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Jadco Enterprises, Inc. v. Fannon

United States District Court, Sixth Circuit

November 15, 2013

JAMES D. FANNON, et al., Defendants.


DADNNY C. REEVES, District Judge.

This matter is pending for consideration of Defendants James Fannon, Benjamin Fannon, C&F Contractors, LLC ("C&F"), J and H Enterprises of Virginia, LLC ("J&H"), and Fannon Brothers Tire, Inc.'s ("FBT") Motion for Summary Judgment. [Record No. 53] The Defendants contend that there are no genuine issues of material fact and that they are entitled to judgment as a matter of law. For the reasons discussed below, the Defendants' motion will be granted, in part, and denied, in part.


Plaintiff Jadco Enterprises Inc., ("Jadco") is a Kentucky corporation whose business includes the mining and selling of coal. [Record No. 34, p. 2] Defendant C&F is a limited liability corporation in the business of hauling coal. James and Benjamin Fannon are its sole members and managers. [Record No. 53-2, p. 2] Additionally, James and Benjamin Fannon are the sole members of Defendant J&H, which is a coal transportation subcontractor. [ Id. ] While both James and Benjamin Fannon are members and manage the day-to-day affairs of C&F and J&H, James Fannon handles the majority of management responsibilities for the companies. [Record No. 54-22, pp. 41, 59] C&F does not own any trucks. Instead, it transports coal through subcontractors such as J&H. [Record No. 53-2, p. 2] At times relevant to this action, C&F would also contract with other trucking companies when J&H was not able to meet C&F's shipping demands. [ Id. ] Defendant FBT, a Virginia corporation, is in the business of selling tires. And at times relevant to this action, it sold tires to J&H for use in hauling coal. [ Id., p. 3] FBT is also wholly owned by David M. Fannon, the father of James and Benjamin Fannon. [ Id. ] Century Coal, LLC is also in the business of mining and selling coal. Its affiliate companies include Suburban Coal operations and Yukon Coal Company. [Record No. 54, p. 6] Collectively, they are referred to as "Century Coal."

This case arises out of a transfer of coal between Jadco and the Defendants. Jadco alleges that C&F and James Fannon intentionally defrauded Jadco by issuing a purchase order for 2, 500 tons of coal with no intent to pay. It claims that James Fannon intended to pay other creditors with the proceeds from the sale of the coal and that James Fannon, Benjamin Fannon, and J&H made preferential transfers from the proceeds of that sale. [Record No. 34, pp. 8-9] It claims that FBT, J&H, James and Benjamin Fannon all made fraudulent conveyances. It further alleges that James Fannon committed fraud and that the corporate veil of C&F and J&H should be pierced so that James and Benjamin Fannon may be held personally liable for their fraudulent conduct. [ Id., pp. 9-10]

Jadco alleges that this dispute started with a breach of a coal hauling arrangement between C&F and Century Coal. At the beginning of 2009, Century Coal began experiencing severe financial difficulties such that James Fannon and C&F made multiple attempts to obtain payment for hauling services provided by C&F to Century Coal. [Record No. 54-2, p. 87; Record No. 54-3, pp. 55-80] When it appeared that they would not obtain payment, James Fannon filed suit against Century Coal in Bell Circuit Court on May 28, 2009. See C&F Contractors, LLC v. Century Coal, Inc., No. 09-00230 (Ky. Cir. 2009). C&F was also undergoing financial difficulties. For example, from April 2009 to May 2009, it experienced a near fifty percent drop in deposits. [Record No. 54-9] At this point, Century Coal still owed $122, 831.91 to C&F for coal hauling services. [ Id. ] During this same period, C&F owed J&H compensation for trucking services and J&H owed FBT for tires sold J&H. [Record No. 54-10]

Around this same time, James Fannon believed that Century Coal was having financial troubles and was on the verge of shutting down. [Record No. 54-2, p. 87; Record No. 54-3, pp. 78-79] James Fannon attempted to issue a purchase order on June 10, 2009, to Century Coal for 2, 500 tons of coal at the price of $60.00 a ton. [Record No. 54-12] When asked if he intended to pay Century Coal for the June 10, 2009 order, Fannon claimed that he would pay Century Coal if business went on as usual and Century Coal paid C&F. [Record No. 54-3, pp. 214-223] Larry Heatherman, an employee of Century Coal, declined the purchase and advised James Fannon that Jadco was mining on the property so he could issue the purchase order to that entity. [Record No. 54-13, pp. 1-2] On June 11, 2009, James Fannon issued the purchase order in question to Jadco for 2, 500 tons of coal for a purchase price of $60.00 per ton.. [Record No. 54-15; Record No. 34, p. 3]

After the purchase order was issued, Jadco delivered 2, 214.19 tons of coal to C&F. [Record No. 54-15] C&F paid Jadco's first invoice for $7, 989.00, but did not pay the remainder of the purchase price. [Record No. 53-2, p. 2] C&F then sold the coal for an aggregate price of $138, 536.13. [ Id. ] On June 30, 2009, C&F issued several checks to J&H equaling $160, 800 and two checks to James and Benjamin Fannon each for $3, 875. The Defendants claim that was payment of valid, pre-existing debt to J&H which totaled $176, 515.55. [Record No. 53-2, p. 4] As James Fannon stated, "I pay my bills, the oldest bills first. Check C&F Contractors, that's how they paid their bills." [Record No. 54-2, p. 62]

The Defendants also claim that the payments made to Benjamin and James Fannon were compensation in the ordinary course of business that were made each quarter to both of the brothers. [ Id. ] From June 15, 2009, to February 22, 2010, J&H also issued several checks to FBT. [Record No. 34, pp. 5-6] The Defendants claim that these checks were payment of valid, pre-existing debt for tires and other services provided by FBT.

Jadco filed suit in the Clay Circuit Court against C&F and James Fannon on July 31, 2009, seeking to recover $132, 851.00 owed to it and alleging claims of fraud.[1] In their response to Jadco's motion for summary judgment in the Clay Circuit Court, C&F and James Fannon argued that Jadco and Century Coal are the same entity, which entitles them to a setoff payment. [Record No. 54-20, pp. 4-5]

On December, 21, 2009, the circuit court granted a partial summary judgment against C&F in the amount of $132, 851.00 for payment of the coal, but denied Jadco's motion for summary judgment on the fraud claim. Jadco filed an Amended Complaint on October 22, 2012, joining J&H and Benjamin Fannon as defendants. The Amended Complaint reasserted the original claims against C&F and James Fannon, but also added preferential transfer and fraudulent conveyance claims against J&H, James, and Benjamin Fannon. [Record No. 1-1] J&H and Benjamin Fannon then removed the action to this Court based on diversity jurisdiction. On May 13, 2013, Jadco filed a Second Amended Complaint, adding FBT as a party and alleging fraudulent conveyances and preferential conveyance claims. [Record No. 34] This Court denied the motion to amend regarding the claims of preference against FBT because those claims are time-barred. [Record No. 33] The Defendants then filed the present motion for summary judgment. [Record No. 53]


Summary judgment is required when "the movant shows 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); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Chao v. Hall Holding Co., 285 F.3d 415, 424 (6th Cir. 2002). A dispute over a material fact is not "genuine" unless a reasonable jury could return a verdict for the nonmoving party. That is, the determination must be "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).

The party moving for summary judgment bears the burden of showing conclusively that no genuine issue of material fact exists. CenTra, Inc. v. Estrin, 538 F.3d 402, 412 (6th Cir. 2008). Once the moving party has met its burden of production, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Sigler v. Am. Honda Motor Co., 532 F.3d 469, 483 (6th Cir. 2008) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). Instead, the nonmoving party must present "significant probative evidence" of a genuine dispute in order to defeat the motion for summary judgment. Chao, 285 F.3d at 424. The nonmoving party cannot rely upon the assertions in its pleadings; rather, it must come forward with probative evidence, such as sworn affidavits, to support its claims. Celotex, 477 U.S. at 324. In deciding whether to grant summary judgment, the Court views all the facts and inferences drawn from the evidence in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587.


The Defendants raise several issues in their motion for summary judgment. First, they assert that the preference claims against James Fannon, Benjamin Fannon, and J&H must be dismissed because they are time-barred. [Record No. 53-1, pp. 8-10] Second, they contend that the fraudulent conveyance claims against J&H, James Fannon, Benjamin Fannon and FBT must be dismissed because those transfers represent payment of a valid, pre-existing debt. [ Id., pp. 10-12] Third, they argue that Jadco has failed to identify evidence in the record that supports a fraud claim against Fannon. [ Id., pp. 12-14] Fourth, they claim that Jadco has not presented evidence to support the allegation that the corporate entities should be disregarded. [ Id., pp. 14-16]

A. Preferential Transfer Claim

The Defendants contend that the preference claims made by Jadco must be dismissed because they are time-barred. [Record No. 53-1, p. 8] They state that J&H and Benjamin Fannon were first named parties on October 22, 2012. The last alleged preferential transfer was made on June 20, 2009. Thus, the Defendants contend that unless those claims relate back to July 30, 2009 (the date on which the original complaint was filed), they are timebarred. The Defendants also assert that the preference claim against James Fannon was first asserted on October 22, 2012; however, the transfers in question last occurred on June 20, 2009. The Defendants argue that, because the amendments do not relate back to the original complaint, the preference allegations against James Fannon, Benjamin Fannon, and J&H must be dismissed. [ Id., pp. 8-10] Jadco counters that the amendments relate back to their original claim. As a result, the preferential transfer claims should not be dismissed. [Record No. 54, pp. 25-28]

The statute of limitation for a preferential transfer claim under Kentucky law states:

(1) Any transfer declared by KRS 378.060 to inure to the benefit of creditors generally shall be subject to the control of courts of equity, upon the petition of any person interested filed within ninety (90) days after the mortgage or transfer is legally lodged for record or the delivery of the property transferred.

KRS § 378.070. The Defendants are correct that the claims against J&H, Ben and James Fannon are well outside the ninety day period under KRS § 378.070. This means that the preferential transfer claims against these Defendants are barred by the ...

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