Kennedy v. Estate of Campbell (In re Cambrian Holding Co.)

• Decision Date: 28 January 2022
• Docket Number: ADV. 21-5051,19-51200
• Parties: IN RE CAMBRIAN HOLDING COMPANY, INC. DEBTOR v. ESTATE OF ROY CAMPBELL DEFENDANT ELLEN ARVIN KENNEDY, LIQUIDATING TRUSTEE PLAINTIFF
• Court: U.S. Bankruptcy Court — Eastern District of Kentucky

IN RE CAMBRIAN HOLDING COMPANY, INC. DEBTOR

ELLEN ARVIN KENNEDY, LIQUIDATING TRUSTEE PLAINTIFF
v.
ESTATE OF ROY CAMPBELL DEFENDANT

ADV. NO. 21-5051

No. 19-51200

United States Bankruptcy Court, E.D. Kentucky, Lexington Division

January 28, 2022

MEMORANDUM OPINION

Gregory R. Schaaf Bankruptcy Judge

The Plaintiff Ellen Arvin Kennedy, Liquidating Trustee for the Cambrian Liquidating Trust, filed a complaint seeking to avoid a transfer made to the Defendant, the Estate of Roy Campbell, pursuant to 11 U.S.C. § 547 (Count I), § 548 (Count II), and § 549 (Count III), and to recover the transfer for the bankruptcy estate pursuant to § 550 (Count IV). [ECF No. 1.] The Trustee moved for summary judgment on Counts I and IV because the transfer is avoidable under § 547(b) and recoverable under § 550(a). [ECF No. 11.]

The Defendant objects and seeks a summary judgment that the transfer is not avoidable under § 547(b) because it was made in the ordinary course of business with the Debtor pursuant to § 547(c)(2). [ECF Nos. 15, 16.] A hearing was held on January 20, 2022, and the matter taken under submission.

The Trustee's Motion for Summary Judgment is granted and the Defendant's Motion for Summary Judgment is denied.

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I. Undisputed Facts.

A. The Transfer.

The transfer is a $49, 841.95 payment (the "Transfer") made by the Debtor Perry County Coal LLC to the Defendant on April 15, 2019. [ECF Nos. 1, 11-2.] The Transfer was made within the ninety days preceding the Debtor's petition date of June 16, 2019. [See Case No. 19-51217, ECF No. 1; see also ECF No. 10 at ¶ 3.] The Debtor was insolvent when the Transfer was made. [ECF No. 11-1 ("Affidavit of Liquidating Trustee").]

B. The Coal Lease Agreement.

The Transfer was made pursuant to a coal lease agreement dated December 3, 2003, between the Debtor and Roy Campbell.^[1] [See ECF No. 1 at Ex. A ("Lease"); see also ECF No. 10 at ¶ 4.] The Lease allows the Debtor to mine coal on Campbell's property in exchange for periodic royalty payments. [ECF No. 1, Ex. A at ¶ 1.] The Lease provides the Debtor will pay Campbell a tonnage royalty based on the coal mined "on or before the 25th day of the month following the mining, removal and sale of the coal." [Id. at ¶ 5.] The Lease also includes an annual minimum royalty during the initial 10-year term of the Lease with a right of recoupment in subsequent years if the coal mined is less than the minimum tonnage in the Lease. [Id. at ¶ 6.]

C. Payment History.

The Defendant provided copies of checks issued by the Debtor to the Defendant dated August 2016 through April 2019 and stubs that summarize the invoices paid by each check for coal mined during that same period to evidence the parties' billing and payment history. [ECF No. 16-2.] The Trustee moved to strike these documents because they were not timely produced

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in discovery. [ECF No. 22.] The Trustee's request was denied at the January 20 hearing. [ECF No. 26.]

The documents are checks and stubs sent by the Debtor to the Defendant. The Trustee did not argue that they are inadmissible or inaccurate. A chart summarizing the information included in these documents is attached as Exhibit A and incorporated herein.

II. The Trustee is Entitled to Summary Judgment.

Summary judgment is appropriate if "there is no genuine issue as to any material fact" and "the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) (incorporated Fed.R.Bankr.P. 7056). A court must consider cross-motions for summary judgment separately on the merits as each party bears the burden to show there are no genuine issues of fact. Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800-01 (6th Cir. B.A.P. 2007).

It is the Trustee's burden to show that the Transfer is avoidable under § 547(b). 11 U.S.C. § 547(g). It is the Defendant's burden to prove that the Transfer is not avoidable because it was made in the ordinary course of business under § 547(c)(2). Id.

The Trustee has met her burden to show the Transfer is avoidable. The Defendant has not presented evidence that shows the Transfer was made in the ordinary course of business.

A. The Transfer is Avoidable Under § 547(b).

Section 547(b) provides that a trustee may avoid a transfer made in the ninety days preceding the petition date if five conditions are satisfied: (1) the transfer benefits a creditor; (2) the transfer was made on account of antecedent debt; (3) the transfer was made while the debtor was insolvent; (4) the transfer was made within ninety days before the petition was filed; and (5) the transfer enables the creditor to receive a larger share of the estate than if the transfer had not

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been made. 11 U.S.C. § 547(b); see also Luper v. Columbia Gas of Ohio (In re Carled, Inc.), 91 F.3d 811, 813 (6th Cir. 1996). The record reflects, and the Defendant did not dispute, that all five elements under § 547(b) are satisfied. [See generally ECF Nos. 1 (Complaint), 8 (Amended Answer), 10 (Defendant's Response to Request for Admissions); 11-1 (Affidavit of Liquidating Trustee).]

The only defense raised by the Defendant is the exception to a preference action for transfers made in the ordinary course of business pursuant to § 547(c)(2).

B. The Transfer was Not Made in the Ordinary Course of Business.

A trustee may not avoid any transfer

(2) to the extent that such transfer was in payment of a debt incurred by the debtor in the

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