Gariety v. Thornton , 261 F. App'x 456 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-2248
DEBRA GARIETY; HORST O. BISCHOFF, as Trustee
of Bischoff Family Trust; PAMELA HANYZEWKI;
JOHN J. CLINE; THOMAS ALLEN, Individually and
on behalf of all others similarly situated;
THOMAS J. SHANNON, JR., as Trustee, Natural
Parent and Guardian of Crystal N. Shannon; SMV
HOLDING COMPANY, PLL; VINCENT PAUL; CHARLES
THORNTON, Individually and as Trustee, SEP;
FRED L. MILLNER; WARREN H. HYDE; CARYL HYDE;
TEEN RESPONSE, INCORPORATED; ELIZABETH B.
SPONSELLER; MICHAEL J. SPONSELLER; TERRY
OVERHOLSER; LAWRENCE CORMAN, on behalf of
themselves and all others similarly situated,
Plaintiffs - Appellants,
versus
NANCY VORONO; VIDA HEADRICK; EVELYN HERRON;
JEANIE WIMMER,
Defendants - Appellees,
and
GRANT THORNTON, LLP; HERMAN & CORMANY; MICHAEL
GRAHAM; BILLY JEAN CHERRY; TERRY LEE CHURCH;
ESTATE OF J. KNOX MCCONNELL; LOUIS J. PAIS;
MICHAEL F. GIBSON; ANDREW L. RAGO; JULIAN G.
BUDNICK; GARY ELLIS; J&J CONSTRUCTION COMPANY;
HERMIE CHURCH; DIVERSIFIED CAPITAL MARKETS;
MICHAEL PATTERSON, a/k/a MPI Financial; MICHAEL
PATTERSON, INCORPORATED; E.E. POWELL & COMPANY,
INCORPORATED; JOHN DOES 1-100; ROBERT WAGNER;
QUANTUM CAPITAL CORPORATION; FERRIS, BAKER,
WATTS, INCORPORATED; SCOTT & STRINGFELLOW;
GUNNALLEN FINANCIAL INCORPORATED; JACK INGOLD;
REGIS SECURITIES CORPORATION; NANCY VARGO; TOM
DOOLEY; GARVIN TANKERSLEY; ELLEN TURPIN; LORA
MCKINNEY; PHILIP C. PETTY, Administrator;
VICKIE MIKLES; DONNA DICKERSON; MARY A. WHITE;
VIRGINIA BURKS; CONSTANCE EVANS; RITA LASSAK;
DEBRA BAILEY; SUSAN DALTON; ROBBIN WHITE; TAMMY
FISHER; CITY NATIONAL BANK; UNITED NATIONAL
BANK,
Defendants,
HARGRAVE MILITARY ACADEMY, a non-profit
corporation; WAYNESBURG COLLEGE, a non-profit
corporation; MICHAEL CHERRY; TIMMY CLINE;
VICKIE CLINE; THE OFFICE OF THE COMPTROLLER OF
THE CURRENCY; FIRST COMMERCE OF AMERICA,
Parties in Interest,
MELISSA QUIZENBEURY; HOG PEN ENTERPRISES,
INCORPORATED; JLT ENTERPRISES; KEYSTONE
HARDWARE; C&H RANCH; MARBIL,INCORPORATED; HC &
TC TRUST; DOLORES HUGHES; BILL PACK; WENDY
PACK; TAMMY FISHER; LARRY FISHER; HERMAN
FISHER; JUDY KAHL; ANDREW T. RAPOFF; DONNA
MARIE RAPOFF; MICHAEL A. RAPOFF; DANNY RAPOFF;
NANCY E. KELANON; DAVID RAPOFF; ANDREW J.
RAPOFF; MICHAEL J. CHERRY; ROSLYN A. CHERRY;
LEAH M. CHERRY; RACHEL L. CHERRY; DANIEL T.
HALSEY; SUNRISE AUTOMOTIVE GROUP,
INCORPORATED; NANCY E. KELAHAN; TERRY L. ROSE,
Intervenors/Defendants,
H. LYNDEN GRAHAM, JR.,
Trustee,
versus
ADVANTA MORTGAGE CORPORATION USA; CELINK,
INCORPORATED, formerly known as Compu-link
Service, Incorporated,
Third Party Defendants.
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Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. David A. Faber, Chief
District Judge. (2:99-00992)
Argued: October 31, 2007 Decided: January 8, 2008
Before WILLIAMS, Chief Judge, and NIEMEYER and SHEDD, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Joshua Israel Barrett, DITRAPANO, BARRETT & DIPIERO,
Charleston, West Virginia, for Appellants. David Dale Johnson,
III, WINTER, JOHNSON & HILL, P.L.L.C., Charleston, West Virginia;
William Bernard Flanigan, SANDERS, AUSTIN, PRUDICH, FLANIGAN &
ABOULHOSN, Princeton, West Virginia; Shawn Patrick George, GEORGE
& LORENSEN, P.L.L.C., Charleston, West Virginia, for Appellees. ON
BRIEF: Sigmund S. Wissner-Gross, BROWN & RUDNICK, New York, New
York; Rudolph L. DiTrapano, Sean P. McGinley, DITRAPANO, BARRETT &
DIPIERO, Charleston, West Virginia, for Appellants. Larry A.
Winter, WINTER, JOHNSON & HILL, P.L.L.C., Charleston, West
Virginia, for Appellee Nancy Vorono.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
This appeal marks at least the fifth occasion we have
addressed the repercussions of the 1999 collapse of First National
Bank of Keystone, in Keystone, West Virginia (“Keystone”). See
F.D.I.C. v. Bakkebo, -- F.3d --, 05-2175 Slip Op. (4th Cir. October
25, 2007) (civil action brought by FDIC); Gariety v. Grant
Thornton, LLP, 368 F.3d 356 (4th Cir. 2004) (“Gariety I”)(class
action by persons who purchased stock prior to Keystone’s failure);
United States v. Cherry, 330 F.3d 658 (4th Cir. 2003) (criminal
appeal); United States v. Church, 11 Fed. App’x. 264 (4th Cir.
2001) (unpublished) (same). The current action, styled “Gariety
II,” is a lawsuit filed by individuals (the “Plaintiffs”) who
purchased Keystone stock between September 28, 1998 and September
1, 1999, when Keystone was declared insolvent and closed by federal
regulators.
The Plaintiffs filed a three-count complaint on April 15, 2002
in the United States District Court for the Southern District of
West Virginia on the basis of diversity jurisdiction, 28 U.S.C.A.
§ 1332 (West 2006), and named more than twenty defendants,
including the following persons: Nancy Vorono, identified as the
long-time secretary of Keystone’s President, J. Knox McConnell;
Vida Headrick, a close personal friend of Billy Cherry (one of the
principal criminal conspirators); Evelyn Herron, a bank manager of
Keystone’s Bradshaw, West Virginia branch; and Jeanie Wimmer, a
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teller at the Bradshaw branch. On appeal, our inquiry centers only
on Count One of the Plaintiffs’ complaint, which alleged a claim
for unjust enrichment. Specifically, Count One alleged that the
defendants “obtained the proceeds of the sales of their [Keystone]
stocks by fraud,” or, “that [if] any of the Defendants obtained the
proceeds of the sale of their Keystone stock without fraud, it is
against equity for any such Defendant to be permitted to continue
to hold such proceeds.” (J.A. at 418.)
The district court, following discovery, granted summary
judgment in favor of Vorono, Headrick, Herron, and Wimmer,
concluding that the Plaintiffs had put forth insufficient evidence
that the four women obtained any property by way of wrongdoing.1
Pursuant to Federal Rule of Civil Procedure 54(b), the district
court then entered an order of final judgment as to the unjust
enrichment claim against the four women. The Plaintiffs have
appealed, and we possess jurisdiction pursuant to 28 U.S.C.A. §
1291 (West 2006).
1
In contrast, the district court did grant the Plaintiffs’
motion for summary judgment as to several other defendants,
including Billy Cherry, Melissa Quizenbeury, Ellen Turpin, and Lora
McKinney. Those defendants have not appealed that ruling. The
district court also calendared for trial unjust enrichment claims
against four other Keystone employees, Constance Evans, Virginia
Burkes, Susan Delton, and Deborah Bailey.
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I.
Until the early 1990s, Keystone was a community bank in the
small town of Keystone, West Virginia (population less than 1,000)
with assets of around $17 million. The town of Keystone itself
“looks like a movie set left over from Coal Miner’s Daughter.”
Timothy Roche, Poor Town, Rich Bank, Time Magazine, November 1,
1999. At that time McConnell, a Pittsburgh area banker who had
taken control of the bank in 1977, embarked upon a growth strategy
based upon acquiring subprime mortgage loans and Federal Housing
Authority home improvement loans. On paper, this growth strategy
was highly successful. In Gariety I we explained:
To pursue its loan securitization business, Keystone
entered into financing relationships with other banks,
paying higher than normal interest rates. In 1997,
Keystone began to securitize its own high loan-to-value
loans made to highly leveraged borrowers with little or
no collateral. During these years, Keystone made its
highly risky securitization business its principal
business. From 1992, when Keystone had assets of $107
million, to 1999, Keystone’s business grew almost
tenfold. In 1995, Keystone was reported to be one of the
most profitable community banks in the nation, and by
1999, it reported assets of $1.1 billion. Keystone was
listed No. 1 in American Banker’s June 1999 list of “the
75 most profitable large community banks,” with a
“whopping” 7.24% return on average assets in 1998.
368 F.3d at 359.
During this time frame, however, Keystone was under near-
constant investigation from the Office of the Comptroller of the
Currency (“OCC”) for possible reporting violations and
falsification of bank records.
6
In October 1997, McConnell passed away unexpectedly. Under
his then-existing will, a large portion of his estate was
bequeathed to Waynesburg College, a private college in
Pennsylvania. Fearful that the College would scrutinize Keystone’s
finances if it took control of McConnell’s stock, two high ranking
employees, Terry Church and Billy Cherry, forged a codicil to
McConnell’s will that devised McConnell’s stock to Cherry and
Church instead of to Waynesburg College. In addition, the codicil
created small gifts of $20,000 for certain Keystone employees,
including Vorono. Cherry also added her name to all of McConnell’s
bank accounts, creating joint ownership with survivorship in those
accounts, and then transferring the funds from those accounts into
her own separate accounts.
Despite the concealment efforts of Cherry and Church (which
included burying boxes of bank records on Cherry’s farm), the OCC
finally caught up with Keystone in 1999. In 1998, Keystone,
pursuant to an agreement with the OCC, hired an outside accounting
firm, Grant Thornton, LLP, to review Keystone’s books. Gariety I,
368 F.3d at 359. In May 1999, Grant Thornton issued a report
declaring the bank to be on solid footing. Id. The OCC kept up
its investigatory vigor, however, and in August 1999, the OCC
verified that Keystone could not substantiate almost $515 million
in loan assets, nearly one-half of its total assets. Id. at 360.
On September 1, 1999, the OCC declared Keystone insolvent and
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closed the bank. Id. The Federal Deposit Insurance Company
(“FDIC”) has since indicated that Keystone’s failure cost the FDIC
between $750 million and $850 million. Id.
Summarizing Keystone’s actual performance during the 1990s, we
noted:
A subsequent investigation by the Office of Inspector
General determined that Keystone had been suffering heavy
losses early in its growth period and that by late 1996
Keystone had become insolvent. Keystone concealed its
financial condition by continuing to record loans as
assets even after they had been sold to investors as part
of a securitized loan pool. The Office of Inspector
General concluded that “[a]lleged fraudulent accounting
practices, uncooperative bank management and reported
high profitability may have all served to mask the bank’s
true financial condition from OCC examiners.”
Gariety I, 368 F.3d at 360 (alteration in original).
The four defendants before us obtained Keystone stock as part
of the Employee Stock Ownership Plan (“ESOP”). The ESOP was
terminated in 1995. As noted above, the FDIC viewed Keystone as
insolvent by 1996, and deposition testimony established that the
stock shares at issue in this case, i.e., those sold between
September 28, 1998 and September 1, 1999, were worthless at the
time of the sales. According to the Plaintiffs, Vorono, Headrick,
Herron, and Wimmer sold the following amounts of stock during that
time period:
NAME SHARES SOLD GROSS PROCEEDS
Nancy Vorono 11,286 $2,321,830
8
Vida Headrick 3,885 $649,525
Evelyn Herron 1,000 $172,500
Jeanie Wimmer 1,000 $172,500
II.
We review de novo the district court’s grant of summary
judgment in favor of the four women, applying the same standard as
the district court. See Laber v. Harvey, 438 F.3d 404, 415 (4th
Cir. 2006) (en banc). Summary judgment is appropriate when “the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” Fed. R. Civ. P.
56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
We must construe the facts in the light most favorable to the
Plaintiffs, and we may not make credibility determinations or weigh
the evidence. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986); Edell & Assoc., P.C. v. Law Offices of Peter G.
Angelos, 264 F.3d 424, 435 (4th Cir. 2001). But there must be
“sufficient evidence favoring the nonmoving party for a jury to
return a verdict for that party. If the evidence is merely
colorable, or is not significantly probative, summary judgment may
be granted.” Anderson, 477 U.S. at 249-50 (internal citations
omitted).
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A.
The only claim before this court is Count One in Gariety II,
which alleged a cause of action for unjust enrichment against
Vorono, Headrick, Herron, and Wimmer. Under West Virginia law,
which the parties agree governs these claims, an individual is
unjustly enriched “whenever the legal title to property . . . has
been obtained through actual fraud, misrepresentations,
concealments, or through undue influence, duress, taking advantage
of one’s weakness or necessities, or through any other similar
circumstances which render it unconscientious for the holder of the
legal title to retain and enjoy the beneficial interest.” Annon v.
Lucas, 185 S.E.2d 343, 352 (W. Va. 1971) (internal quotation marks
omitted); see also Patterson v. Patterson, 277 S.E.2d 709, 715 (W.
Va. 1981) (noting that unjust enrichment occurs when property is
“acquired through fraud, duress, undue influence or mistake, or
through a breach of fiduciary duty, or through the wrongful
disposition of another’s property”).
To remedy unjust enrichment, courts in equity may create a
constructive trust over the property in question. “A constructive
trust is imposed where a person holding title to property is
subject to an equitable duty to convey it to another on the ground
that he would be unjustly enriched if he were permitted to retain
it.” Patterson, 277 S.E.2d at 715 (internal quotation marks
omitted); see also St. Clair v. St. Clair, 273 S.E.2d 352, 355 (W.
10
Va. 1980) (“To invoke . . . unjust enrichment to impose a
constructive trust upon property of another, it is necessary that
it be shown that one party has been unjustly enriched.”). Indeed,
constructive trusts are “substantially an appropriate remedy
against unjust enrichment.” Annon, 185 S.E.2d at 352. It is
important to remember that “[a] constructive trust arises not from
agreement of parties, express or implied, but from the construction
and operation of equity in order to satisfy the demands of
justice.” Id. at 353 (internal quotation marks omitted).
On appeal, the Plaintiffs argue that the district court erred
in granting summary judgment because the evidence, viewed in the
light most favorable to them, would permit a fact-finder to
conclude that the four women were unjustly enriched because when
they sold their stock between September 28, 1998 and September 1,
1999, they knew that the stock was worthless based upon inside
information about Keystone’s financial situation.
A careful review of the record compels the conclusion that the
district court correctly granted summary judgment in favor of
Vorono, Headrick, Herron, and Wimmer. Under West Virginia law, the
Plaintiffs must show some form of wrongdoing--fraud, concealment,
or some other similar wrongful act--on the part of the four women.
Even drawing inferences in the Plaintiffs’ favor, as we must, no
such credible evidence exists to survive summary judgment. For
instance, both Wimmer and Herron sold their stock only after being
11
approached by an unrelated broker and only sold a small amount
relative to their holdings.2 Headrick testified during her
deposition that she sold her stock at her husband’s urging and that
she believed Keystone was doing very well. No contrary evidence
exists in the record. In addition, while Vorono sold virtually all
of her stock, she initially only offered to sell 1,000 of her more
than 11,000 shares and was asked by the broker to sell the
remainder. She was not, as the Plaintiffs contend, “dumping” her
stock in April 1999. Moreover, Vorono retained more than
$314,000.00 on deposit at Keystone at the time of the bank’s
failure.
At bottom, the Plaintiffs’ sole evidence in this case consists
of the timing of the stock sales by the four women. Such evidence
amounts solely to speculation of wrongdoing, and “as in all summary
judgments . . . the non-moving party must still provide evidence
sufficient to create an issue for trial.” Francis v. Booz, Allen
& Hamilton, Inc., 452 F.3d 299, 308 (4th Cir. 2006). Thus, “[m]ere
unsupported speculation is not sufficient to defeat a summary
judgment motion if the undisputed evidence indicates that the other
party should win as a matter of law.” Id. Accordingly, the
district court did not err in granting summary judgment in favor of
2
At the time Keystone closed its doors, Wimmer held
approximately 2,900 shares of Keystone stock and Herron held
approximately 3,500 shares. In addition, both women kept the
proceeds from the stock they did sell in their personal accounts at
Keystone.
12
Vorono, Headrick, Herron, and Wimmer on the Plaintiffs’ unjust
enrichment claim.
B.
Perhaps anticipating our decision on the unjust enrichment
claim, the Plaintiffs also argue that, in the alternative, we
should certify to the West Virginia Supreme Court of Appeals the
question of whether West Virginia law recognizes what the
Plaintiffs refer to as the “innocent beneficiary doctrine.” See
e.g., Pope v. Garrett, 211 S.W.2d 559, 562 (Tex. 1948) (finding
that a “[constructive] trust should be impressed even though the
wrongful conduct because of which the title was acquired is that of
a third person” pursuant to the “policy against unjust enrichment”
because “[b]ut for the wrongful acts the innocent defendants would
not have inherited interests in the property”); Connecticut Gen.
Life Ins. Co. v. Merkel, 279 N.W.2d 715, 716-17 (Wis. Ct. App.
1979) (noting that a constructive trust is imposed against innocent
beneficiaries when there is a “finding of improper or wrongful
conduct on the part of someone”).3 According to the Plaintiffs,
the innocent beneficiary doctrine permits the Plaintiffs to recover
3
The Restatement (First) of Restitution § 184 gives the
following example:
A, on his deathbed, attempts to execute a will leaving
all his property to B. C by force or by fraud prevents
A from executing the will. A dies intestate. A’s heirs
and next of kin hold upon a constructive trust for B.
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proceeds from innocent beneficiaries of a third party’s fraud or
other wrongdoing. Thus, Plaintiffs contend that even if Vorono,
Headrick, Herron, and Wimmer committed no wrongdoing, a
constructive trust should still be imposed against them because the
women were able to sell their stock for value due to the wrongdoing
of others at Keystone.
Pursuant to W. Va. Code Ann. § 51-1A-3, “[t]he supreme court
of appeals of West Virginia may answer a question of law certified
to it by any court of the United States . . . if the answer may be
determinative of an issue in a pending cause in the certifying
court and if there is no controlling appellate decision,
constitutional provision or statute of this state.” W. Va. Code
Ann. § 51-1A-3 (Lexis Nexis 2000). The Supreme Court of Appeals
has expounded upon its authority to hear certified questions,
noting that “certification requires ‘a sufficiently precise and
undisputed factual record on which the legal issues can be
determined.’” Zelenka v. City of Weirton, 539 S.E.2d 750, 752 (W.
Va. 2000) (quoting Bass v. Coltelli, 453 S.E.2d 350, 356 (W. Va.
1994)). In addition, that court “will not consider certified
questions not necessary to the decision of a case.” Zelenka, 539
S.E.2d at 752. Indeed, § 51-1A-3 “does not impose an absolute duty
on [the Supreme Court of Appeals] to answer [certified] questions.”
Abrams v. W. Va. Racing Comm’n, 263 S.E.2d 103, 105 (W. Va. 1980).
The court does “recognize that one of the beneficial purposes of
14
the certification statute is to provide foreign courts with the
benefit of [the Supreme Court of Appeals of West Virginia’s]
determination of West Virginia law,” and that its purpose is “to
resolve ambiguities or unanswered questions” in West Virginia law.
Id. at 106 (internal quotation marks omitted).
Certification is, by its very nature, discretionary on the
part of the federal court as well. See Lehman Bros. v. Schein, 416
U.S. 386, 391 (“[Certification’s] use in a given case rests in the
sound discretion of the federal court.”); Powell v. U.S. Fidelity
& Guar. Co., 88 F.3d 271, 274 (4th Cir. 1996). Taking into
consideration the purposes underlying West Virginia’s certification
statute, and utilizing our own discretion, we believe certification
is inappropriate in this case.
West Virginia’s law of equity has consistently required some
form of wrongdoing when imposing constructive trusts. The
equitable wrong of unjust enrichment has existed since West
Virginia’s statehood, see, e.g., Thompson v. Merchants’ &
Mechanics’ Bank of Wheeling, 3 W. Va. 651 (W. Va. 1869), and has
never extended as far as the Plaintiffs would have it do in this
case. In reviewing state law, a federal court “should not create
or expand [a] State’s public policy.” St. Paul Fire & Marine Ins.
Co. v. Jacobson, 48 F.3d 778, 783 (4th Cir. 1995). Following that
principle, we use our discretion and decline to certify a question
of law to the West Virginia Supreme Court of Appeals.
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III.
The failure of Keystone was undoubtedly tragic, and we are
certainly sympathetic to the plight of the Plaintiffs, many of whom
put significant portions of their life-savings into Keystone stock.
The real “wrongdoers,” Terry Church, Billy Cherry, and other
Keystone executives, are, according to the Plaintiffs, essentially
judgment proof, leaving the Plaintiffs to attempt to recover from
persons skirted about the periphery of the Keystone affair. In
this case, the Plaintiffs failed to bring forth sufficient evidence
to permit a fact-finder to conclude that the four women were
unjustly enriched and, accordingly, the judgment of the district
court must be
AFFIRMED.
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