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Farmer's and Miner's Bank v. Lee

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

October 19, 2017

FARMER'S AND MINER'S BANK, Plaintiff,
v.
TERRY LEE, EASTERN KENTUCKY MINING, INC., and KEY-WAY, LLC, Defendants.

          MEMORANDUM OPINION & ORDER

          HANLY A. INGRAM UNITED STATES MAGISTRATE JUDGE.

         The Court considers cross motions for summary judgment from Plaintiff Farmer's and Miner's Bank and Defendants Eastern Kentucky Mining, Inc. (“Eastern Kentucky Mining”) and Key-Way, LLC (“Key-Way”). D.E. 44 and 45. Because, after a full consideration of the record and governing law, the Court finds that no genuine dispute as to any material fact exists and that Plaintiff is entitled to judgment as a matter of law, the court grants Plaintiff's Motion for Partial Summary Judgment and denies Defendants' Motion.

         FACTUAL AND PROCEDURAL BACKGROUND

         The following facts are undisputed.

         On August 11, 2008, [1] Terry Lee, Richard Collett, and Rafe Collett, individually and on behalf of LC&C Energy, Inc., (“Debtors”) signed a commercial security agreement (“Security Agreement”) granting Farmer's and Miner's Bank (the “Bank”) a security interest in certain equipment, including a Caterpillar 988G Serial #BNH000349 (“Caterpillar 988G”), a Caterpillar 773D Serial #7CS00179, and a SKF 50 Drill Serial #1R68Z44, together with “all parts, accessories, repairs, improvements, accessions, substitutions, and replacements anytime hereafter made or acquired.” D.E. 44-3 at 8. Farmer's and Miner's Bank filed an initial UCC-1 financing statement (“Financing Statement”) with the Kentucky Secretary of State on August 11, 2008, describing this equipment. D.E. 44-3 at 11. On August 26, 2012, Debtors signed a promissory note for an original principal amount of $817, 305.14. (“Promissory Note”). D.E. 44-3 at 5. The Promissory Note stated that Debtors promised to pay interest at the rate of 7.00% per year on the original sum of $817, 305.14 from August 26, 2012, until January 9, 2016. D.E. 44-3 at 5. If Debtors failed to make a payment, the Promissory Note provided that the Bank could accelerate the debt. D.E. 44-3 at 6. Additionally, if payment was more than fifteen days late, Debtors promised to pay a late charge of 6.00% of the late amount with a minimum of $6.00. D.E. 44-3 at 5. Plaintiff filed a continuation statement on June 20, 2013. D.E. 44-3 at 14. Plaintiff also filed an amendment to the initial Financing Statement (“UCC Amendment”) on October 29, 2013. D.E. 44-3 at 16. The UCC Amendment stated that the type of amendment was a “Collateral Change - Delete, ” referenced the initial Financing Statement, and indicated that the amendment covered the Caterpillar 773D Serial #7CS00180 and the SKF 50 Drill Serial #1R68Z44. D.E. 44-3 at 16.[2] Debtors defaulted on the Promissory Note and Farmer's and Miner's Bank accelerated the debt per the Promissory Note on April 18, 2014. D.E. 44-3 at 3.

         LC&C Energy, Inc. entered into a Contract Mining Agreement and Security Agreement (“Contract Mining Agreement”) with Eastern Kentucky Mining, Inc. on November 2, 2012. D.E. 45-3 at 2. According to the Contract Mining Agreement, LC&C Energy, Inc. agreed to provide personal services and skills to mine, remove, stockpile, and prepare coal, and to perform all reclamation and environmental obligations to a Phase One release on Eastern Kentucky Mining's leased coal field in Lawrence County, Kentucky. D.E. 45-3 at 2. Additionally, pursuant to the Contract Mining Agreement, LC&C “shall, at all times, operate solely as an independent contractor and not as an agent, employee, or servant of [Eastern Kentucky Mining].” D.E. 45-3 at 3. The Contract Mining Agreement expressly states that LC&C is not an agent of Eastern Kentucky Mining multiple times. See id. LC&C defaulted on the Coal Mining Agreement on or before before July 5, 2013, and ceased all mining operations. D.E. 45-2 at 3. When LC&C defaulted on the Coal Mining Agreement, Eastern Kentucky Mining and Key-Way took possession of the Caterpillar 988G.

         From September 18, 2015, until September 21, 2015, Eastern Kentucky Mining and Key-Way hired a heavy equipment and repair service to fix and repair the Caterpillar 988G after it was vandalized. D.E. 45-4 at 2. The total for these repairs was $3, 603.46. Id. Eastern Kentucky Mining and Key-Way hired a transportation company to transport the Caterpillar 988G from Martha, Kentucky to Irvine, Kentucky on September 24, 2015, for $1, 500.00. D.E. 45-4 at 3. Defendants also stored the Caterpillar 988G beginning on July 5, 2013, at a cost of $20.00 per day, so that as of July 24, 2017, that cost had risen to $29, 200.00. D.E. 45-2 at 3.

         Key-Way filed a Notice of Mechanics and Mineral Leasehold Lien (“Mechanics and Mineral Leasehold Lien”) ostensibly pursuant to K.R.S. §§ 376.010 and 376.140 in the amount of $23, 973.81 on July 30, 2013, with the Lawrence County Clerk. D.E. 45-13 at 2-5. The lien stated it attached to:

the mineral leasehold (Exhibit A), its improvements, coal produced and the proceeds thereon, as well as the entire interest including all machinery and mining equipment (Exhibit B) of Contractor, LC&C Energy, Inc. . . ., located on the leasehold premises; as well as proceeds . . . (Exhibit C), settlement and the entire real property mineral leasehold interest of the Owner/lessee as referenced and described in Lawrence county records. . . .

Id.

         The lien stated that Key-Way provided labor and services to LC&C Energy and Eastern Kentucky Mining until LC&C ceased coal production and left the leasehold premises on “approximately July 20, 2013 and has refused to remit the proceeds due Ke[y]-Way, LLC.” Id. The proceeds, described in Exhibit C to the lien, “are being held improperly at Commercial Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40765.” Id. Exhibit A describes various leaseholds, none of which the parties have identified as the leasehold in question.[3] D.E. 45-13 at 4. Exhibit C lists “[c]oal sale proceeds due subcontractor Key-Way, LLC via Eastern Kentucky Mining, [Inc], at Commercial Bank, Middlesboro in escrow account with amount of $23, 973.81.” D.E. 45-13 at 5. Exhibit B, which describes the equipment covered by the lien, is noticeably absent from the record. There is no specific mention of the Caterpillar 988G in the Mechanics and Mineral Leasehold Lien.

         Plaintiff filed an initial complaint in the Eastern District of Kentucky on April 7, 2015, against LC&C Energy, Inc., Lee, Richard Collett, and Appolo Fuels. D.E. 1.[4] Defendant Lee filed an Answer on June 22, 2015. D.E. 6. Because Plaintiff failed to show cause as to why it failed to serve Ray Collett and Appolo Fuels, District Judge Bunning dismissed the claims against those Defendants without prejudice. D.E. 8. Defendant Lee and Plaintiff entered into an agreement whereby Lee's obligations to Plaintiff will be satisfied by periodic payments and Plaintiff agreed not to proceed with efforts to obtain a judgment against Lee as long as he complied with the terms of the agreement. D.E. 12. By oral motion of Plaintiff, Judge Bunning dismissed the claims against LC&C Energy. D.E. 14.

         Plaintiff subsequently filed an Amended Complaint on March 7, 2016, omitting Defendants LC&C Energy, Appolo and Ray Collett, and joining Defendants Eastern Kentucky Mining and Key-Way. D.E. 15. Defendants Eastern Kentucky Mining and Key-Way filed a joint answer to the amended complaint, a counterclaim against Farmer's and Miner's Bank, and a crossclaim against Lee on June 27, 2016. D.E. 22. The parties consented to the jurisdiction of the undersigned for all proceedings. D.E. 29 at 2.

         Plaintiff filed a Motion for Partial Summary Judgment on July 7, 2017. D.E. 44. Defendant Lee supports Plaintiff's Motion for Partial Summary Judgment. D.E. 43. Defendants Eastern Kentucky Mining and Key-Way filed a combined Motion for Summary Judgment and response to Plaintiff's Partial Motion for Summary Judgment on July 25, 2017. D.E. 45 and 46. Plaintiff filed a combined Reply to Defendants' Response and a Response to Defendants' Motion for Summary Judgment on August 15, 2017. D.E. 48. The motions are ripe for review.

         SUMMARY JUDGMENT STANDARD

         The Court shall grant a motion for summary judgment if the movant identifies each claim or defense, or part of each claim or defense, on which it seeks summary judgment and shows that “there is no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Kand Med., Inc. v. Freund Med. Prods., Inc., 963 F.2d 125, 127 (6th Cir. 1992). A motion under Rule 56 challenges the viability of the other party's claim by asserting that at least one essential element of that claim is not supported by legally sufficient evidence. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 324-25 (1986).

         The moving party does not need his own evidence to support this assertion, but need only point to the absence of evidence to support the claim. Turner v. City of Taylor, 412 F.3d 629, 638 (6th Cir. 2005). The responding party cannot rely upon allegations in the pleadings, but must point to evidence of record in affidavits, depositions, and written discovery which demonstrates that a factual question remains for trial. Hunley v. DuPont Auto, 341 F.3d 491, 496 (6th Cir. 2003). “A trial court is not required to speculate on which portion of the record the non-moving party relies, nor is there an obligation to ‘wade through' the record for specific facts.” United States v. WRW Corp., 986 F.2d 138, 143 (6th Cir. 1993).

         The Court reviews all of the evidence presented by the parties in a light most favorable to the responding party and draws all reasonable factual inferences in her favor. Harbin-Bey v. Rutter, 420 F.3d 571, 575 (6th Cir. 2005). The Court must grant summary judgment if the evidence would not support a jury verdict for the responding party with respect to at least one essential element of his claim. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). If the applicable substantive law requires the responding party to meet a higher burden of proof, his evidence must be sufficient to sustain a jury's verdict in his favor in light of ...


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