulent Transfers Act enacted in West
Virginia in 1986 was "designed to protect unsecured creditors against debtors who make transfers out of, or make obligations against, the debtor's estate in a manner adverse to the creditor's rights." Nicholas Loan & Mortg., Inc. v. W. Va. Coal Co-op, Inc., The West Virginia Act was
547 S.E.2d 234, 238 (W. Va. 2001).
adopted from the Uniform Fraudulent Transfer Act promulgated by the National Conference of Commissioners on Uniform State Laws in 1984. 8. follows: (a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay or defraud any creditor of the debtor; or (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor; Section 40-1A-4 of the West Virginia Code provides as
25
(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. (b) In determining actual intent under subdivision (1), subsection (a), consideration may be given, among other factors, to whether: (1) The transfer or obligation was to an insider;
(2) The debtor retained possession or control of the property transferred after the transfer; (3) The transfer or obligation was disclosed or concealed; (4) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) The transfer was of substantially all the debtor's assets; (6) (7) The debtor absconded; The debtor removed or concealed assets;
(8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) The debtor transferred the essential assets of the business to the lienor who transferred the assets to an insider of the debtor. 26
W. Va. Code § 40-1A-4. 9. Section 40-1A-4(b)(1)-(11) set forth above lists eleven
factors that have been sometimes referred to as "badges of fraud" which can be indicative of a transfer with actual intent to hinder, delay or defraud any creditor of the debtor. factors are neither exhaustive nor exclusive. presence of a single factor, i.e. badge of These statutory "Although the fraud, may cast
suspicion on the transferor's intent, the confluence of several in one transaction generally provides conclusive evidence of an actual intent to defraud." Gilchinsky v. National Westminster Bank N.J.,
732 A.2d 482, 490 (N.J. 1999) (considering application of New Jersey Uniform Fraudulent Transfer Act). 10. A court in reviewing a transaction in a fraudulent
transfer case, should closely scrutinize transactions involving insiders. In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479,
484 (4th Cir. 1992). 11. reasonably transfer." A transfer for which the debtor receives less than equivalent value is a "constructively fraudulent
What constitutes "reasonably equivalent value" must be Id. at
determined from the standpoint of the debtor's creditors. 484.
The usual motive for transfers without reasonably equivalent value in exchange is to hinder creditors, and in fact such transfers ordinarily do hinder creditors. But such intent is difficult to prove, and the drafters of the Uniform Fraudulent Transfer Act included provisions addressing transactions that might be 27
considered wrongful toward creditors even if a debtor's intent to hinder, delay, or defraud is not proven. The focus in `constructive fraud' shifts from a subjective intent to an objective result. Badger State Bank v. Taylor, 688 N.W.2d 439, 447 (Wis. 2004) (analyzing case under Wisconsin Uniform Fraudulent Transfer Act). 12. A series of transactions under certain circumstances may
be "collapsed" and treated as a single transaction for the purpose of determining whether there has been a fraudulent conveyance. HBE Leasing Corp. v. Frank, 48 F.3d 623, 635 (2d Cir. 1995). Although
the concept of "collapsing" a series of transactions and treating them as a single, integrated transaction has been applied primarily when analyzing a transfer alleged to be fraudulent in the context of a failed leveraged buyout ("LBO"), it has also been utilized in other contexts. In re Sunbeam Corp., 284 B.R. 355, 370 (Bankr.
SDNY 2002); In re Best Prods. Co., Inc., 157 B.R. 222, 229-30 (Bankr. S.D.N.Y. 1993) (citing LBO cases, then collapsing sublease between subsidiary and parent corporation which was used as mere financing vehicle and treating loan as having been made directly to parent corporation); see also Orr v. Kinderhill Corp., 991 F.2d 31, 35-36 (2d Cir. 1993) (collapsing transactions concerning
corporation's (i) transfer of real property, and (ii) subsequent distribution of stock in transferee corporation, and treating integrated transaction as not supported by fair consideration). "Where a transfer is actually `only a step in a general plan,' an evaluation is made of the entire 28 plan and its overall
implications."
In re Sunbeam Corp., 284 B.R. 370 (citing Orr v.
Kinderhill, 991 F.2d at 35). 13. Whether the transactions in this case are "collapsed" or
not "collapsed," the result, under the circumstances in this case, would be the same. In this case, Cheyenne is operated as a conduit
through which a portion of debtor's wealth is passed on its way to defendants or others. This fact does not transform debtor's
property to the property of Cheyenne. 14. Applying the above-stated findings of fact and analyzing
them under the West Virginia Uniform Fraudulent Transfers Act, the transfers of Virgil B. LaRosa, during his lifetime, to Cheyenne of $386,509.00 on July 18, 2003 and $105,100.00 on July 28, 2003 at a time after the claim arose against the debtors were made with the actual intent to hinder, delay or defraud plaintiffs Joseph LaRosa and Dominick LaRosa and were, consequently, transfers fraudulent as to the plaintiffs under West Virginia Code § 40-1A-4(a)(1). transfers were made to an insider. made, debtors were indebted to These
Prior to these transfers being plaintiffs Joseph LaRosa and
Dominick LaRosa for the judgment which had not been satisfied. These transfers were made within weeks after plaintiffs had served suggestions of personal property to try to collect on their judgment. These transfers were not evidenced by any note or other There was no collateral and no interest rate this time, Virgil 29 B. LaRosa was the sole
written document. charged. During
shareholder of Cheyenne and thereby retained control of the funds transferred to Cheyenne. The consideration received by Virgil B. A portion of the
LaRosa was not of reasonably equivalent value.
proceeds from these transfers were used by Cheyenne to purchase annuities that were for the benefit of the individual defendants, all of whom were insiders under Cheyenne's reclamation obligation under the renewal lease described above. These transfers occurred
shortly after Cheyenne incurred a debt in the form of a $700,000.00 drawn on its line of credit with Huntington National Bank. At this time, the debtors were insolvent or became insolvent shortly after the transfers were made. The transfers were made without receipt
of reasonably equivalent value by Virgil B. LaRosa. Therefore, the plaintiffs are entitled to a judgment against defendants for $491,609.00 in connection with these July 2003 transfers. 15. Based upon the above-stated findings of fact applied to
an analysis of the West Virginia Uniform Fraudulent Transfers Act, Cheyenne's draw down of $700,000.00 from Huntington National Bank on June 26, 2003 when Virgil B. LaRosa was the president and sole shareholder of Cheyenne, when its line of credit was secured with substantially all of the assets of debtors, was a transfer of debtor's assets that was made with the actual intent to hinder, delay and defraud plaintiffs and; therefore, the transfer was fraudulent as to the plaintiffs. This actual intent is shown by
the fact that the $700,000.00 transfer was made by Cheyenne, a 30
company wholly-owned by Virgil B. LaRosa, an insider. Further, the proceeds from the $700,000.00 transfer remained under the control of the debtor, Virgil B. LaRosa, as president of Cheyenne. Prior
to this transfer, plaintiffs had served suggestions of personal property and indexed their judgment against debtors in counties where debtors owned real property. This $700,000.00 transfer was Further, the
not done for any legitimate business purpose.
transfer increased the balance due on the line of credit to $919,000.00 and that balance had never exceeded $438,000.00.
Thereafter, Cheyenne increased the line of credit to $950,000.00 in January 2001. Further, the average balance on the line of credit This $700,000.00 transfer was
was never more than $238,000.00.
entirely out of the ordinary since the average amount of Cheyenne's sixteen draws on the line of credit since January 25, 2001 was less than $30,000.00. The $700,000.00 transfer did not serve any
ordinary business purpose but rather was done to encumber debtor's marketable securities which had been pledged to Huntington National Bank to secure debtor's guarantee of Cheyenne's line of credit. This transfer thereby placed the value of those securities beyond the reach of debtor's creditors, Joseph LaRosa and Dominick LaRosa. Finally, Cheyenne, at the time when Virgil B. LaRosa was president and sole shareholder of Cheyenne, used the proceeds from the $700,000.00 transfer to purchase an annuity which was pledged for the benefit of the defendants pursuant to Cheyenne's obligations 31
under the above-described renewal lease.
Consequently, plaintiffs
are entitled to judgment against defendants in the amount of $700,00.00 plus any accrued interest pursuant to the West Virginia Fraudulent Transfers Act. 16. The purchase of two annuities by Cheyenne with proceeds
from Virgil B. LaRosa's July 2003 transfers to Cheyenne and the $700,000.00 draw on Cheyenne's line of credit with Huntington National Bank was for the benefit of the defendants as the
annuities were used to satisfy Cheyenne's purported reclamation obligation to the individual defendants. The individual defendants were required to authorize the subsequent withdrawals from the annuities for Cheyenne's ordinary business purposes. These
transactions involved in the purchase of the annuities were part of a plan to defraud the plaintiffs or to leave debtors without reasonably equivalent value. The purchase of the $700,000.00
annuity was a transfer of debtor's assets made with actual intent to hinder, delay or defraud the plaintiffs and was a transfer that was fraudulent as to the plaintiffs. This "actual intent" is shown by the fact that the purchase was made by Cheyenne, a company wholly-owned by Virgil B. LaRosa. Also, the purchase of the
annuity was made with proceeds from a line of credit collateralized with the debtor's assets which encumbered those assets and kept them away from the reach of their creditors, the plaintiffs Joseph LaRosa and Dominick LaRosa. Prior to the purchase of the annuity, 32
the debtors had been sued by the plaintiffs and the annuity was purchased within weeks after the plaintiffs served suggestions of personal property to attempt to collect on their judgment. The
purchase of the annuity was for the benefit of the individual defendants, all of whom were insiders, pursuant to Cheyenne's reclamation obligation under the renewal lease described above. Cheyenne's subsequent withdrawals from the annuity accounts were not used for reclamation purposes but instead were used for the benefit of Virgil D. LaRosa, an insider, and Regal, a company wholly-owned by Virgil D. LaRosa. Virgil B. LaRosa, as the sole
shareholder of Cheyenne, retained control of the annuity purchased by Cheyenne. Finally, the debtors were insolvent or became
insolvent shortly after the annuity was purchased. 17. Cheyenne's purchase of a $240,000.00 annuity,
supplemented with an additional $880,000.00 purchase, came at a time after the claim of the plaintiffs arose against the debtors and was made with funds transferred to Cheyenne by Virgil B. LaRosa. This was a transfer of debtor's assets made with actual
intent to hinder, delay or defraud Joseph LaRosa and Dominick LaRosa, the plaintiffs, and was a transfer that was fraudulent as to plaintiffs. The "actual intent" to delay, defraud or hinder
Joseph LaRosa and Dominick LaRosa regarding these purchases and contributions to the second annuity with funds transferred to Cheyenne by Virgil B. LaRosa is shown by the fact that the purchase 33
was made by Cheyenne, a company wholly-owned by Virgil B. LaRosa. Further, the beneficiaries of the annuity Virgil D. LaRosa, Sandra LaRosa, Andrea Pecora Fucillo, Jennifer Ward and Chris Ward, were all insiders of the debtors. Also, prior to the purchase of the
annuity, the debtors had been sued by Joseph LaRosa and Dominick LaRosa and the purchase of the annuities was made within a few weeks of the service of suggestions of personal property by the plaintiffs in an effort to collect on their judgment. In addition, the purchase of the annuity was made with funds transferred to Cheyenne by Virgil B. LaRosa which occurred within weeks after the plaintiffs had served suggestions of personal property in their effort to collect on their judgment. The purchase of the annuity
was for the benefit of the individual defendants, all of whom are insiders, pursuant to Cheyenne's reclamation obligation under the renewal lease. Cheyenne's various withdrawals of a total of
$828,453.03 from the annuity accounts were not used for reclamation purposes but rather for the benefit of Virgil D. LaRosa, an insider, and Regal, a corporation wholly-owned by Virgil D. LaRosa. At that time, Virgil B. LaRosa, as sole shareholder of Cheyenne, retained control of the annuity purchased by Cheyenne. Finally,
the debtors were insolvent or became insolvent shortly after the annuity was purchased. For these reasons, plaintiffs would be
entitled to judgment against the defendants in the amount of $1,020,000.00 plus accrued interest. 34 However, such judgment will
not be entered as the Court will enter judgment in favor of the plaintiffs as set forth above against the defendants for the $1,191,609.00 previously requested for the July 2003 transfer of $491,509.00 and the $700,000.00 transfer. 18. Based upon the above findings of fact and this Court's
analysis under the West Virginia Uniform Fraudulent Transfers Act, the debtor's agreement to guarantee Cheyenne's obligation to pay deferred rent under the renewal lease, totaling $1,655,000.00 as of December 31, 2008 and continuing to accrue at a rate of $5,000.00 per month to defendants under the November 2003 renewal lease, an obligation incurred after the claim arose against debtors and for which debtors did not receive any reasonably equivalent value causing this obligation to be undertaken, the debtors incurred or believed or reasonably should have believed that they would incur debts beyond their ability to pay as they became due. This
agreement by the debtors to guarantee Cheyenne's obligation to pay deferred rent amounting to $1,655,000.00 as of December 31, 2008 and continuing to accrue at a rate of $5,000.00 a month to defendants under the terms of renewal lease, was an obligation incurred after the claim arose against defendants for which debtors did not receive any reasonably equivalent value and was at a time when debtors were insolvent and thus was a transfer that was fraudulent as to plaintiffs under the West Virginia Uniform
Fraudulent Transfers Act. Further, the guaranty agreement was made 35
at a time after the claim of the plaintiffs arose against debtors and constitutes a transfer that was fraudulent to plaintiffs with actual intent to hinder, delay or defraud plaintiffs. This actual
intent is shown by the fact that the beneficiaries of the agreement to guarantee the deferred rent obligation were defendants, all of whom were insiders of the debtors. This guaranty agreement was
incurred after debtors had been sued by plaintiffs, and the guaranty obligation was incurred approximately five months after plaintiffs' service of suggestions of personal property in their effort to collect on the judgment. Plaintiffs were insolvent or
became insolvent shortly after they agreed to guarantee Cheyenne's rental obligations under the renewal lease as the agreement was executed sixteen the days before debtors filed to for bankruptcy. an
Significantly,
renewal
lease
purported
memorialize
alleged twenty-two year old oral lease about which none of the lessors knew anything. Further, Cheyenne's financial statements
failed to disclose the existence of any such oral lease and the subsequent rental obligation for the real property upon which the tipple was situated until after the renewal lease was executed. The renewal lease was dated January 1, 2003 but was not executed until November 3, 2003. Testimony at trial shows that the
individual defendants had no knowledge of the renewal lease or its terms, the alleged oral lease that it purported to memorialize, or the land covered by the renewal lease. 36 The individual defendants
did not participate in any negotiations regarding the terms of the lease and testimony showed that the renewal lease was imposed upon them by Virgil B. LaRosa. While the renewal lease identifies Chris Ward and Sandra LaRosa as lessors of the property in question and therefore beneficiaries of the rent guaranty, neither Chris Ward nor Sandra LaRosa had any ownership interest in the property in the renewal lease. The $5,000.00 per month/$60,000.00 per year rental
liability was not the product of negotiations between the parties and was more than six times greater than Cheyenne's average annual profits from 1992 through 2008. Further, the rental liability bore no relationship to and was out of proportion to Cheyenne's profits. Rental liability also never appeared on the financial statements of Cheyenne until the debtors filed for bankruptcy even though the oral lease obligations of Cheyenne appeared in its financial statements from 1992 through 2002. The renewal lease provided for
the creation of a $700,000.00 environmental reclamation fee escrow although the parties to the lease did not consult any expert to determine what future reclamation liabilities for the effected property might be until this civil action was commenced even though Cheyenne's corporate designee testified that such consultation and study should have been performed before the renewal lease was executed. Finally, the renewal lease calls for the creation of a
$700,000.00 reclamation fee escrow even though Cheyenne posted nearly $200,000.00 in bonds in order to comply with the state 37
regulatory requirements for reclamation purpose.
Based upon the
above findings, this Court will void all claims of the defendants against Cheyenne and the debtors arising out of or related to the renewal lease and the purported oral lease, pursuant to the West Virginia Uniform Fraudulent Transfers Act. 19. Based upon the findings of fact and this Court's analysis
under the West Virginia Uniform Fraudulent Transfers Act, this Court 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 creditors of Virgil B. LaRosa, Joan LaRosa, or both of them, which creditors were the plaintiffs, Joseph LaRosa and Dominick LaRosa. 20. 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 either Virgil B. LaRosa, Joan LaRosa or both of them, which could have been made available to their creditors, in this case the plaintiffs, Joseph LaRosa and Dominick LaRosa. Debtors either directed or permitted their son,
Virgil D. LaRosa, to operate their business and that of Regal, their son's corporation, as essentially 38 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, Joseph LaRosa and Dominick LaRosa, in their efforts to collect the judgment they had obtained from the debtors. Essentially, the transfer of business opportunities for profits from Cheyenne to Regal intentionally diverted value which should have inured to the benefit of the debtors to their son, Virgil David LaRosa and Sandra LaRosa, his wife. Diversions are transfers by the debtors pursuant to the provisions of the West Virginia Uniform Fraudulent Transfers Act. 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. From 2003 through 2008, after the claim
against debtors arose, Cheyenne, a corporation owned by Virgil B. LaRosa, the Estate of Virgil B. LaRosa and later Joan LaRosa, transferred substantial tons of washed "B" coal to Regal and Cheyenne through its shareholders and officers. The transfers were made with actual intent to hinder, delay or defraud Joseph LaRosa and Dominick LaRosa as creditors of the debtors. With regard to
these transactions, the "actual intent" to delay, defraud or hinder Joseph LaRosa and Dominick LaRosa with respect to the sale of washed "B" coal to Regal in the above time period is shown by the fact that transfers were made to Regal, a company wholly-owned by Virgil D. LaRosa, an insider. Further, prior to these transfers, 39
the debtors had been sued by Joseph LaRosa and Dominick LaRosa, the plaintiffs. reasonably The consideration to the received value of by the Cheyenne washed was "B" not coal
equivalent
transferred because the profits Cheyenne received through these transactions with Regal during the years 2003 through 2008 were totally inconsistent with reasonable, arms-length, non-insider transactions. The transfers occurred after Cheyenne greatly
increased its debt to Huntington National Bank as well as to Virgil B. LaRosa. Finally, the debtors were insolvent or became insolvent shortly after these transfers 21. by the were made.
Based upon the evidence presented in this case, applied West Virginia Uniform Fraudulent Transfers Act, the
defendants are not entitled to prevail under the ordinary course of business defense under West Virginia Code § 40-1A-8(f)(2). The
Court concludes that considering applicable principles of equity and rules of civil procedure under the circumstances the renewal lease is deemed void, pursuant to West Virginia Code
§ 40-1A-7(a)(3)(iii). 22. This Court reaffirms its previous order enjoining each of
the defendants by way of prohibiting the disposition of their property outside the ordinary course of business, the assets transferred or any other property. As provided under West Virginia Code § 40-1A-7(b), the plaintiffs may levy execution on the assets transferred or its proceeds. 40
23.
Plaintiffs Joseph LaRosa and Dominick LaRosa are hereby
entitled to an attachment in their favor against Virgil D. LaRosa and Sandra LaRosa in the amount of $6,799,161.42, which is the amount of the original judgment, including accrued interest thereon as of July 31, 2009, plus continuing interest accruing thereon up to the date of this judgment, plus post-judgment interest pursuant to 28 U.S.C. § 1961 together with attorneys' fees of $1,019,874.15 as provided under the promissory note in the amount of 15%. (Pls.' Ex. 2., 94.) 24. Plaintiffs Joseph LaRosa and Dominick LaRosa are awarded
judgment against defendants Virgil D. LaRosa and Sandra LaRosa in the amount of $1,191,609.00, which is based upon the aggregate value of the cash infusion of $461,609.00 and the draw down of $700,000.00. 25. Judgment is entered voiding all claims of defendants
against Cheyenne and debtors arising out of the renewal lease, and the renewal lease is deemed void. 26. 27. All fraudulent transfers described above are deemed void. This Court declines to vacate this Court's earlier order
of March 26, 2009 because it has not been provided with sufficient cause to do so. In any event, this Court does not believe that the
ruling would affect this Court's rulings set forth in these Findings of Fact and Conclusions of Law.
41
28.
Any conclusion by this Court which is not a conclusion of
law shall be deemed a finding of fact. IT IS SO ORDERED. The Clerk is DIRECTED to transmit a copy of this memorandum opinion and order to counsel of record herein. Pursuant to Federal Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment on this matter. DATED: September 15, 2010
/s/ Frederick P. Stamp, Jr. FREDERICK P. STAMP, JR. UNITED STATES DISTRICT JUDGE
42
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