In re Landbank Equity Corp.
| Decision Date | 10 June 1987 |
| Docket Number | Civ. A. No. 86-963-N.,No. 85-01541-N,Adv. No. 85-0727-N,85-01541-N |
| Citation | 83 BR 362 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | In re LANDBANK EQUITY CORPORATION, Debtor. Laurence H. LEVY, Trustee, Plaintiff/Appellee, v. William Robert RUNNELLS, Jr.; Marika Lody Runnells a/k/a Marika Lahti Runnells; John Edward Runnells; Stephen Z. Runnells; Robert D. Runnells; Lucille Runnells; John Edward Properties, Inc., Defendants/Appellants, and Thomas Ebmeier; Kimberly Runnells Ebmeier; Property Buyers, Incorporated; Runnington Investment Corporation; William-Robert & Company a/k/a William Robb & Company; Kimberly & Company; Lody & Company; Mortgage Express, Inc.; Richmond Equity Corporation; Sovran Financial Corporation of Virginia; Statewide Mortgages, Inc.; Prime Financial Corporation; General Mortgage Corporation; Butler, Payne & Griffin; Thalia Meadows Holding Corporation; Property Holding Corporation; Runnington Holding Corporation; Defendants. |
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Louis N. Joynes, Taylor, Walker & Adams, Norfolk, Va., Frank J. Santoro, Marcus & Santoro, Portsmouth, Va., David H. Adams, Clark & Stant, Virginia Beach, Va., for plaintiff/appellee.
Tom C. Smith, Edward T. Caton and Barry, Randolph Koch, Caton & Koch, P.C., Virginia Beach, Va., for defendants/appellants.
This matter comes before the Court on appeal of an Order of the Bankruptcy Court, 66 B.R. 949, awarding the Trustee of Landbank Equity Corporation (Landbank) monetary damages totalling $51,020,243.53 against Marika Lody Runnells, Stephen Z. Runnells, Robert D. Runnells, John Edward Runnells and John Edward Properties, Inc. (Appellants). The present suit is an outgrowth of the bankruptcy proceeding of Landbank which was owned and operated by William R. Runnells, Jr. and his wife, Marika Runnells. The Bankruptcy Court found that the Appellants wrongfully enriched themselves from the assets of that corporation and its affiliates through actual fraud, fraudulent conveyances, loan preferences and other forms of self-dealing.
The specific findings of the Bankruptcy Court as to monetary damages awarded against each of the Appellants is as follows:
Appellants allege numerous errors of fact and law in the Order of the Bankruptcy Court. Marika Lody Runnells, Stephen Z. Runnells, Lucille P. Runnells and Robert D. Runnells jointly allege five errors in the judgment of the Court below. Each of these defendants also individually alleges numerous grounds of error. In addition, numerous errors are cited by John Edward Runnells and John Edward Properties, Inc.
The factual findings of the Bankruptcy Court will be set aside only upon a determination by this Court that such findings are clearly erroneous with due regard being given to the opportunity of the Bankruptcy Court to judge the credibility of witnesses.1 Bankr.Rule 8013 (1984); Harman v. Levin, 772 F.2d 1150, 1152-53 (4th Cir.1985); See Anderson v. City of Bessemer City, North Carolina, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). A finding of fact is clearly erroneous when "although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed." United States v. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948); Anderson, 470 U.S. at 573, 105 S.Ct. at 1511. The reviewing court may not decide factual issues de novo. Id. Moreover, "when a trial judge's finding is based on his decision to credit one of two or more witnesses, each of whom has told a coherent and facially plausible story that is not contradicted by extrinsic evidence, that finding, if not internally inconsistent, can virtually never be clear error." Id. at 575, 105 S.Ct. at 1512.
The Bankruptcy Court noted that great weight was given to the testimony of Keith L. Davis, C.P.A., the Trustee's star witness and representative of KMG Main Hurdman, a prominent investigative accounting firm that spent 2,900 hours reviewing Landbank's records for the Trustee. The Court found that "the accountants make their case and while the degree of proof does not change, the burden certainly shifted to the defendants to explain what happened." Furthermore, the Bankruptcy Court noted that "two cardinal premises" prevailed throughout the trial and influenced the Court's decision: (1) the conclusion of the accountants that the books and records of Landbank are in a state of gross disarray, reflecting a complete lack of internal control, so that their accuracy is very much in question; and (2) in chief, the Trustee has built his case upon defendants' own records.
Marika Lody Runnells, Stephen Z. Runnells, Lucille P. Runnells and Robert D. Runnells allege first that the Bankruptcy Court erred in piercing the corporate veils of Mortgage Express, Inc., Runnington Investment Corporation, Property Buyers, Inc., Prime Mortgage Company and Statewide Mortgage Company.
The Bankruptcy Court found "basic badges of fraud" in the operation of Landbank and its affiliates by the Runnells family:
The Court held that these factors indicated that all of the Landbank affiliates were alter egos of Landbank. The Bankruptcy Court further determined that the corporate veils of these affiliates should be pierced based upon the presence of factors outlined by the Fourth Circuit in DeWitt Truck Brokers, Inc. v. Flemming Fruit Co., 540 F.2d 681 (4th Cir.1976), i.e. inadequate capital; failure to observe corporate formalities; nonpayment of dividends; the insolvency at the time; siphoning of funds by a dominant stockholder; nonfunctioning of other officers; absence of corporate records; that the corporation was merely a facade; and the presence of injustice or unfairness.
In DeWitt, the Fourth Circuit was applying South Carolina law. However, the DeWitt standards have been applied by the Fourth Circuit in a bankruptcy case arising under Virginia law. See In re County Green Limited Partnership, 604 F.2d 289 (4th Cir.1979), rev'g, 438 F.Supp. 701 (W.D. Va.1977). Nevertheless, Appellants claim that the Bankruptcy Court erred in failing to apply the standard for piercing a corporate veil enunciated by the Virginia Supreme Court in Beale v. Kappa Alpha Order, 192 Va. 382, 64 S.E.2d 789 (1951). The court in Beale held:
Just when a corporation will be regarded as the adjunct, creature, instrumentality, device, stooge or dummy of another corporation is usually held to be a question of fact in each case. As above stated the general rule is that the separate corporate entity of corporations will be observed by the courts, even though one may dominate or control another, or may treat it as a mere department, instrumentality, agency, etc.; and courts will disregard the separate legal identities of the corporation only...
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