Fett Roofing and Sheet Metal Co. v. Moore
United States District Court for the Eastern District of Virginia
438 F. Supp. 726 (1977)
Donald M. Fett, Sr. was the sole proprietor of Fett Roofing and Sheet Metal Co., Inc. (Fett Roofing). Fett invested nearly $5,000 and incorporated. Fett was the only shareholder and president. Fett secured three personal loans from 1974 to 1976 and transferred the money to the corporation. When Fett Roofing became insolvent, Fett backdated and recorded deeds of trust on Fett Roofing’s assets as security for the loans. In 1976, Fett Roofing was forced into bankruptcy with over $400,000 in secured debt. The bankruptcy judge found that Fett Roofing had been undercapitalized since it was formed and Fett’s “loans” were necessary contributions. The judge also found that the deeds of trust were backdated after insolvency to defraud other creditors. The judge concluded that Fett Roofing was Fett’s alter ego. The payments Fett made were deemed contributions instead of loans, and Fett’s claims were subordinated to those of Fett Roofing’s other creditors. Further, even if the contributions had been loans, the loans and the deeds of trust were held fraudulent in violation of state and federal bankruptcy law. Fett appealed to the United States District Court for the Eastern District of Virginia.
Rule of Law
Holding and Reasoning (Clarke, J.)