Parton v. Parton

• Decision Date: 23 June 2022
• Docket Number: CIVIL 6:22-cv-00018-GFVT
• Parties: DAVID PARTON, Plaintiff, v. JOHNNY PARTON, et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

DAVID PARTON, Plaintiff, v. JOHNNY PARTON, et al., Defendants.

CIVIL No. 6:22-cv-00018-GFVT

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

June 23, 2022

MEMORANDUM OPINION & ORDER

GREGORY F. VAN TATENHOVE UNITED STATES DISTRICT JUDGE

Mere months after a judgment was issued in Henley Mining v Parton, four and a half years after that case was initiated, David Parton and Henley Mining are back in this Court. David is now suing Johnny and Timothy Parton in addition to Henley Mining for fraud, fraudulent transfer, and negligent misrepresentation. [R. 1.] These claims arise from four transfers of assets from Henley Mining to Johnny and Timothy surrounding the trial in the prior case. Id. The Plaintiff's Motion for Preliminary Injunction is presently before the Court. [R. 5; R. 6.] He asks the Court to enjoin the Defendants from disposing of the assets, which he alleges were transferred “to escape Plaintiff's collection efforts,” in addition to various accounting and reporting requests. [R. 5.] For the following reasons the Plaintiff's Motion for Preliminary Injunction [R. 5] is GRANTED.

I

Three brothers-David, Timothy, and Johnny Parton-were each one-third owners of a group of coal mining companies. [R. 1-8 at 4.] ¶ 2016, David filed for dissolution of the companies after the brothers could not decide how to continue operations together. Id. at 5. That action was dismissed upon a settlement that required: (1) the companies to merge into Henley Mining, (2) David be paid the fair value of his one-third interest in the companies, and (3) Henley Mining to deposit $450,000 in an escrow account and agree not to transfer or encumber property in Tennessee valued at $136,500, to protect any potential judgment in David's favor. Id. at 5-6. Relevant to this action, it also required the company to formally transfer some equipment to David via bill of sale. Id. at 6. Because the Parton Companies and Henley Mining were S-corporations, Timothy and Johnny were each entitled to a distribution equal to the value of the transferred equipment. Id. Instead of taking those distributions in cash, they were treated as a liability on Henley Mining's books. Id. Those liabilities were initially valued at $445,762.50. Id. at 8.

The companies were merged into Henley Mining on January 31, 2017. Timothy and Johnny's expert valued the company at $446,427, so pursuant to the settlement, they paid David one third of that value, $148,809. Id. David disagreed with the valuation and Henley Mining filed suit against him in this Court to determine a fair valuation. [R. 6 at 2; Henley Mining v. David Parton, 6:17-00092-GFVT.] The Court found the companies were worth $3,318,980 as of the date of the merger. [R. 1-8 at 15.] David Parton therefore was awarded a judgment entitling him to $957,517.67 (one third of the value of the companies, minus the prior $148,809 payment) on November 15, 2021. [Id.; R. 1-7.]

On January 23, 2022, David discovered four distributions of assets and equipment from Henley Mining to Johnny and Timothy that occurred in late 2020. [R. 1.] The distribution records state that they were in satisfaction of (1) the existing Distribution Liabilities owed to Johnny and Timothy and (2) a new liability owed to Johnny arising from his payment of legal fees on Henley's behalf. Id. at 5. David filed this action in response, claiming the transfers constitute fraudulent transfer, fraud, and negligent misrepresentation. Id. at 6-9. He alleges the liabilities satisfied by these transfers were illegitimate and intended to “loot” Henley Mining of its assets, preventing recovery of his judgment. [R. 6 at 6.] David seeks a preliminary injunction preventing Johnny and Timothy from disposing of the transferred assets and requiring them to identify the location of the assets, account for any disposal of the assets, and escrow funds received from such disposal. [R. 5-1.]

David's motion was styled as a Motion for a Temporary Restraining Order and Preliminary Injunction. [R. 5; R. 6 at 1.] However, the Court found that he was not truly pursuing a TRO and construed the motion as only requesting a preliminary injunction. [R. 8.] After the parties fully briefed the motion, the Court held a preliminary injunction hearing on April 13, 2022. [R. 25.] Alongside his other arguments, David argued for the first time at the hearing that the transfers were not “for value” because they violated Kentucky's Corporations Act. [See R. 27 at 1.] The Court granted the parties additional time to brief that issue. [R. 25.] The parties have completed that briefing, so the matter is now ripe for review.

II

“A preliminary injunction is an extraordinary remedy which should be granted only if the movant carries his or her burden of proving that the circumstances clearly demand it.” Overstreet v. Lexington-Fayette Urban County Government, 305 F.3d 566, 573 (6th Cir. 2002) (citing Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir. 2000) (cleaned up) (“[A] preliminary injunction involv[es] the exercise of a very far-reaching power ”)). To issue a preliminary injunction, the Court must consider: (1) whether the movant has shown a strong likelihood of success on the merits; (2) whether the movant will suffer irreparable harm if the injunction is not issued (3) whether the issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by issuing the injunction. Overstreet, 305 F.3d at 573. These considerations are “factors to be balanced, not prerequisites that must be met.” Six Clinics Holding Corp., II v. Cafcomp Sys., 119 F.3d 393, 400 (6th Cir. 1997).

A

David states his Motion for Preliminary Injunction is only based on his fraudulent transfer claim. [R. 19 at 1.] Therefore, the Court will only consider that claim in determining whether he is likely to succeed on the merits. As an initial matter, the pleadings were unclear as to which section of Kentucky's Uniform Voidable Transfer Act supports his claim. The Complaint cites to KRS § 378A.050 as a whole, though it quotes § 378A.050(1), and the Motion for Preliminary Injunction only refers to § 378A.050(1). [R. 1 at 6; R 6 at 4-5.] But in his Reply, David argues he is likely to succeed on his claim under § 378A.050(2). At the hearing, the Court asked him which provision he was proceeding under, and he presented arguments as to both. [See Tr. at 4-6.] The Court considered both sections and finds he is unlikely to succeed under KRS § 378A.050(2), but likely to succeed under (1).

The Defendants argue that David's fraudulent transfer claim is time-barred if it is being brought pursuant to KRS § 378A.050(2). [R. 17 at 7-3.] The KUVTA's limitations period states the claim is extinguished unless it is brought:

(1) Under KRS 378A.040(1)(a), not later than four (4) years after the transfer was made or the obligation was incurred or, if later, not later than one (1) year after the transfer or obligation was or could reasonably have been discovered by the claimant;

(2) Under KRS 378A.040(1)(b) or 378A.050(1), not later than four (4) years after the transfer was made or the obligation was incurred; or

(3) Under KRS 378A.050(2), no later than one (1) year after the transfer was made.

KRS § 378A.090. Accordingly, if the claim is under KRS § 378A.050(2), it is subject to a one-year statute of limitations.

a

The Defendants argue “the statute makes clear that this one-year limit is a strict time bar and not subject to the discovery rule.” [R. 17 at 8.] They reach this conclusion by comparing KRS § 378A.090(3) to (1). Section (1) includes discovery language but (3) does not, so they argue the legislature made a clear choice that the discovery rule only applies to claims brought under KRS § 378A.040(1)(a) (transfers made with actual fraudulent intent). Id. Under this view, David's claim would have expired on December 15, 2021, one year after the last allegedly fraudulent transfer. Id. He did not file this action until February 2, 2022. [R. 1.]

In opposition, David attempts to show the limitations period on his claim began when the transfers were discovered. [R. 19 at 3-4.] But all of the cases he cites are applying an analogue of KRS § 378A.090(1), which explicitly includes a discovery rule but does not apply to claims pursuant to KRS § 378A.050(2). Id.; see, e.g. Bash v Textron Fin. Corp. (In re Fair Fin. Co.), 834 F.3d 651, 672 (6th Cir. 2016). In fact, one of his cited cases held that an analogue to KRS § 378A.090(2) “provides for extinguishment of an action when the transfer was made, not when it was discovered.” State Farm Mut. Aut. Ins. Co. v. Cordua, 834 F.Supp.2d 301, 305 (E.D. Penn. 2011). Like KRS § 378A.090(3), (2) does not include the discovery language that is included in (1), so this case actually supports the Defendants' position that the claim is time-barred. Many other courts have held that the absence of discovery language in UVTA statutes of limitation prohibits application of the discovery rule. See Am. Pegasus SPC v. Clear Skies Holding Co., 2015 U.S. Dist. LEXIS 189547, at *75 (N.D.Ga. Sept. 22, 2015) (“there is no discovery rule which would operate to toll the four-year statute of limitations for claims of constructive fraud”); Sw. Holdings, L.L.C. v. Kohlberg & Co. (In re Sw. Supermarkets, L.L.C.), 315 B.R. 565, 576 (Bankr. Az. 2004), vacated on other grounds Collins v. Kohlberg & Co. (In re Sw. Supermarkets, L.L.C.), 376 B.R. 281 (Bankr. Az. 2007); Johnston v. Crook, 93 S.W.3d 263, 270 (Tex. App. 2002).

Though these cases were interpreting provisions comparable to KRS § 378A.090(2), the reasoning applies equally to § 378A.090(3). Because (1) clearly includes a discovery rule it follows that by not using that language in (2) and (3), the...