Plaintiff CNH Capital America, LLC ("CNH") brings this action to recover monies defendant Hunt Tractor, Inc. ("Hunt Tractor") owes to CNH pursuant to a Wholesale Financing and Security Agreement (the "WFSA"). Along with suing Hunt Tractor for breach of contract, CNH has also sued Hunt Tractor shareholders W. Scott Hunt, Jr. ("Scott Hunt") and Dominic Pagano ("Pagano"). CNH alleges a variety of claims in an attempt to impose liability on those individuals. CNH, Scott Hunt, and Pagano have all moved for summary judgment as to various of CNH's claims. For the reasons herein, the court will grant in part and deny in part CNH's motion, deny in full Scott Hunt's motion, and grant in full Pagano's motion. As a result of the court's resolution of those motions, judgments will be entered against Hunt Tractor and Scott Hunt in the amount of $1,815,487.99, but all claims against Pagano will be dismissed with prejudice.
Hunt Tractor was a construction equipment dealership which sold Case brand equipment. In 1991, Hunt Tractor entered into the WFSA with Case Credit Corporation, the corporate predecessor of CNH. Pursuant to that agreement, CNH financed Hunt Tractor's acquisition of Case inventory and equipment. In exchange, Hunt Tractor granted CNH a security interest in, among other things, all inventory and equipment financed by CNH and all proceeds of the inventory. CNH made multiple UCC filings with the Secretary of State of Kentucky to perfect its security interests.
In 2007, Scott Hunt sought to purchase Hunt Tractor from members of his family. To that end, in early 2007, Scott Hunt approached Pagano, his father-in-law, about financing the purchase. Pagano, who was sophisticated businessman,*fn1 agreed to help Scott Hunt by lending $400,000 to Hunt Tractor to accomplish a reorganization that would leave Scott Hunt with a controlling share of the corporation. Scott Hunt became the owner and new President of Hunt Tractor.
Thereafter, Hunt Tractor sought to be re-certified as a dealer of Case equipment. As part of its Case dealership re-certification application, Hunt Tractor submitted an organizational chart to CNH that listed Pagano as the Chairman of the Board. However, according to Pagano and Scott Hunt, Pagano told Scott Hunt that he did not want to be involved in the management of Hunt Tractor and he never had any formal title or management duties for the company. To help Hunt Tractor be certified as a Case dealer, Pagano converted his $400,000 loan to Hunt Tractor into equity in the company so that Hunt Tractor would meet CNH's minimum equity requirements.*fn2 Additionally, CNH had Scott Hunt sign a guaranty stating that he "guarantee[d] the payment and performance when due . . . of all present and future obligations and indebtedness of [Hunt Tractor] to [CNH] arising under the Financing Agreements or otherwise."
In early 2008, after Hunt Tractor was certified as a dealer, Pagano put Hunt Tractor in contact with Commonwealth Bank and Trust Company ("Commonwealth") to discuss securing a line of credit and a term loan from the bank. In March of 2008, Commonwealth approved Hunt Tractor for a $500,000 line of credit and a $600,000 term loan. The term loan had a maturity date of March 27, 2018. The line of credit had a term of one-year; Hunt Tractor ultimately renewed the line of credit for a term ending May 13, 2010. The loan analysis attached to the approval noted that Hunt Tractor was "owned and operated" by Pagano and Scott Hunt.
For the line of credit loan, Pagano and Scott Hunt both signed guaranty agreements, and Pagano signed an agreement to give Commonwealth a security interest in a personal securities account Pagano maintained with Commonwealth. For the term loan, Pagano signed another agreement granting Commonwealth a security interest in his securities account. Pagano was required to maintain at least $715,000 in assets in the securities account for the line of credit loan and $857,200 in assets for the term loan. Pagano transferred sufficient amounts of stock into his Commonwealth securities account in order to meet his obligations. Thereafter, whenever the value of the stock in the securities account fell below the requisite levels, Pagano would transfer assets into the account to bring the value back up to the requisite level.
In early 2009, Hunt Tractor was having cash flow difficulties and needed a cash infusion to meet payroll and other obligations. Pagano invested $170,000 in three installments between February and April.*fn3 In May of 2009, CNH renewed Hunt Tractor's wholesale credit account with a credit limit of $5,000,000. However, just two months later, representatives of Hunt Tractor and CNH met to discuss Hunt Tractor's repeated requests for extensions of time to pay certain debts. At that meeting, the parties came to an agreement: CNH agreed to a forbearance on payments from Hunt Tractor for Hunt Tractor's rental fleet, while Hunt Tractor agreed to liquidate $1,500,000 in rental inventory over the following two months. Hunt Tractor was also required to increase its working capital line by $500,000.
In September of 2009, Pagano made another investment in Hunt Tractor, for $55,000, believing that despite Hunt Tractor's troubles, it could become profitable. For that investment, Pagano required that Scott Hunt give Pagano a second mortgage on his home.
Meanwhile, Pagano and Scott Hunt were continuing to speak with representatives of CNH concerning Hunt Tractor's debt service obligations. Pagano claims that at one point, he suggested a "lockbox" agreement whereby Hunt Tractor would deposit proceeds from its business into an account over which CNH would have the right to approve disbursements, but CNH declined. Then, at a meeting on September 23, 2009, Scott Hunt and Pagano acknowledged to CNH that Hunt Tractor might have to liquidate its business due to Hunt Tractor's inability to meet CNH's requirement that it increase its working capital line by $500,000 and the fact that Hunt Tractor projected a $300,000 cash shortfall during the following six months.*fn4
On October 13, 2009, Pagano and Scott Hunt met with Phil Cooper, a representative of Commonwealth, for lunch. According to Pagano, the reason for the meeting was for Hunt Tractor to attempt to secure additional working capital from Commonwealth, but Commonwealth would not do so without additional guaranties from Pagano, which Pagano would not give. Indeed, not only would Pagano not give additional guaranties, he asked Cooper during the lunch meeting about the mechanics of revoking his earlier guaranty. Cooper told Pagano that if he withdrew his guaranty, Commonwealth would immediately demand that Hunt Tractor fully pay off the line of credit or find a replacement guarantor, and Pagano would be liable as guarantor for any balance until one of those options was completed. After the meeting, Cooper sent Pagano and Scott Hunt a sample close out letter that could be used to pay off the line of credit.
Meanwhile, in early October, Hunt Tractor completed a large sale of Case construction equipment to the Kentucky Department of Transportation ("Kentucky DOT"). For that sale, Hunt Tractor was to receive $825,347 in proceeds. On Monday, November 9, 2009, Hunt Tractor received a check from the Kentucky DOT for that amount, which it deposited into its Commonwealth checking account on November 12, 2009.
On the evening of November 12, 2009, Pagano sent an email to Cooper that read as follows: Phil;
I have tried several times to reach in in [sic] regard to our agreement to have my guarantees removed from the Hunt Tractor term note and WC line of credit.
On Tuesday we had agreed that by the end of the day today you were going to forward me the payoff amount for the term note. You were also were to send along with any required documents to affectively remove my personal guarantees. Consequently, effective immediately, once the revolving WC line is sweept down to zero, please close it out and do not advance any funds.
In the morning, please forward the pay off amount for the term note and also prepare all necessary documents that will release my personal collateral.
I am flying on to Louisville this evening and plan to be at your office at 9:30 in the morning (Friday November 13th).
Thank you for your attention to this matter.
(errors in original). The following morning, Cooper emailed Pagano payoff figures. In addition, Cooper sent a letter to Scott Hunt via email and mail. In the letter to Scott Hunt, Cooper reproduced the email he received from Pagano and further stated:
I have attached payoff and close out letters for you and your guarantor; per his request.
If you wish to continue to have a credit relationship with Commonwealth Bank it is imperative that we receive notification from Mr. Pagano within 48 hours stating that he is willing to continue to guarantee the debts of Hunt Tractor.
Cooper also sent a letter to Pagano with a copy of the letter he sent to Scott Hunt enclosed. The letter to Pagano stated:
It is important to note that there are currently balances on both the term note and the line of credit and we cannot release you of your guarantee until both have reached a zero balance and closed. Once this happens we will absolve you of your guarantee and within 30 days release any collateral that we have securing these obligations.
That same day -- Friday, November 13, 2009 -- Commonwealth swept $348,998.26 from Hunt Tractor's account to pay off the line of credit. Scott Hunt signed an authorization to close the line of credit and release any security interest, which stated that Hunt Tractor could not find a guarantor within 48 hours.
On November 16, 2009, Hunt Tractor remitted a check for $501,549.87 to Commonwealth as payment on the term loan. The following day, Hunt Tractor paid the remainder of the balance on the term loan, which was $27,089.77. At 6:52 a.m. on November 18, 2009, the day after the term loan's balance was paid in full, Pagano emailed Cooper requesting that his pledged assets be released; Cooper replied that Commonwealth would forward to Pagano all collateral releases and a copy of the promissory note stamped "paid in full" within 14 days.
In his deposition, Pagano maintained that he did not know that Hunt Tractor was going to use the Kentucky DOT funds to pay off the term loan and was "pleasantly surprised" when they did so. On the other hand, Scott Hunt believed that Pagano was awaiting the Kentucky DOT payment before he withdrew his guaranties.
According to Mike Litke, a Territory Credit Manager at CNH who was responsible for the Hunt Tractor account, Scott Hunt called him on November 18, 2009 and stated that Hunt Tractor received $825,347 in proceeds for the sale of equipment to the Kentucky DOT. However, Scott Hunt informed Litke, Pagano had revoked his guaranty of Commonwealth's loans to Hunt Tractor and Commonwealth "took the money" that Hunt Tractor received from the Kentucky DOT. CNH determined that Hunt Tractor was in default under the WFSA, and Hunt Tractor's dealership agreement with Case and CNH was terminated.
CNH filed this action against Hunt Tractor, Scott Hunt, and Pagano. CNH brought a claim against Hunt Tractor for breach of contract, a claim against Scott Hunt for breach of guaranty, and a claim against Pagano for breach of contract (based on a piercing the corporate veil theory). It also brought claims against both Pagano and Scott Hunt for breach of fiduciary duty, fraudulent concealment, conspiracy to commit fraud, preferential conveyance, conspiracy to make a preferential conveyance, fraudulent conveyance, conspiracy to make a fraudulent conveyance, conversion, and punitive damages.
CNH has moved for summary judgment as to the breach of contract claim against Hunt Tractor, the breach of guaranty claim against Scott Hunt, and the fraudulent conveyance and conversion claims against Pagano. Scott Hunt has cross-moved for summary judgment on the breach of guaranty claim. Pagano has moved for summary judgment as to all claims against him.
To prevail on a motion for summary judgment, the movant must show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). A genuine issue of material fact arises when there is sufficient evidence on which the jury could reasonably find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1985). The disputed issue does not need to be resolved conclusively in favor of the non-moving party, but that party must present sufficient probative evidence which makes it necessary to resolve the parties' differing versions of the dispute at trial. First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-289 (1968). The evidence must be construed in the light most favorable to the non-moving party. Summers v. Leis, 368 F.3d 881, 885 (6th Cir. 2004).
A. Breach of Contract - Count I
CNH seeks summary judgment as to its breach of contract claim against Hunt Tractor, and requests damages amounting to $1,815487.99. To prove a breach of contract claim, "a plaintiff must show the existence and the breach of a contractually imposed duty." Lenning v. Commercial Union Ins. Co., 260 F.3d 574, 581 (6th Cir. 2001). It is undisputed that CNH and Hunt Tractor were parties to the WFSA. Additionally, Hunt Tractor has admitted that it defaulted under the WFSA (DN 80, ...