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Jadco Enters., Inc. v. Fannon

United States District Court, E.D. Kentucky, Southern Division

January 8, 2014

JAMES D. FANNON, et al., Defendants

Decided January 7, 2014.

Page 948

For Jadco Enterprises, Inc., Plaintiff: Stanton L. Cave, LEAD ATTORNEY, Law Office of Stanton L. Cave & Associates, P.S.C., Lexington, KY.

For James D. Fannon, C& F Contractors, LLC, Defendants: Otis Doan, Jr., LEAD ATTORNEY, Harlan, KY.

For J and H Enterprises of Virginia, LLC, Benjamin H. Fannon, Defendants: William W. Allen, LEAD ATTORNEY, Gess, Mattingly & Atchison, P.S.C., Lexington, KY.


Page 949


Danny C. Reeves, United States District Judge.

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. (" FBT" ) have filed a Motion for Reconsideration of the Court's November 15, 2013, Memorandum Opinion and Order. [Record No. 67] Alternatively, they request a separate trial for FBT. For the reasons discussed below, the motion will be granted, in part, and denied, in part.


Plaintiff Jadco Enterprises, Inc., (" Jadco" ) is a Kentucky corporation involved in the mining and selling of coal. [Record No. 34, p. 2] Defendant C& F is in the

Page 950

business of hauling coal and Defendant J& H is a coal transportation subcontractor with James and Benjamin Fannon as its sole members and managers. [Record No. 53-2, p. 2] C& F transports coal through various subcontractors such as J& H. [Record No. 53-2, p. 2] Defendant FBT is a Virginia corporation that sells tires to various companies including J& H. [ Id., p. 3] FBT is wholly-owned by David Fannon, the father of James and Benjamin Fannon. [ Id. ]

This case involves a purchase order for coal involving Jadco and some of the defendants. Jadco alleges that James Fannon committed fraud by issuing the purchase order with no intent to pay. It further contends that James Fannon made preferential transfers and that the defendants made fraudulent conveyances involving the proceeds of the transaction. Jadco also claims that the corporate veil of C& F and J& H should be pierced and that James Fannon may be held personally liable for the alleged fraudulent conduct.

According to Jadco, this dispute commenced when C& F breached a contract with Century Coal, LLC (" Century Coal" ), a limited liability corporation involved in mining and selling coal. In early 2009, Century Coal was experiencing financial problem, causing James Fannon and C& F to make multiple attempts to obtain payment for hauling services previously provided by C& F to Century Coal. [Record Nos. 54-2, p. 87 and 54-3, pp. 55-80]] Around this time, C& F was also experiencing financial problems, as reflected by a 50% reduction in deposits (from April 2009 to May 2009). [Record No. 54-9] C& F was also indebted to J& H for trucking services, while J& H owed FBT for tires it had purchased. [Record No. 54-10]

On June 10, 2009, James Fannon attempted to issue another purchase order to Century Coal. [Record No. 54-12] However, the transaction was declined by Larry Heatherman, an employee of Century. Heatherman advised Fannon that Jadco was mining on the same property so he could issue the purchase order to Jadco. [Record No. 54-13, pp. 1-2] The purchase order in question was issued to Jadco on June 11, 2009, for 2,500 tons of coal for a purchase price of $60.00 per ton. [Record Nos. 54-15 and 34, p. 3]

Jadco delivered the coal to C& F after the purchase order was issued. But after paying the first invoice for $7,989.00, C& F did not pay the remainder of the amount due. [Record No. 53-2, p. 2] Instead, C& F sold the coal for $138,536.13. [ Id. ] C& F then issued several checks to J& H for $160,800 and two checks to James and Benjamin Fannon each for $3,875. The defendants claim that these checks reflected payment of valid, preexisting debt to J& H and James and Benjamin Fannon. [Record No. 53-2, p. 4] And they further contend that the payments made to Benjamin and James Fannon were compensation, made in the ordinary course of business. [ 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 payments of valid, pre-existing debts for tires and other services provided by FBT. J& H also issued several checks to FBT. The defendants claim that this was in payment of a valid pre-existing debt.

On August 30, 2013, the defendants moved for summary judgment. [Record No. 53] This Court denied the motion, in part, and granted it, in part. [Record No. 66] The Court dismissed Jadco's preferential transfer claim against J& H and Benjamin Fannon as being time-barred. The Court also dismissed Jadco's attempt ...

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