GATX Corp. v. Addington
| Decision Date | 15 October 2012 |
| Docket Number | Civil Action No. 11–122–DLB. |
| Citation | 879 F.Supp.2d 633 |
| Parties | GATX CORPORATION, Plaintiff v. Larry ADDINGTON, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Kentucky |
OPINION TEXT STARTS HERE
Michael Joseph Gartland, Delcotto Law Group PLLC, Lexington, KY, Andrew W. Wood, Wood, Wood & Young, Maysville, KY, for Plaintiff.
William C. Rambicure, Rambicure Law Group, PSC, F. William Hardt, III, Frost Brown Todd LLC, Lexington, KY, Cayce Ann Stoneburner, Donald W. Mallory, Donald J. Rafferty, Richard D. Nelson, Cohen, Todd, Kite & Stanford, LLP, Cincinnati, OH, for Defendants.
This matter is before the Court on Stephen and Robert Addington's Motion to Dismiss all claims against them in their individual capacities (Doc. # 10), as well as Plaintiff's Motion for Leave to Amend its Complaint 1 (Doc # 17). Each motion has been fully briefed (Docs. # 13, 18; and 25, 26, 39, 40 respectively), and is now ripe for review. For the following reasons, Defendants Stephen and Robert Addington's Motion to Dismiss is hereby granted, and Plaintiff's Motion for Leave to Amend its Complaint is hereby denied.
This action stems from the 2009 case of GATX Corporation v. Appalachian Fuels, LLC, et al. (0:09–cv–41–DLB), where this Court entered an Agreed Judgment against Larry Addington in the amount of $2,900,000.00. In the present action, Plaintiff GATX Corporation alleges that Larry Addington anticipated he would be held liable for a substantial sum of money in the 2009 case, and that he fraudulently conveyed his real and personal property to the Larry Addington Irrevocable Trust for the Benefit of Maxwell Addington (“Irrevocable Trust”) in order to place assets out of GATX's reach. GATX also alleges that Stephen and Robert Addington, both individually and in their capacity as Co–Trustees of the Irrevocable Trust, were involved in the fraudulent conveyances, rendering them liable under various Kentucky statutory and common law theories.
GATX Corporation served as the lessor of coal mining equipment to Appalachian Fuels, LLC, pursuant to various Master Lease Agreements executed in 2005 and 2006. Appalachian Fuels (“App Fuels”) is a limited liability corporation organized and existing under the laws of the Commonwealth of Kentucky. It is wholly owned by Energy Coal Resources, Inc. (“ECR”), another Kentucky corporation. Larry 2 owns a thirty percent share in ECR.
On September 27, 2005, Larry Addington and others entered a Joint and Several Guaranty and Indemnity whereby they guaranteed the prompt payment of any and all debts owed by App Fuels to GATX, up to a maximum of $5,000,000.
From November 2007 to March 2009, GATX sent at least six e-mails to App Fuels giving notice that the company was behind on lease payments. Stephen, as President of App Fuels, allegedly had multiple discussions with Larry about the delinquent payments. However, App Fuels remained in arrears on its lease payments to GATX.
On May 15, 2009, GATX sued Larry 3 to enforce his obligations under the guaranty agreement. ( GATX Corp. v. Appalachian Fuels, LLC, et al., 0:09–cv–41–DLB). This Court subsequently entered an Agreed Judgment against Larry in the amount of $2,900,000.00. Thereafter, GATX and Larry agreed that GATX would forebear collecting the judgment until November 16, 2011. However, Larry failed to pay the amount in full by the agreed date.
GATX responded to Larry's failure to pay by filing the present action on November 17, 2011. The Complaint alleges that between November 2007 and March 2009, Larry and Stephen had multiple discussions about App Fuel's financial condition, including the company's failure to meet its obligations under the various lease agreements with GATX. Based on these discussions, Larry anticipated that GATX would soon attempt to hold him liable for App Fuel's debts pursuant to the guaranty agreement. In a proactive effort to place assets outside the reach of GATX, Larry, as “Grantor,” converted a previously created revocable trust into an irrevocable trust for the benefit of his brother, Maxwell (“Max”), to be managed by his two other brothers, Stephen and Robert, as “Co–Trustees.”
The Irrevocable Trust was officially established on December 29, 2008 and titled the “Larry Addington Irrevocable Trust f/b/o Maxwell Addington.” The trust's purported purpose was to provide for Max Addington, who was seventy-seven (77) years old and suffered from cerebral palsy. By the terms of the Trust Agreement, Larry agreed that the trust was irrevocable. He also surrendered all rights to amend or revoke the trust agreement, and forfeited any incidents of ownership to any assets or interests conveyed to the trust. However, Larry retained the power to appoint any principal or income of the trust by express reference in his Last Will.
Pursuant to the Irrevocable Trust Agreement, Larry conveyed his interest in three tracts of real estate located in Boyd County, Kentucky by quit-claim deed dated December 29, 2008 to Stephen and Robert as Co–Trustees of the Irrevocable Trust. Max Addington resided in a 3,000 square foot house built on one of the three tracts of land.
GATX's Complaint alleges that Stephen drafted a “NOTE TO FILE” the day after Larry executed the Irrevocable Trust Agreement, which identifies Larry's ulterior motives. According to the complaint, the note acknowledges that the revocable trust was converted into an irrevocable trust “due to concerns by Larry.” The Complaint states, “Among the ‘concerns' expressed by Stephen in the ‘NOTE TO FILE’ was a concern that creditors of Larry, including GATX, were about to sue Larry for substantial obligations owed by him in connection with several coal mining businesses that were insolvent and were teetering on the verge of bankruptcy.” (Compl.¶ 58).
The Complaint's characterizations of the “NOTE TO FILE” are entirely inaccurate. First, the evidence of record shows that Stephen did not draft the note. In his October 31, 2011 deposition, Stephen testified that Crystal Slutz, Larry's secretary, drafted the note. There are no markings, signatures, or language on the note to indicate that anyone but Ms. Slutz was the one who drafted the note. Second, the note never mentions Larry's concerns about creditors, potential debts, or legal liabilities. Instead, Larry's declining health and desire to provide for his family after his death are the only “concerns” mentioned in the note.
After the Irrevocable Trust was established, Larry began transferring other personal assets to the trust. On January 2, 2009, Larry instructed Town Square Bank (“TSB”) to transfer $1,000,000.00 from his personal checking account to an account maintained by the Irrevocable Trust with TSB. Although the Irrevocable Trust Agreement established that Larry shall not retain any control over trust property, the Complaint alleges that he wrote at least ten letters to TSB directing it to transfer funds from the irrevocable trust account to other entities he owned or control led.5 GATX filed the 2009 suit approximately four months after the $1,000,000.00 transfer.
On November 18, 2010, more than 18 months after the 2009 suit was filed and 2 months before GATX and Larry reached a settlement in that suit, the Irrevocable Trust acquired title to three vehicles. The Complaint alleges that the vehicles were either purchased from proceeds of Larry's transfer of $1.0 million to the Irrevocable Trust, or they were initially the personal property of Larry and transferred to the Irrevocable Trust after Larry realized that he might be liable to GATX.
GATX filed the present suit on November 11, 2011 against Stephen, individually and in his capacity as Co–Trustee of the Irrevocable Trust, Robert, individually and in his capacity as Co–Trustee of the Irrevocable Trust, and Larry. Count one of the Complaint (Doc. # 1) alleges that the Addington brothers participated in property conveyances with “intent to delay, hinder or defraud creditors” in violation KRS § 378.010. Count two alleges that Larry, a debtor, conveyed property of his estate without receiving valuable consideration in violation of KRS § 378.020, and that Stephen and Robert aided and abetted Larry's conveyances, thus rendering them liable under KRS § 378.020 as well.
On December 20, 2011, Stephen and Robert filed a Motion to Dismiss (Doc. # 10) all claims against them in their individual capacity pursuant to Federal Rule of Civil Procedure 12(b)(6). In the Motion, Stephen and Robert argue that the Complaint does not contain a short and plain statement of the claims against them, nor does it contain any plausible factual allegations to support any claim against them in their individual capacities. Moreover, Stephen and Robert argue that there is no factual or legal basis for direct liability under either of the Kentucky fraudulent conveyance statutes because Stephen and Robert, in their individual capacities, were neither transferors or transferees of the disputed property. Likewise, Stephen and Robert assert that the Complaint fails to contain any plausible factual allegations that support an aider and abettor theory of liability.
GATX filed a timely response in opposition to the motion (Doc. # 15), arguing, inter alia, that it sufficiently plead facts to state claims against Stephen and Robert for aiding and abetting fraudulent transfers, conspiracy to commit fraudulent transfers, and fraud for participating in fraudulent transfers. In the response, GATX also requested leave to amend its Complaint to state the above-mentioned claims if the Court found that the claims were insufficiently plead. (Doc. # 15 at 3). Subsequently, Stephen and Robert timely...
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