Peterson v. Cooley

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BARRIE M. PETERSON; BARRIE M.
PETERSON, Trustee; NANCY A.
PETERSON,
Plaintiffs-Appellants,
v.
No. 97-1764
WILLIAM COOLEY; MID-PACIFIC
FUNDING CORPORATION; C.F.
HOLDINGS, INCORPORATED, t/a C.F.
Trust, Incorporated,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude A. Hilton, Chief District Judge.
(CA-96-1459-A)
Argued: March 5, 1998
Decided: April 21, 1998
Before WILKINSON, Chief Judge, and WIDENER and
NIEMEYER, Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Widener and Judge Niemeyer joined.
_________________________________________________________________
COUNSEL
ARGUED: Christopher Andrew Myers, HOLLAND & KNIGHT,
Washington, D.C., for Appellants. Harvey Alan Levin, BIRCH,
HORTON, BITTNER & CHEROT, Washington, D.C., for Appellees.
ON BRIEF: Gloria B. Solomon, Craig A. Holman, HOLLAND &
KNIGHT, Washington, D.C., for Appellants.
_________________________________________________________________
OPINION
WILKINSON, Chief Judge:
Barrie and Nancy Peterson sued William Cooley, Mid-Pacific
Funding Corporation, and C.F. Trust, Inc. for tortious interference
with contractual relations and statutory conspiracy to injure their busi-
ness, Va. Code Ann. § 18.2-499. The district court granted summary
judgment in favor of the defendants on the grounds that no contract
existed and that the defendants acted properly in pursuit of legitimate
business purposes. The Petersons appeal, arguing both that the district
court lacked diversity jurisdiction and that it erred in dismissing their
claims on summary judgment. We hold that there is diversity of citi-
zenship here, and that the defendants' motion for summary judgment
was properly granted. Accordingly, we affirm the judgment of the dis-
trict court.
I.
On November 1, 1993, DEP, Inc. executed two commercial prom-
issory notes ("1993 notes") for a total amount of $6,064,903.57 pay-
able to Central Fidelity, a Virginia bank. The notes were endorsed by
Barrie Peterson, who is now the sole shareholder of DEP; Barrie
Peterson, Trustee; and Nancy Peterson. Both notes were secured by
first lien deeds of trust on three pieces of real property located in
Prince William County, Virginia -- the Dominion Professional Cen-
ter, the Elm Farm Mobile Home Park, and the Pick-A-Pair acreage.
Between October 1994 and January 1995, Central Fidelity placed the
1993 notes on nonaccrual status. Because DEP and the Petersons
lacked the necessary financial resources, the bank was repeatedly
forced to pay long-overdue sewer and water bills, as well as delin-
quent real estate taxes, on the properties. Central Fidelity, therefore,
sought a strategy for removing the nonperforming credit from its
books. In January 1995, Central Fidelity, DEP, and the Petersons
2
began negotiations concerning the discounted release of the 1993
notes.
Also in January 1995, William Cooley contacted Central Fidelity
regarding the possible purchase of Central Fidelity's first-trust posi-
tion on the Dominion Professional Center. Atlantic Funding Corpora-
tion, a company wholly owned by Cooley, held a $1 million note
previously owned by the Resolution Trust Corporation ("RTC note")
made payable by Barrie Peterson and secured by a second deed of
trust on the Dominion Professional Center. Atlantic Funding also
owned a judgment against Peterson on the RTC note for $1,217,202.
Cooley became concerned that Peterson might attempt to purchase
Central Fidelity's first-trust position on the Dominion Professional
Center and thereby foreclose Atlantic Funding's second-trust position
on the property. Cooley therefore called Central Fidelity, the holder
of that first-trust position. Central Fidelity, however, rejected Coo-
ley's only offer made at that time.
Meanwhile, negotiations between DEP, the Petersons, and Central
Fidelity continued. During a March meeting between the parties, Cen-
tral Fidelity orally proposed to sell the 1993 notes to the Petersons at
a discount. Under the proposal, the Petersons would deliver a $4.2
million payment and a $200,000 deficiency note to Central Fidelity
by October 13, 1995. The Petersons claim they unequivocally
accepted Central Fidelity's alleged offer by letter dated April 13,
1995. Central Fidelity thereafter prepared a written settlement agree-
ment, which contained the terms negotiated by the parties and which
provided that it must be accepted by May 10, 1995. The Petersons,
however, never signed it. On June 7, 1995, Central Fidelity sent the
Petersons another settlement proposal designated"for discussion pur-
poses only" and "not binding on either party." The Petersons
responded two days later, calling the proposal "acceptable to proceed
with," but noting that "there are some issues which need to be
addressed in the final document."
Also in June 1995, Cooley again contacted Central Fidelity to
renew his inquiry into the potential purchase of the first-trust position.
Central Fidelity again rejected his offer but informed him that it was
interested in selling the entire Peterson loan package. Cooley and
Atlantic Funding then entered into a confidentiality agreement with
3
Central Fidelity, thereby allowing Cooley to review Central Fidelity's
loan files in connection with the 1993 Notes and perform the neces-
sary due diligence. The files contained Central Fidelity's correspon-
dence with the Petersons and the never-executed settlement
agreement. Central Fidelity's representative told Cooley that the bank
had no agreement with the Petersons regarding the sale of the 1993
notes. In July 1995, Cooley and Atlantic Funding offered to purchase
the 1993 notes from Central Fidelity for $3.51 million. Atlantic's
rights in the deal were eventually assigned to the newly created C.F.
Trust, Inc., which was formed in August 1995 solely to acquire and
own the 1993 notes. C.F. Trust is incorporated in Florida and its pres-
ident, corporate office, and corporate books are all located in that
state. Negotiations with Central Fidelity were successfully concluded
sometime in August 1995 and the 1993 notes were transferred to C.F.
Trust.
The Petersons instituted the present suit by filing a motion for
judgment in the Circuit Court of Prince William County, Virginia,
alleging tortious interference with a contract, tortious interference
with a contractual expectancy, and statutory conspiracy to injure their
businesses pursuant to Va. Code Ann. § 18.2-499. The defendants
were William Cooley; Mid-Pacific Funding Corporation, of which
Cooley is the sole shareholder; and C.F. Trust, Inc., for which Cooley
serves as Vice President, and of which Mid-Pacific is a 25 percent
shareholder. Defendants removed the action to the United States Dis-
trict Court for the Eastern District of Virginia. The district court
denied the Petersons' motion for remand to state court based on lack
of complete diversity between the parties, and granted defendants'
summary judgment motion as to each cause of action. The Petersons
now appeal.
II.
We first consider the Petersons' claim that this case should be
remanded to state court for lack of complete diversity between the
parties. Specifically, they argue that C.F. Trust is a citizen of Virginia,
the same state of which they are citizens. Congress has provided that
cases where there is no federal question jurisdiction "shall be remov-
able only if none of the parties in interest properly joined and served
as defendants is a citizen of the State in which such action is
4
brought." 28 U.S.C. § 1441(b). As a corporation, C.F. Trust is consid-
ered "to be a citizen of any State by which it has been incorporated
and of the State where it has its principal place of business." Id.
§ 1332(c)(1). Because C.F. Trust is incorporated in Florida, the ques-
tion of whether removal was appropriate turns on whether the corpo-
ration has its principal place of business in Virginia.
We have approved two tests for ascertaining a corporation's princi-
pal place of business for jurisdictional purposes, but have endorsed
neither to the exclusion of the other. Mullins v. Beatrice Pocahontas
Co., 489 F.2d 260, 262 (4th Cir. 1974) (per curiam). The first test,
now commonly referred to as the nerve center test,"makes the `home
office,' or place where the corporation's officers direct, control, and
coordinate its activities, determinative." Id. The second test, normally
termed the place of operations test, instead "looks to the place where
the bulk of corporate activity takes place." Id.
We believe that application of the nerve center test is more appro-
priate here. The place of operations test presumes the existence of
physical operations by which a corporation's presence in different
states can be measured. As a result, the test is applied when a com-
pany has multiple centers of manufacturing, purchasing, or sales. See
Industrial Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1094 (9th Cir.
1990) (tangible property, production activities, purchasing, sales);
Topp v. CompAir, Inc., 814 F.2d 830, 834 n.3 (1st Cir. 1987) (facto-
ries, warehouses, sales offices); Grimm v. Plasma Processing Corp.,
888 F. Supp. 56, 58 (S.D.W. Va. 1995) ("corporate activities test
focuses on the location of the corporation's tangible assets"). By con-
trast, a corporation engaged primarily in the ownership and manage-
ment of investment assets such as debt or equities is not really
geographically bound. See, e.g., Gulf Chem. Corp. v. Raytheon-
Catalytic, Inc., 931 F. Supp. 955, 957-58 (D.P.R. 1996). Because such
corporations can readily transfer and move their investment assets, a
jurisdictional test focusing on the location of operations makes little
sense.
C.F. Trust is essentially a passive investment vehicle. The corpora-
tion was set up solely to acquire and own the 1993 notes. Accord-
ingly, C.F. Trust does not have any manufacturing plants, purchasing
centers, or sales facilities -- the normal indicia of a corporation's
5
place of operations. C.F. Trust owns only the 1993 notes -- invest-
ment assets -- and not the Virginia property by which the notes are
secured. Given these facts, we believe that application of the place of
operations test would be inappropriate.
The Petersons concede that if the nerve center test is applied, C.F.
Trust's principal place of business cannot be Virginia and complete
diversity of citizenship exists. We agree. Courts normally find the
nerve center "where the activities of the corporation are controlled
and directed," Topp, 814 F.2d at 834, or"where its executive head-
quarters are located." Metropolitan Life Ins. Co. v. Estate of Cammon,
929 F.2d 1220, 1223 (7th Cir. 1991). C.F. Trust's president, corporate
office, and corporate books and records are located in Coral Gables,
Florida. The corporation's two vice presidents are also permanent res-
idents of Florida. Clearly, the direction and management of the corpo-
ration radiates out from Florida. It is easy therefore to conclude that
under the nerve center test C.F. Trust's principal place of business for
purposes of 28 U.S.C. § 1332(c)(1) is Florida, and not Virginia.
Even were we to follow the Petersons' suggestion and apply the
place of operations test, our conclusion would not change. Initially,
C.F. Trust has no operations in Virginia. The corporation has no
offices or personnel in Virginia, and none of C.F. Trust's directors,
officers, or shareholders are residents or citizens of Virginia. Further-
more, any operations C.F. Trust does conduct are outside Virginia.
When applying the place of operations test, courts must consider the
nature of a corporation's activity: "whether it is active or passive and
whether it is labor-intensive or management-demanding." J.A. Olson
Co. v. City of Winona, 818 F.2d 401, 411 (5th Cir. 1987). As we have
already noted, C.F. Trust's only connection to Virginia is as a passive
investor in notes secured by real estate located in the Commonwealth.
C.F. Trust's only operations are therefore managerial in nature and
are controlled and directed from Florida. Like its nerve center then,
C.F. Trust's place of operations is Florida.
The Petersons argue, however, that C.F. Trust's acquisition of a
certificate of authority to transact business in Virginia proves the
Commonwealth is its place of operations. We do not find this certifi-
cate to be determinative of our jurisdictional inquiry. The mere fact
that C.F. Trust is permitted to transact business in Virginia is irrele-
6
vant because the corporation does not actually conduct any operations
within the Commonwealth. Other courts have similarly declined to
attach significance to a corporation's authority to transact business
within a state when other factors tend to show the corporation's prin-
cipal place of business is in a different state. Vareka Invs., N.V. v.
American Inv. Properties, Inc., 724 F.2d 907, 910 (11th Cir. 1984)
(corporation's principal place of business found to be Ecuador despite
qualifying to do business in Florida). Even more importantly, the
Petersons' reliance on Virginia corporate law to prove C.F. Trust's
principal place of business is undercut by further provisions of that
code. For example, Virginia law makes clear that"[c]reating or
acquiring indebtedness, deeds of trust, and security interests in real or
personal property" does not constitute transacting business in the
Commonwealth. Va. Code Ann. § 13.1-757(B)(7). Although not dis-
positive of the separate federal jurisdictional question, the Virginia
statute does confirm our judgment that this form of passive invest-
ment in instruments of indebtedness does not constitute the transac-
tion of business in the state.
Finally, other courts' decisions support the result we reach today.
In Vareka Investments, the corporation in question "was formed as a
passive investment vehicle in order to invest funds in United States
real estate." 724 F.2d at 910. The corporation was not involved in the
day-to-day operation of the Florida commercial real estate; it had no
employees in Florida; and its corporate books and records were in
Ecuador. Applying a jurisdictional test that incorporated elements of
both the nerve center and place of operations tests, the Eleventh Cir-
cuit found the corporation's principal place of business to be Ecuador,
and not Florida. Id.; see also Village Fair Shopping Ctr. Co. v. Sam
Broadhead Trust, 588 F.2d 431, 434 (5th Cir. 1979) ("single passive
investment" was not determinative). We agree with the reasoning of
cases like Vareka and hold that C.F. Trust's principal place of busi-
ness is Florida. Accordingly, the diversity of citizenship between the
parties was complete and removal of this case to federal district court
was proper.
III.
A.
The Petersons next dispute the district court's grant of summary
judgment on their claims of tortious interference with a contract and,
7
alternatively, tortious interference with a contractual expectancy. To
make such claims in Virginia a plaintiff must prove the following ele-
ments: "(1) the existence of a valid contractual relationship or busi-
ness expectancy; (2) knowledge of the relationship or expectancy on
the part of the interferor; (3) intentional interference inducing or caus-
ing a breach or termination of the relationship or expectancy; and (4)
resultant damage to the party whose relationship or expectancy has
been disrupted." Chaves v. Johnson, 335 S.E.2d 97, 102 (Va. 1985).
Additionally, when alleging tortious interference with an expectancy
rather than with an actual contract, a plaintiff must show that the
defendant interfered by employing improper methods. Duggin v.
Adams, 360 S.E.2d 832, 836 (Va. 1987); Chaves, 335 S.E.2d at 103;
Allen Realty Corp. v. Holbert, 318 S.E.2d 592, 597 (Va. 1984).
The Petersons contend that the district court erred by finding that
no valid contractual relationship existed between themselves and Cen-
tral Fidelity. They claim that Central Fidelity made an oral offer to
them in a March meeting under which they could purchase the 1993
notes from the bank for a $4.2 million payment plus a $200,000 defi-
ciency note. They contend that a valid contractual relationship was
created when they unequivocally accepted this offer in an April 13,
1995 letter.
We disagree that such a contractual relationship was created by the
Petersons' April 13 "acceptance." No evidence supports the Peter-
sons' claim that the parties intended the March settlement discussions
to become binding absent a signed agreement. Indeed, a transaction
of this size and complexity is normally embodied in a written con-
tract. And in fact, Central Fidelity's notes, to which the Petersons
point in support of their argument, show that the March meeting was
to be followed up by receipt of a "signed settlement agreement." True
to this practice, once the Petersons indicated their agreement to the
bank's proposed settlement terms through their April 13 letter, Cen-
tral Fidelity forwarded a twenty-nine page, typed settlement agree-
ment incorporating the terms negotiated by the parties. Although
Central Fidelity's representative signed the agreement and thereby
bound the bank, the Petersons chose not to sign or deliver it by the
required date. The agreement itself made clear that it had to be
accepted by May 10, 1995 and that "time [was] of the essence."
Despite these clear indications, the Petersons themselves chose not to
8
create a binding contractual relationship with Central Fidelity by not
signing the agreement. Central Fidelity's representative confirmed
this by writing to Barrie Peterson on May 11, 1995 to indicate that
the settlement offer "expired on May 10, 1995 and is void since it was
not accepted by the required parties."
The Petersons alternatively claim that a valid contractual relation-
ship arose from a second set of correspondence between themselves
and Central Fidelity. They assert that Central Fidelity made another
settlement offer in a June 7, 1995 letter, which they accepted in a let-
ter two days later. The Petersons, however, conveniently omit the fact
that Central Fidelity's letter contained a header that clearly stated
"FOR DISCUSSION PURPOSES ONLY" and that the body of the
letter again indicated that "this information is for discussion purposes
only and is not binding on either party." The Central Fidelity letter
obviously was not intended to be a formal settlement offer. Further-
more, the Petersons' response, while indicating that Central Fidelity's
terms were "acceptable to proceed with," also stated "however, there
are some issues which need to be addressed in the final document."
Thus, even if Central Fidelity's discussion-only proposal sufficed as
an offer, the Petersons' response hardly served as an unqualified
acceptance. Because the Petersons have failed to produce evidence
showing that any valid contractual relationship existed between them-
selves and Central Fidelity, they fail to satisfy even the first element
of a tortious interference with contract claim.
B.
The Petersons alternatively argue that the evidence of lengthy
negotiations between themselves and Central Fidelity shows a con-
tractual expectancy that deserves protection from the defendants'
alleged tortious interference. They claim that the defendants improp-
erly interfered with this contractual expectancy by reviewing confi-
dential information in Central Fidelity's loan files and by thereafter
secretly concealing the fact such a review was taking place by enter-
ing into a confidentiality agreement with the bank. This claim, how-
ever, falters on two grounds.
Initially, the Petersons must prove causation -- that the defendants'
alleged intentional interference "induc[ed] or caus[ed] a breach or ter-
9
mination of the relationship or expectancy." Chaves, 335 S.E.2d at
102. This they have failed to do. The evidence shows that Central
Fidelity itself broke off negotiations with the Petersons for reasons
independent of any alleged improper interference by the defendants.
Michael Paulson, a Senior Vice President of Central Fidelity, testi-
fied that by the time Cooley contacted him again in June 1995, his
bank was interested in selling the entire Peterson loan package, if not
to Cooley then to other investors. Furthermore, the Petersons failed
to satisfy a key requirement for continued negotiations with Central
Fidelity: they did not remain current on their loan payments to the
bank. Paulson testified that as a result of delinquent loan payments,
he intentionally stopped discussions with the Petersons. Simply put,
the Petersons' own default led to the end of their negotiations with
Central Fidelity, not any allegedly improper interference on the part
of defendants.
The Petersons' claim also fails because they have not shown that
the defendants employed any improper methods in purchasing the
1993 notes from Central Fidelity. The Virginia Supreme Court has
explained what forms of business conduct are considered improper:
Methods of interference considered improper are those
means that are illegal or independently tortious, such as vio-
lations of statutes, regulations, or recognized common-law
rules. . . . Methods also may be improper because they vio-
late an established standard of a trade or profession, or
involve unethical conduct. Sharp dealing, overreaching, or
unfair competition may also constitute improper methods.
Duggin, 360 S.E.2d at 836-37 (citations omitted). Examples of such
improper methods include "violence, threats or intimidation, bribery,
unfounded litigation, fraud, misrepresentation or deceit, defamation,
duress, undue influence, misuse of inside or confidential information,
or breach of a fiduciary relationship." Id. at 836.
Generally speaking, Cooley purchased the 1993 notes for a legiti-
mate business purpose, protecting his ability to collect the RTC judg-
ment he had previously purchased. Levine v. McLeskey, 881 F. Supp.
1030, 1055-56 (E.D. Va. 1995). The Petersons fail to demonstrate that
10
any of Cooley's actions constituted an illegal or independently tor-
tious act, or even violated an established business practice. Cooley
simply did what any purchaser of credit would do in the same circum-
stances; he investigated and reviewed all available information per-
taining to the Petersons' ability to meet their loan obligations before
committing himself to purchasing the 1993 notes. The lawful acquisi-
tion of information necessary for sound business decisions is not a
tortious act. Furthermore, Central Fidelity's requirement that Cooley
sign a confidentiality agreement with respect to the contents of the
loan file was customary in the business. The Petersons simply fail to
provide a reason why Cooley's actions should be considered legally
improper. The district court thus properly granted summary judgment
on this claim in favor of the defendants.
C.
The Petersons finally dispute the district court's grant of summary
judgment on their claim of statutory conspiracy to injure another in
their business. Section 18.2-499 of the Virginia Code prohibits two or
more persons from conspiring for the purpose of"willfully and mali-
ciously injuring another in his reputation, trade, business or profes-
sion by any means whatever." Va. Code Ann. § 18.2-499(A)(i). The
Petersons argue that Cooley and Central Fidelity violated § 18.2-499
by conspiring to injure them in their business.
We need not pause long on this argument. Although a plaintiff
need not prove personal spite, Commercial Bus. Sys., Inc. v. BellSouth
Servs., Inc., 453 S.E.2d 261, 267 (Va. 1995), the alleged conduct must
at least be aimed at damaging another's business. Nationwide Mut.
Fire Ins. Co. v. Jones, 577 F. Supp. 968, 970 (W.D. Va. 1984). The
Petersons have produced no evidence that Cooley or Central Fidelity
acted out of a desire to injure the Petersons in their business. Indeed,
any damage to the Petersons' business would only prejudice Cooley
and Central Fidelity's ability to recover as creditors. Moreover, Coo-
ley acted for the legitimate business purpose of protecting his RTC
judgment against Barrie Peterson. More generally, Cooley acted out
of a legitimate business desire to profit by the purchase of loans.
Were we to allow the Petersons' suit to proceed, we would subject
every sale of debt to a potential conspiracy charge by the disgruntled
debtor. Needless to say, such a prospect would impose a practical
11
freeze on the transferability of debt in Virginia. Because the Petersons
have failed to uncover any specific evidence of Cooley's alleged pur-
pose of "willfully and maliciously injuring" them in their business, we
hold that the district court correctly granted summary judgment on
this count.
IV.
For the foregoing reasons, we affirm the judgment of the district
court.
AFFIRMED
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