American Metal Forming Corp. v. Pittman

• Decision Date: 24 April 1995
• Docket Number: No. 92-2609,92-2609
• Citation: 52 F.3d 504
• Parties: AMERICAN METAL FORMING CORPORATION; Roger Schlossberg, Trustee, Plaintiffs-Appellees, v. W. David PITTMAN, Defendant-Appellant, and Patrice Kelley Pittman, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 504

52 F.3d 504

AMERICAN METAL FORMING CORPORATION; Roger Schlossberg Trustee, Plaintiffs-Appellees, v. W. David PITTMAN, Defendant-Appellant and Patrice Kelley Pittman, Defendant.

No. 92-2609.

United States Court of Appeals Fourth Circuit.

Argued Oct. 25, 1993.

Decided April 24, 1995.

ARGUED: Michael Edward Marr, Baltimore, MD, for Appellant. Aron Uri Raskas, Kramon & Graham, P.A., Baltimore, MD, for Appellees. ON BRIEF: James P. Ulwick, Kramon & Graham, P.A., Baltimore, MD, for Appellees.

Before LUTTIG and WILLIAMS, Circuit Judges, and SPROUSE, Senior Circuit Judge.

Reversed in part, vacated in part, and remanded by published opinion. Judge WILLIAMS wrote the opinion, in which Judge LUTTIG and Senior Judge SPROUSE joined.

OPINION

WILLIAMS, Circuit Judge:

This case involves transactions between a corporation and its sole shareholder, officer, and director which resulted in a district court order imposing a constructive trust and assessment of damages. Because the Court of Appeals of Maryland, upon certification by this court, held that Pittman as sole shareholder neither usurped a corporate opportunity nor violated his fiduciary duties in the purchase and lease of property and equipment to his corporation, we reverse the district court's imposition of a constructive trust and vacate the assessment of damages. However, because we find a genuine issue of material fact exists as to whether $80,000 Pittman received from Pittcon was a loan or a bonus, we remand for further proceedings.

I.

David Pittman was the President, a director, and the sole shareholder of Pittcon Industries, Inc. (Pittcon), a Maryland corporation employing fewer than fifty persons that manufactured metal construction components and customized drywall products. Patrice Pittman, David's wife, worked for Pittcon until at least 1984 and at one time had the title of Vice President of Marketing. She also served for a brief time as a director of the corporation. ¹

On May 23, 1988, Pittcon filed a voluntary petition for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Maryland. ² The bankruptcy court appointed a Trustee to manage the affairs of Pittcon. In the fall of 1989, American Metal Forming Corporation (American) submitted a plan to the Trustee to purchase the assets of Pittcon, which was subsequently approved by the bankruptcy court. ³ Following the asset purchase, American commenced this adversary proceeding in bankruptcy court against the Pittmans. Pursuant to the bankruptcy court's recommendation, this matter was transferred to the United States District Court for the District of Maryland. Subsequently, the Trustee filed a motion, which the district court granted, to intervene as a plaintiff. It thereafter filed a separate complaint against the Pittmans that was virtually identical to the one filed by American.

Two types of transactions involving Pittman are at issue in this case. The first involved a check for $80,000 that Pittman received from Pittcon in December 1986, which was initially treated as a loan by both Pittman and Pittcon. American and the Trustee claim that Pittman owes $52,872 to Pittcon to repay the 1986 loan. ⁴ Pittman argues, however, that the money was intended as a bonus, and that he later treated it as income in his 1987 individual tax return. The district court granted partial summary judgment in favor of American and the Trustee, holding that the $80,000 payment was a loan and not a bonus, and therefore, Pittman owed the balance of the loan to Pittcon.

The second type of transaction at issue in this case involves the purchase in 1980 and again in 1985 of properties located in Prince George's County to expand Pittman's operations. To purchase the properties, Pittman obtained Industrial Revenue Bond (IRB) ⁵ financing with Prince George's County, Maryland, as the secured party. Citizens Bank of Maryland was the assignee on the 1980 purchase and Maryland National Bank was the assignee on the 1985 purchase. In addition to the purchase of properties, IRB funds were used to purchase equipment. Both the property and equipment were purchased in the names of Pittman and his wife who rented the property and equipment to Pittcon pursuant to long-term leases.

American and the Trustee sought the imposition of a constructive trust and the transfer to American of legal title in the properties and equipment that the Pittmans purchased using IRB funds. The complaints alleged that the Pittmans had breached their fiduciary duties to Pittcon by purchasing the properties and equipment in their names and then leasing them back to the corporation at prices above the fair market rate, and that the Pittmans owed the corporation damages in the amounts overcharged.

After a bench trial, the district court found that David Pittman had breached his fiduciary duty to Pittcon through usurpation of a corporate opportunity. The district court entered an order granting a constructive trust to American and the Trustee and further ordered the Pittmans to deliver legal title to the buildings and equipment to American. ⁶ The district court found that although the 1980 lease for the property was at a fair market rate, the lease for the equipment was above the fair market rate. The district court further found that the 1985 leases for both the property and the equipment were priced above the fair market rate. See American Metal Forming Corp. v. Pittman, 135 B.R. 782 (D.Md.1992). The district court then referred the matter to a Magistrate Judge to recommend appropriate damages and to reform the lease agreements. The Magistrate Judge recommended that the Pittmans pay compensatory damages for the lease payments in excess of fair market value in the amount of $1,170,429.00, and reformed the leases to reflect fair market prices. The district court adopted the Magistrate Judge's findings in its final order. Pittman appeals.

II.

The Pittmans first challenge the district court's determination on summary judgment that the $80,000 payment from Pittcon to Mr. Pittman was a loan and not a bonus. The district court's grant of summary judgment is subject to de novo review. Foster v. Federal Emergency Management Agency, 984 F.2d 128, 130 (4th Cir.1993). Summary judgment should be granted if "there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id. at 249, 106 S.Ct. at 2511.

The district court found that Pittman did not assert any facts from which a reasonable factfinder could conclude that the $80,000 payment was a bonus and not a loan. We disagree. Pittman submitted his own affidavit and the affidavit of Ruth Cook, the Vice President and Chief Financial Officer for Pittcon. Both affidavits state that in 1986, Pittman was given a bonus of $80,000. The affidavits assert that both Pittcon's accountant and Cook recommended that Pittman take the bonus because Pittcon's profits were forecast to exceed one million dollars in 1986 and they wished to lower the corporation's tax liability.

Pittman's affidavit also explained that because he was in a high tax bracket individually, he elected to set up a non-profit foundation for charitable gifts into which he deposited the $80,000. Furthermore, the district court had before it the deposition testimony of Robert Hauk, accountant for Pittcon and the Pittmans, who testified that for tax purposes Pittman and Pittcon originally treated the $80,000 payment as a loan and, thus, did not reflect the payment as income to Pittman on either the company or Pittman's individual tax returns for 1986. He further explained that Pittman later treated it as an income adjustment on his 1987 individual tax returns, but that Pittcon's 1987 tax return failed to reflect the changed character as a bonus because accountants unfamiliar with the transaction prepared the corporate tax return.

American and the Trustee argue that the grant of summary judgment should be affirmed because the affidavits submitted by Pittman constitute an attempt to create a sham issue of fact. See Rohrbough v. Wyeth Laboratories, Inc., 916 F.2d 970, 975 (4th Cir.1990). In Rohrbough, the only affidavit that raised a genuine issue of material fact conflicted with the affiant's prior deposition testimony. Therefore, we held that the district court was correct in granting summary judgment because the affidavit was an attempt by the plaintiff to create an issue of fact where there was none. Id. at 976. American and the Trustee argue that the affidavits submitted on behalf of Pittman are similar to those considered in Rohrbough. However, neither Pittman's nor Cook's affidavits differ from any other testimony that they gave previously, and their affidavits clearly conflict with the affidavits submitted by American and the Trustee. In this context, the district court should not have disregarded the affidavits.

Accordingly, we find that the conflicting affidavits raise a genuine issue of material fact as to whether the $80,000 payment was a loan. Thus, summary judgment should not have been granted and this issue is remanded to the district court for further proceedings.

III.

The Pittmans next contend that the district court erred in placing the property and equipment at issue in a constructive trust and ordering their turnover to the Trustee. They further contend that the district court erred in finding that Pittman had breached a fiduciary duty to the corporation by engaging in the 1980 and 1985 IRB transactions for his personal benefit. Thus, they argue that the court erred in ordering Pittman to pay damages to American. To resolve these related issues, we...