Thomas v. Peacock, TRU-TEC

Citation39 F.3d 493
Decision Date04 November 1994
Docket Number93-1394 and 93-1469,INC,TRU-TEC,Nos. 92-2524,s. 92-2524
Parties18 Employee Benefits Cas. 2617, Pens. Plan Guide P 23903E Jack L. THOMAS, Individually, on behalf of the Tru-Tech, Incorporated Pension Plan, and as a representative of a class of plaintiffs similarly situated, Plaintiff-Appellee, v. D. Grant PEACOCK, Defendant-Appellant, and Alan H. Finegold, Defendant. Jack L. THOMAS, Individually, on behalf of the Tru-Tech, Incorporated Pension Plan, and as a representative of a class of plaintiffs similarly situated, Plaintiff-Appellee, v. D. Grant PEACOCK, Defendant-Appellant, and Alan H. Finegold, Defendant. Jack L. THOMAS, Individually, on behalf of the Tru-Tech, Incorporated Pension Plan, and as a representative of a class of plaintiffs similarly situated, Plaintiff-Appellee, v.; D. Grant Peacock, Defendants-Appellants, and Grant Peacock and Company, Inc.; Connecticut General Life Insurance Company, Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

ARGUED: David Lynn Freeman, Wyche, Burgess, Freeman & Parham, P.A., Greenville, SC, for appellants. J. Kendall Few, Greenville, SC, for appellee. ON BRIEF: J. Theodore Gentry, Wyche, Burgess, Freeman & Parham, P.A., Greenville, SC, for appellants. James R. Gilreath, Greenville, SC, for appellee.

Before RUSSELL and WIDENER, Circuit Judges, and CHAPMAN, Senior Circuit Judge.

Affirmed in part and vacated and remanded in part by published opinion. Judge RUSSELL wrote the opinion, in which Judge WIDENER and Senior Judge CHAPMAN joined.

OPINION

DONALD RUSSELL, Circuit Judge:

Jack L. Thomas ("Thomas"), a former employee of Tru-Tech, Inc. ("Tru-Tech"), brought a suit under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001 et seq., on behalf of a class of former Tru-Tech employees against Tru-Tech and D. Grant Peacock ("Peacock"), an officer and shareholder of Tru-Tech. The district court held for the plaintiff class as against Tru-Tech, but held Peacock not liable as a plan fiduciary. Thomas v. Tru-Tech, Inc., No. 87-2243-3, 1988 U.S.Dist. LEXIS 15929, 1988 WL 212511 (D.S.C. Nov. 28, 1988). On appeal, we affirmed the district court's judgment in all respects. Thomas v. Tru-Tech, Inc., 900 F.2d 256 (4th Cir.1990) (unpublished disposition; full text reported at 1990 WL 48865).

Thomas then brought suit, purportedly on behalf of the plaintiff class certified in the earlier suit, 1 against Peacock, individually, and against Peacock's attorney, Alan H. Finegold ("Finegold"), seeking to collect the earlier judgment. Among various theories for recovery, Thomas sought to pierce Tru-Tech's corporate veil and reach Peacock. The district court rejected Thomas' claim against Finegold, but allowed plaintiffs to recover as against Peacock based upon their veil-piercing theory. Thomas v. Peacock, No. 7:91-3843-21, 1992 U.S.Dist. LEXIS 18749 (D.S.C. Oct. 28, 1992). Peacock appeals. We affirm.

Peacock also appeals the district court's assessment of attorneys' fees against him with respect to both litigations pursued by Thomas. We vacate the award of attorneys' fees and remand for further proceedings.

I.

In August of 1987, Thomas, on behalf of a class of similarly situated former Tru-Tech employees, filed suit against Tru-Tech and Peacock seeking payment of benefits due under Tru-Tech's pension plan (the "initial litigation"). The complaint raised numerous claims for relief, including breach of fiduciary duty under ERISA. The district court found Tru-Tech, but not Peacock, to be a plan fiduciary; it further found that Tru-Tech had breached its fiduciary duties. On appeal, we affirmed the district court in all respects. 2

Thomas subsequently sought to execute judgment against Tru-Tech in Pennsylvania, but was unsuccessful. Thomas then brought the present suit against Peacock, individually, and against Peacock's attorney, Finegold, on theories of civil conspiracy, fraudulent transfer of assets, and corporate veil-piercing under ERISA. The district court approved of plaintiffs' attempt to pierce Tru-Tech's corporate veil and determined that plaintiffs were entitled to collect from Peacock their earlier judgment against Tru-Tech; the court otherwise rejected plaintiffs' claims. Peacock appeals.

II.

In 1981, Rockwell International decided to sell the textile machinery parts manufacturing business of its Draper Division; this business was conducted at two plants, one in Marion, South Carolina, and the other in Beebe River, New Hampshire. A Delaware corporation named Tru-Tech was organized for the purpose of acquiring this business. Tru-Tech maintained an office in Spartanburg, South Carolina; Bill Wilcock ("Wilcock") was appointed its president and chief executive officer. A partnership named Marion Limited Partners ("Marion LP") was established for the purpose of purchasing the Marion, South Carolina, plant from Rockwell International and leasing it to Tru-Tech.

Among the investors in Tru-Tech was appellant Peacock. Peacock was the sole stockholder and director of Peacock, Williams & Company ("PW & C"). 3 Peacock was a CPA and a lawyer who also served as a partner in Marion LP. Marion LP's sole general partner, however, was Wilcock.

Despite high hopes, Tru-Tech quickly fell on hard times. 4 When, by September of 1983, Tru-Tech had already lost a substantial sum of money, Wilcock was replaced by John H. Blackburn ("Blackburn"), previously Tru-Tech's vice president of operations. When Tru-Tech's board determined that it was not viable for Tru-Tech to continue in business, it became Blackburn's responsibility to liquidate Tru-Tech's assets.

In 1985, Tru-Tech relocated its offices to space rented by PW & C in Pittsburgh, Pennsylvania. Timothy H. Williams ("Williams"), PW & C's president, assumed the role of Tru-Tech's executive vice president, treasurer and secretary. From late 1986 through late 1988, PW & C billed Tru-Tech for incidentals such as telephone, travel, entertainment, legal, postal and office supply expenses. Peacock testified that, at that time: "We ha[d]n't been keeping the accounting records ... for Tru-Tech since it had no employees." J.A. 345.

By February of 1986, Tru-Tech had managed to sell all of its productive assets in South Carolina. Operations at the Beebe River Plant in New Hampshire ceased in June of 1986 and management sought to liquidate the assets at that plant to reduce Tru-Tech's financial liabilities. Despite this effort, Tru-Tech's negative net worth continued to increase from $893,676.00 on September 30, 1986, to $1,376,888.00 by September 30, 1990.

As Tru-Tech's troubles continued to mount, Peacock took it upon himself to "buy out" other investors who, purportedly, could less well withstand the impact of Tru-Tech's financial downturn than could he. As a result, by 1987, Peacock controlled in excess of 70% of Tru-Tech's stock. This domination continued until 1990, 5 when, on Finegold's advice, Peacock sold 724,980 shares to Williams and Blackburn for $200 in order to bring his holdings below the 50% mark. Moreover, from March 1988 until February 1990 and, effectively, until Tru-Tech's final dissolution in May 1990, Peacock served as the company's sole director.

Peacock testified that, following the suspension of Tru-Tech's operations, in July 1986, Blackburn was placed on PW & C's payroll for the purpose of "wrapping-up Tru-Tech's affairs." For this service and for the rent for a portion of PW & C's office in Pittsburgh, PW & C billed Tru-Tech $10,000 each month; this liability eventually grew to more than $110,000. PW & C issued invoices to Tru-Tech which described the $10,000 a month charge as levied for the services rendered by Blackburn, an engineer by trade, as having been billed for "FINANCIAL CONSULTING SERVICES." E.g., J.A. 443. This liability was not long maintained on PW & C's books, however, since, according to an August 3, 1989, memorandum to Williams, "the management fee receivable of [approximately] $110,000 was written off in the year ended 1/31/87." J.A. 593. Nevertheless, as described below, Tru-Tech receivables were subsequently transferred from Tru-Tech to PW & C and to other Peacock-affiliated entities, purportedly in consideration for this liability owed PW & C by Tru-Tech.

On November 28, 1988, as described above, the district court entered judgment in favor of the plaintiff class against Tru-Tech, which timely filed its notice of appeal, leaving Tru-Tech beset by numerous large liabilities, including the Thomas judgment, some $50,000 owed to PW & C and approximately $350,000 owed to Peacock individually. After discussions with Peacock concerning the Thomas judgment against Tru-Tech, Finegold, by letter dated March 2, 1989, advised Peacock:

I see no reason for any payment with regard to the Thomas litigation unless and until the judgment becomes final and constitutes a lien on real estate held for sale. As I understand the situation, the corporation owns no real estate in South Carolina and the plaintiffs have made no effort to attach the corporation's property in New Hampshire at this time. It remains quite desirable then, to effect the disposition, for acceptable consideration, of the New Hampshire realty before the plaintiffs attempt to reach it. You will need, nevertheless, to pay any legal fees owed to Tru-Tech, Inc.'s counsel in the Thomas case in order to keep them involved in the appeal process.

J.A. 625 p c. The letter goes on to suggest, as a means of "protect[ing] the [Tru-Tech] real estate against any claims in the Thomas case and to preserve some possibility of recovery of some portion of the amounts owed to you and your corporation, ... an arrangement," J.A. 625-26, under which a new corporation would be formed in New Hampshire for the purpose of assuming ownership of the Tru-Tech real estate. Finegold advised that "the arrangement suggested allows you and Peacock, Williams & Company to recover $130,000 if...

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