Spradlin v. E. Coast Miner, LLC (In re Licking River Mining, LLC)

Citation: 603 B.R. 336Docket: CASE NO. 14-10201 JOINTLY ADMINISTERED; ADV. PROC. NO. 15-1004

Court: United States Bankruptcy Court, E.D. Kentucky; July 19, 2019; Us Bankruptcy; United States Bankruptcy Court

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Motions for Summary Judgment have been filed by Phaedra Spradlin, the Chapter 7 Trustee of the Debtors' Estates, and various defendants, including East Coast Miner, LLC (ECM), East Coast Miner II, LLC (ECM II), Keith Goggin, and Michael Goodwin. The Court conducted oral arguments on October 18 and November 8, 2018, and subsequently ordered supplemental briefs. The Amended Memorandum Opinion and Order addresses the motions concerning the Trustee's fraudulent transfer claims (Counts 5, 6, 8, 9, 10, 13, 14, 15, and 17), a preferential transfer claim (Count 18), a recharacterization claim (Count 12), and equitable subordination claims (Counts 11 and 16) from the First Amended Complaint.

Jurisdiction is established under 28 U.S.C. § 1334(b), with venue being appropriate in this District under 28 U.S.C. § 1409. The Court has authority to resolve core proceedings under Title 11, as defined in 28 U.S.C. § 157(b)(2), and both parties consented to the Court's final orders on these claims.

Key undisputed facts include the formation of U.S. Coal, a Delaware corporation, on June 23, 2006, and the subsequent acquisition of the Licking River Division from the LR Sellers. Goggin and Goodwin served as directors of U.S. Coal from 2009 to 2014. The acquisition involved issuing promissory notes totaling $10 million to the LR Sellers. In June 2007, the CAM Entities purchased approximately $4.5 million of U.S. Coal's preferred stock and warrants, and U.S. Coal subsequently contracted to acquire the JAD Division from the JAD Sellers, culminating in the acquisition of the JAD Debtors' stock by April 15, 2008, which involved issuing $7 million in convertible notes, with $6 million secured by a lien on JAD Debtors' assets.

A $4.8 million loan for equipment was made to U.S. Coal and JAD Debtors from the CAM Entities, resulting in CAMOFI Master LDC receiving a convertible promissory note from JAD, termed the CAM Equipment Note. Additionally, a $5 million bridge loan was issued via multiple notes from JAD, Fox Knob, and Sandlick to various parties, including Lawrence Kaplan and Michael Miller, all dated April 15, 2008, known as the CAM JAD Bridge Notes, which U.S. Coal guaranteed. U.S. Coal also entered into a Rights Agreement allowing these parties to exercise a "put option" to sell their U.S. Coal common stock back to the company.

In 2008, investors Goggin and Goodwin purchased common and preferred stock in U.S. Coal. Subsequently, in late 2008 and early 2009, U.S. Coal borrowed $4.5 million through unsecured promissory notes, with guarantees from LR Resources, SMJ, and Oak Hill. Meanwhile, JMB Capital Partners Master Fund acquired significant debt owed by U.S. Coal, leading to a Second Amended and Restated Credit Agreement and a Value Right Agreement effective April 15, 2008, with obligations maturing in 2009 and 2010.

In September 2009, Goggin proposed a transaction for ECM, formed on September 28, 2009, to acquire JMB's interests for $18 million, refinancing U.S. Coal's debts under the JMB Credit and Value Right Agreements. The transaction included the First Amendment to these agreements, terminating the Value Right Agreement. In the same month, Goggin and Goodwin's 2008 Bridge Notes were amended and restated. Goggin managed ECM, while both he and Goodwin were direct investors, with U.S. Coal's Director Koutsodimitropoulos representing another investing entity. Several U.S. Coal management members also indirectly invested in ECM through U.S. Coal Management, LLC.

On September 29, 2009, U.S. Coal was organized in Kentucky. The following day, it transferred $800,000 to USCM, allocating $100,000 to each of eight members of its management and Board, which included individuals such as Gabbard, Wolff, and Collins. Except for McAfee and Dean, the other members also contributed an additional $100,000 each, resulting in a total of $1.4 million comprising $600,000 from the members and $800,000 from U.S. Coal. USCM subsequently invested the full $1.4 million into ECM. During an October 1, 2009 Board meeting, the Board approved the resignation of director Douglas, leaving Gabbard, Whitt, and Koutsodimitropoulos. They also ratified the ECM transaction and expanded the Board to five members, adding Goggin and Goodwin as designees of ECM effective upon the transaction's closing.

At the next Board meeting on October 13, 2009, Goggin moved to ratify the $800,000 transfer from U.S. Coal to USCM, which was unanimously approved. In 2010 and 2011, the Debtors sought financing to consolidate U.S. Coal's debt but did not finalize an agreement with Macquarie Bank Limited. After Windisch replaced Wolff as CFO in September 2011, Goggin established ECM II in Delaware on October 25, 2011. Goggin and Goodwin were the only U.S. Coal insiders to invest in ECM II. Negotiations ensued for a loan to settle the CAM JAD Bridge Notes, initially proposed at a 20% interest rate but later adjusted to 18% with a 5% default provision. The Board approved this transaction on November 23, 2011, with Goggin and Goodwin abstaining.

The ECM II Credit Agreement, executed on December 7, 2011, involved a total loan of $6,729,422.60 through two term loans: $1,322,406.38 to U.S. Coal and $5,407,016.22 to JAD, Fox Knob, and Sandlick. All Debtors were obligated to repay the entire loan, with Goodwin and Goggin's 2008 Bridge Notes amended and restated, extending their maturity dates. U.S. Coal defaulted on these notes on February 1, 2012, and on October 22, 2012, Goodwin, still on the Board, issued notices of default on his personal notes before resigning the next day, leaving four members on the Board.

Goodwin initiated negotiations with U.S. Coal concerning defaults, with Goggin advising that he would accept any negotiated terms regarding Goodwin's 2008 Bridge Notes. Goggin remained in communication with U.S. Coal's representatives throughout these negotiations. On February 1, 2013, Goodwin and Goggin's unsecured 2008 Bridge Notes were amended and restated into secured notes (the "2013 Amended Notes"), each worth $1,097,620.03 and due on October 31, 2014. U.S. Coal became the obligor, and ten Debtors, including LR Resources, SMJ, Oak Hill, and new co-guarantors, guaranteed the notes, securing previously unsecured debt. The Board approved this transaction on February 11, 2013, with Goggin abstaining from the vote. The following day, both Goodwin and Goggin received a $175,000 wire transfer related to the 2013 Amended Notes.

Subsequently, U.S. Coal lost its line of credit with Commercial Bank around February 25, 2014, leading to missed trade obligations and financial strain. Involuntary chapter 11 petitions were filed against LR Mining on May 22, 2014, followed by similar petitions against LR Resources, Fox Knob, SMJ, and JAD. U.S. Coal faced an involuntary petition on June 10, 2014, with four remaining Debtors filing voluntary chapter 11 petitions on November 4, 2014. These dates are collectively referred to as the "Petition Dates."

Summary judgment is applicable when evidence, viewed favorably for the non-movant, shows no genuine material fact dispute exists, and the movant is entitled to judgment as a matter of law, as per FED. R. CIV. P. 56(c). A genuine issue arises when factual disputes could affect the suit's outcome under applicable law. The judge’s role in summary judgment is to assess whether a genuine issue exists for trial, not to weigh the evidence. The moving party must make a prima facie case for summary judgment, with the nature of the required evidence depending on which party bears the burden of persuasion at trial.

A party seeking summary judgment must make an affirmative showing that would justify a directed verdict if unchallenged at trial, shifting the burden of production to the opposing party. The opposing party must then present evidence to demonstrate a "genuine issue" for trial or request additional time for discovery. The moving party can fulfill its burden of production by either providing evidence that negates an essential element of the opposing party's claim or by showing that the opposing party's evidence is insufficient to support their claim. If the opposing party fails to provide adequate evidence, summary judgment is warranted. Cross-motions for summary judgment are evaluated independently, with all reasonable inferences drawn against the party whose motion is being considered. In the analysis of Count 12, the Trustee's attempt to recharacterize debts owed to ECM and ECM II as equity investments is assessed, with ECM and ECM II moving for summary judgment and the Trustee seeking judgment against ECM. The legal standard for recharacterization in the Sixth Circuit allows for such a claim if circumstances indicate that a debt transaction was actually an equity contribution.

In a recharacterization analysis, if a court determines that a monetary advance constitutes equity rather than debt, the claim is treated as a proprietary interest and subordinated to all other corporate obligations. The Sixth Circuit employs an eleven-factor test for assessing whether recharacterization is appropriate, which includes considerations such as the nature of the instruments evidencing the indebtedness, the presence of fixed maturity dates and interest rates, the source of repayments, and the relationship between the creditor and stockholder. A transaction resembling an arm's length negotiation is more likely to be classified as debt. Recharacterization typically occurs when the same individuals control both the transferor and transferee, indicating a lack of expectation for repayment alongside other creditor claims.

In the context of the case, the Trustee suggests that the court may determine the nature of the transaction without applying the AutoStyle factors, arguing that the classification of the Value Right Payable as equity is evident. However, the Trustee provides no authority to support the claim that the bankruptcy court has discretion over the use of these factors. Consequently, the court will apply the AutoStyle factors to evaluate the motions, recognizing that the analysis is fact-dependent and that no specific number of factors must be satisfied for recharacterization to be deemed appropriate.

Courts determine whether advances to a company are classified as debt or equity by assessing the intention to create an unconditional obligation to repay, focusing on economic substance rather than just the transaction's form. The distinction between capital contributions and loans is a factual question. In cases where no material facts are disputed, summary judgment can be granted on recharacterization claims. A specific case involves the Trustee's claim against ECM, arguing that $9.4 million owed by U.S. Coal under the ECM Credit Agreement originated from the Value Right Agreement (VRA) with JMB, which she contends was effectively an equity stake rather than a loan. The Trustee posits that the assignment of the VRA to ECM did not alter its nature, and that U.S. Coal's negotiators were not independent due to their indirect investment in ECM. However, the Court finds the Trustee's argument weak, noting that the instruments involved, including the ECM Credit Agreement, are clearly defined as debt instruments and do not support the claim that the Value Right Payable is a legitimate concept within the context of the agreements. Thus, the recharacterization claim lacks merit.

The ECM Credit Agreement establishes the Value Right Payable but does not hinge on the uniqueness of transaction terms. It is undisputed that standard indebtedness instruments were utilized. Key elements of the agreement include:

1. **Maturity Date and Payment Schedule**: The amended ECM Credit Agreement incorporates terms from the JMB Credit Agreement, setting a fixed maturity date of December 31, 2011, with U.S. Coal obligated to make monthly payments on the first business day of each month.

2. **Interest Rate**: The agreement specifies a 12% interest rate and a 5% default interest rate, with a requirement for monthly interest payments, also derived from the JMB Credit Agreement.

3. **Source of Repayments**: The agreement does not limit repayment to U.S. Coal's business success; rather, it mandates monthly principal and interest payments, indicating a more traditional loan structure than a capital contribution.

4. **Identity of Interest**: The Trustee claims a significant overlap between ECM and U.S. Coal's interests due to shared board members. However, without evidence that ECM's loan was proportionate to its stock ownership in U.S. Coal, this argument lacks merit. 

5. **Security for Advances**: A security agreement was executed alongside the ECM Credit Agreement, indicating collateral for the advances, which counters the notion that these were simply capital contributions.

The Trustee fails to provide substantial arguments or evidence addressing several of these factors.

The absence of evidence showing U.S. Coal’s ability to secure outside financing when entering the ECM Credit Agreement suggests that advances were likely capital contributions, not loans. ECM provided documentation indicating that U.S. Coal was considering a financing proposal from White Oak Global Advisors at the time of the agreement. The lack of subordination of ECM's advances to claims from other creditors further supports the notion that these advances were capital contributions, as no arguments or evidence were presented by the Trustee on this matter. Additionally, no evidence was provided to show that ECM funds were used for U.S. Coal's acquisition of capital assets. The existence of a sinking fund is indicative of loans, but ECM argued that the security taken for the debt makes this factor irrelevant, a position the Trustee appears to accept. Thus, the court concludes that the absence of a sinking fund does not significantly affect the classification of the advances. Concerning U.S. Coal's capitalization, while the Trustee argued inadequacy, ECM contended that insufficient capitalization alone cannot justify recharacterizing debt, referencing legal precedents that discourage punitive measures against insider loans to distressed companies. Consequently, the court does not heavily weigh U.S. Coal's financial struggle at the time the financial assistance was provided.

To recharacterize a loan as equity, the Trustee needed to demonstrate more than Keywell's financial distress and the insider status of the lender's members; however, the Trustee failed to provide sufficient evidence for recharacterization, leading to the affirmation of the bankruptcy court's denial of her claim. The inadequacy of a debtor's capitalization at the time of the loan cannot, by itself, justify a finding of equity infusion. Nine AutoStyle factors indicated strong opposition to recharacterization, with only one disputed fact regarding U.S. Coal's capitalization deemed insufficient to create a factual issue. The determination of whether advances are loans or capital contributions relies on the intention to create a repayment obligation. Evidence presented established that ECM's claim resembled a loan with an unconditional repayment obligation rather than an equity infusion. There was no indication that ECM invested with little expectation of repayment, as seen in the Adelphia case. The Trustee's arguments concerning the VRA were improperly focused on a separate agreement, and no legal authority or evidence was provided to support her position. Consequently, the Court concluded that no reasonable fact-finder could classify the ECM Credit Agreement as an equity infusion, granting ECM's motion and denying the Trustee's motion on this count. ECM II was also entitled to summary judgment regarding the Trustee's recharacterization claim, with arguments about the AutoStyle factors favoring a debt classification, despite a dispute over capitalization adequacy and the relevance of the sinking fund factor. The Trustee's claims about excessive interest and board approval were deemed unrelated to the AutoStyle analysis.

Trustee's argument regarding ECM II's claim under the AutoStyle factors hinges on Factors 5 (identity of interest) and 6 (inadequate capitalization), which support recharacterization. The Court emphasizes that only the AutoStyle factors are relevant for evaluating Trustee's recharacterization claim, dismissing unrelated arguments. The Court concludes Trustee failed to provide evidence showing the ECM II Loan constituted an equity infusion, as the transaction involved standard commercial loan documentation, including promissory notes, a repayment schedule, and security agreements. The funds from ECM II were allocated to retire existing debt rather than acquire capital assets. The involvement of investors Goodwin and Goggin does not establish the necessary identity of interest between ECM II and U.S. Coal. Furthermore, the ECM II Credit Agreement does not subordinate the loan debt to other parties, and the existence of a sinking fund is irrelevant since ECM II secured debt from most Debtors. A dispute over capitalization adequacy does not alter the Court's conclusion regarding the other AutoStyle factors. Consequently, the Court finds no material factual dispute, granting ECM II's Motion on Count 12.

Trustee's claims for equitable subordination against all Defendants in Count 11 and against Goodwin and Goggin in Count 16 will proceed to trial for certain Defendants. In Count 11, Trustee seeks to subordinate all Defendants' claims due to their alleged inequitable conduct, with specific details outlined in Paragraph 224. In Count 16, the focus is on the 2013 transaction involving Goodwin and Goggin, which Trustee claims resulted from their inequitable actions. Both Counts faced summary judgment motions from the Defendants. Equitable subordination, governed by 11 U.S.C. § 510(c)(1), allows for the prioritization of claims based on inequitable conduct, injury to creditors, and adherence to the Bankruptcy Act. Establishing equitable subordination requires proof of a valid debt and is considered an exceptional remedy applied in limited circumstances.

Equitable subordination distinguishes between a creditor's unilateral remedies and inequitable conduct such as fraud or excessive control over a debtor. It is a remedial, not penal, measure intended to offset specific harms caused by inequitable actions. In cases where quantifying harm is challenging, courts should still seek to identify the nature and extent of harm to ensure that remedies are proportional to the injuries suffered. The burden of proof lies with the party seeking equitable subordination, but meeting the required standard does not mandate the court to subordinate claims; it merely permits it. The scrutiny applied varies based on whether the creditor is an insider or non-insider. Claims from insiders require less egregious misconduct to justify subordination, while non-insiders must demonstrate gross misconduct akin to fraud. Claims from non-insiders are rarely subordinated. Furthermore, non-statutory insiders may also be considered insiders in equitable subordination analyses.

A non-statutory insider has a close relationship with a debtor that affects transactions between them, potentially resulting in non-arm's length dealings. The trustee's equitable subordination claim against ECM will proceed to trial due to sufficient factual disputes, particularly regarding Goggin's influence as ECM's manager over the U.S. Coal Board, which may have led to unfair advantages for ECM. Key issues include whether the Board, under Goggin's control, prioritized payments to ECM over other creditors and rejected a deal that could have reduced ECM's debt burden. Most U.S. Coal directors had investments in ECM, except Koutsodimitropoulos, who represented a significantly invested entity. The trustee's other claims against ECM lack merit as they do not demonstrate inequitable conduct. An email from Goodwin to Goggin discussing bankruptcy strategies does not independently prove inequitable conduct. To succeed on the equitable subordination claim, the trustee must show ECM's misconduct harmed creditors or advantaged ECM, which the court finds remains a genuine dispute for trial. However, ECM II is entitled to summary judgment as the trustee has not provided sufficient evidence of inequitable conduct by ECM II, even assuming it is considered a non-statutory insider. The trustee's arguments for denying summary judgment on her claim against ECM II are insufficient.

Only one of the bases for equitable subordination relates to ECM II, specifically concerning U.S. Coal's entry into the ECM II Credit Agreement and the interest rate charged. The Trustee fails to provide legal authority supporting the view that the terms of the ECM II Loan alone justify equitable subordination of ECM II's claim due to non-payment. The Trustee also attempts to impute Goggin's conduct to ECM II, citing Stewart v. Wilmington Trust, which does not support this imputation since the knowledge and actions of corporate officers must be within their authority. No specific conduct by Goggin that falls within his authority has been identified that would warrant equitable subordination of ECM II's claim. 

The Trustee further tries to connect the ECM II Loan transaction to U.S. Coal's rejection of the Macquarie deal, asserting this was directed by Goggin and Goodwin. However, ECM II was formed after the rejection, thus cannot be liable for actions taken prior to its establishment. The Trustee claims Goggin and Goodwin rushed ECM II without due diligence but provides no evidence or legal justification for holding ECM II responsible for U.S. Coal's due diligence failures. Consequently, ECM II's motion for summary judgment on the Trustee's equitable subordination claim in Count 11 is granted. 

The Trustee's claims against Goodwin and Goggin will proceed to trial, with Count 11 focusing on Goodwin and Count 16 against Goggin. The Trustee must provide evidence of inequitable conduct by Goodwin, such as fraud or breach of fiduciary duty, to succeed in her claims. The Court recognizes that potential breaches of fiduciary duty by Goodwin and Goggin present material disputes of fact regarding harm to creditors and unfair advantages, supporting the possibility of equitable subordination of their claims consistent with the Code.

The Trustee is permitted to pursue equitable subordination claims against Goodwin and Goggin only in relation to specific challenged transactions under Count 7. The Court has previously ruled that the Trustee cannot pursue claims regarding the payment of legal fees to Goggin and ECM, nor can she argue equitable subordination related to that issue under Count 11. However, the Trustee can continue to seek equitable subordination based on Goodwin and Goggin's actions related to the Macquarie deal, as the breach of fiduciary duty claim against them in this context remains viable.

The Court has also determined that the statute of limitations bars claims against Goodwin and Goggin for other specific transactions, such as U.S. Coal's $800,000 transfer to USCM and a severance agreement with former CEO Robert Gabbard. The Trustee cannot assert equitable subordination for these transactions since she has not demonstrated any inequitable conduct by Goodwin and Goggin regarding the transfer, as they were not on the Board at that time. Similarly, there is insufficient evidence for the severance agreement to warrant equitable subordination.

Regarding Count 16, the Trustee may pursue her breach of fiduciary duty claim against Goggin related to the 2013 Amended Notes, allowing her to continue equitable subordination against Goggin only in that context. Consequently, Goodwin and Goggin's motions on Count 11 are denied, Goggin's motion on Count 16 is denied, and Goodwin's motion on Count 16 is granted.

Additionally, the Trustee is seeking to avoid alleged constructively fraudulent transfers under Kentucky law, using her "strong arm" powers as authorized by 11 U.S.C. § 544(b)(1). This provision allows her to act in place of an unsecured creditor to challenge transfers that are voidable under applicable state law.

The trustee is required to demonstrate by a preponderance of the evidence the following elements: (1) the existence of a creditor, (2) that the creditor holds an allowable unsecured claim, (3) that there has been a transfer of the debtor's property interest, and (4) that this transfer is voidable under applicable state law. The trustee seeks to apply Kentucky's fraudulent conveyance law, K.R.S. 378.020, which invalidates transfers made without valuable consideration concerning creditors existing at the time of the transfer. According to K.R.S. 378.020, any transfer by a debtor without adequate consideration is void as to existing creditors, but not as to future creditors or purchasers who have notice of the transfer. 

To meet the threshold requirement under § 544(b) of the Bankruptcy Code, the trustee must show with clear and convincing proof that the transfers are voidable according to K.R.S. 378.020. Actions brought under this statute are subject to a five-year statute of limitations, establishing the lookback period for the challenged transfers as five years from the debtor's petition date. Kentucky courts interpret a transfer made without valuable consideration as one where the value of the transfer significantly exceeds the consideration given. Consideration must be sufficient and not merely inadequate; a transfer made for less than a fair price is void. However, a dollar-for-dollar reduction in debt is considered valuable consideration.

Value is assessed at the time of transfer, and the intent of K.R.S. 378.020 is to restore creditors to their position prior to the voidable conveyance, meaning a creditor can only recover what they would have received before the transfer. Additionally, the trustee seeks to avoid allegedly constructively fraudulent transfers or obligations under the Bankruptcy Code, specifically citing § 548(a)(1)(B).

A trustee may void transfers or obligations made by a debtor to insiders within two years prior to a bankruptcy filing if the debtor received less than reasonably equivalent value. The trustee must establish four elements: (1) the debtor transferred an interest in property, (2) the transfer occurred within two years of the bankruptcy petition, (3) the debtor was insolvent at the time of the transfer or became insolvent as a result, and (4) the value received was less than reasonably equivalent to what was given. Determining "reasonably equivalent value" requires a factual analysis, focusing on the disparity between the market value of the transferred property and the value received. The assessment considers the value at the time of transfer, and a dollar-for-dollar debt reduction is considered reasonably equivalent value. The court's evaluation of value must prioritize the nature of goods and services provided over their impact on the debtor's financial situation, and the methodology used for valuation is subject to de novo review. Indirect benefits, which can be derived from third parties, also qualify as reasonably equivalent value.

The transaction's benefit to the debtor can be indirect, deriving from benefits received by a third party, provided that the debtor ultimately gains an economic advantage. This is valid if the value received by the debtor is comparable to what they have given up. Constructive fraud claims are asserted against ECM II and others based on Kentucky law and specific statutory provisions. The Trustee seeks to avoid obligations and transfers linked to the ECM II Loan, which includes guaranteeing substantial amounts by the JAD and LR Debtors and granting liens on their assets. The Trustee argues that these debtors received no consideration for their guarantees or the liens. Payments made to ECM II within two years prior to the debtors' bankruptcy filings are also contested as lacking sufficient consideration. The Trustee seeks partial summary judgment regarding the LR Debtors' guarantees and liens, while ECM II seeks summary judgment on all related aspects of Count 5. The key issue in dispute is whether the LR Debtors received valuable consideration under Kentucky law for the guarantees and liens provided to ECM II.

Trustee argues that LR Debtors did not receive "valuable consideration" for the transfers, highlighting that they incurred approximately $6.7 million in secured debt from the ECM II Loan, compared to their previous $1.3 million in unsecured debt. ECM II counters that all Debtors, including LR Debtors, benefited substantially from the ECM II Loan. They assert three points: a) LR Debtors directly benefited from a reduction in high-interest debt; b) they gained indirect benefits from the refinancing of maturing debt; and c) all Debtors benefited collectively due to their operation as a single business enterprise.

However, ECM II's third argument lacks merit, as Trustee represents all ten Debtors, which are not substantively consolidated. While Debtors utilized a centralized cash management system where U.S. Coal managed income and expenses, this alone does not establish mutual benefit. Case law indicates that shared management practices do not imply liability across corporate entities. Specifically, cases referenced underscore that common financial management does not equate to shared liability or benefits sufficient to disregard corporate separateness. For ECM II's claims of indirect benefits to hold, they must be quantifiable, and merely having a centralized cash management system is insufficient to demonstrate that LR Debtors received concrete benefits from assuming additional debt.

ECM II must provide evidence to support its claims of indirect benefits related to the ECM II Loan, which it has not done. The 2008 Bridge Notes, guaranteed by LR Debtors, are set to mature soon, and while the ECM II Loan's interest rate is lower (18% vs. 20.14%), there is no evidence quantifying the claimed benefit or comparing it to the significant debt incurred by LR Debtors. Additionally, ECM II's assertion of a direct benefit is unfounded; refinancing $1.3 million of unsecured debt into a $6.7 million obligation with all-asset liens does not represent valuable consideration. The evidence indicates that the value of LR Debtors' guarantees and liens significantly exceeds the consideration received from ECM II.

The Trustee is entitled to partial summary judgment on Count 5, particularly regarding the avoidance of LR Debtors' guarantees of the ECM II Loan amounting to $5,407,016.22, including the associated liens. Conversely, ECM II is not entitled to summary judgment concerning JAD Debtors’ guarantees and liens, as the main issue remains whether they received valuable consideration under K.R.S. 378.020. The Trustee asserts that JAD Debtors are liable for about $6.7 million in secured debt compared to $5.4 million in unsecured debt prior to the ECM II Loan. ECM II's arguments regarding the value received by Debtors are consistent for both LR and JAD Debtors, and the evidence suggests that JAD Debtors also did not receive valuable consideration sufficient to support ECM II's Motion.

Regarding payments made to ECM II, ECM II is entitled to summary judgment for payments totaling $776,929.68 received within two years before the Debtors' Petition Dates. The Trustee claims that LR Debtors' assets were improperly used to pay portions of the ECM II Loan intended for the CAM JAD Bridge Notes, which LR Debtors did not owe. Similarly, JAD Debtors’ assets were allegedly used to pay portions of the ECM II Loan related to the 2008 Bridge Notes. ECM II contends that the Trustee's vague assertions about asset usage lack sufficient proof to succeed on Count 5, highlighting the absence of specific evidence tracing payments made to ECM II or through U.S. Coal.

Trustee's position is based on the Woodward Report, which asserts that U.S. Coal's payments to ECM II derived from its subsidiaries. Key findings include that 99.9% of deposits in U.S. Coal's Chase Bank account came from subsidiaries, and 100% of deposits made within 14 days of payments to ECM II also originated from subsidiaries, with LR Debtors contributing 96.9% of these funds. The Trustee argues that if the Court voids ECM II's claims, it could recover payments made to ECM II that originated from the assets of LR and JAD Debtors. However, the argument is deemed flawed since U.S. Coal made all the payments in question, and the Trustee has not sought to avoid U.S. Coal's obligations to ECM II, only those of LR and JAD Debtors. The Trustee failed to demonstrate how U.S. Coal acted as a conduit for the funds or that the subsidiary Debtors controlled U.S. Coal’s use of funds. The existence of a centralized cash management system alone does not justify disregarding corporate separateness. U.S. Coal retained control over its funds, owed a debt to ECM II, and made payments on that debt. Consequently, the Court grants summary judgment for ECM II regarding the Trustee's claim to avoid payments made to it. The Trustee's motion to avoid LR Debtors' guarantees and liens totaling $5,407,016.22 is also granted. However, ECM II's motion for summary judgment on Count 8, concerning a $800,000 payment to USCM as a constructively fraudulent transfer, is denied. The dispute centers on whether U.S. Coal received "valuable consideration" for this transfer under Kentucky law.

ECM argues that the $800,000 transfer was made to either satisfy accrued bonuses, resulting in a dollar-for-dollar debt reduction, or to incentivize employee retention at U.S. Coal. Supporting this claim, ECM presents emails and letters from former Board members approving bonuses, deposition transcripts from former executives endorsing the bonus argument, and Restricted Company Interest Agreements referencing "incentive compensation" post-transfer. Additionally, ECM cites two emails and U.S. Coal's 2009 audited financial statements indicating the transfer was related to employee services.

The Trustee counters ECM's assertions, stating that U.S. Coal did not receive valuable consideration for the transfer and that it primarily benefitted ECM at the expense of other creditors. The Trustee argues there is no evidence of owed bonuses, noting discrepancies between approved bonus amounts and the $100,000 per employee transferred. Testimonies from Julia McAfee and Jeff Dean reveal they were unaware of receiving bonuses via USCM until after the transfer, and minutes from a Board meeting approving the transfer do not mention bonuses or employee incentivization. The Trustee also references emails suggesting management's involvement was more about securing loans than rewarding employees.

The Court identifies a genuine dispute regarding the value of consideration U.S. Coal received for the transfer, concluding that ECM is not entitled to summary judgment on the $800,000 transfer claim. Additionally, as Count 8 seeks to avoid $99,846.98 of U.S. Coal's payments to ECM as constructively fraudulent transfers, ECM's argument relies on successfully challenging the initial transfer, which has not been established. Consequently, ECM's motion regarding Count 8 is denied.

ECM and Goggin are granted summary judgment on Count 10 concerning payments made to The Nelson Law Firm (NLF). The background includes a lawsuit initiated by U.S. Coal noteholder Lawrence Kaplan against U.S. Coal for breach of contract regarding "put rights," for which U.S. Coal hired Pryor Cashman LLP. ECM, meanwhile, engaged NLF to represent its interests and sought to intervene in the Kaplan lawsuit. Subsequently, the CAM Entities filed a lawsuit against multiple parties, including U.S. Coal and ECM, alleging breaches of contract and misconduct by directors and officers.

U.S. Coal retained Nixon Peabody LLP for the CAM lawsuit and paid NLF's fees related to both the Kaplan and CAM lawsuits until December 2013. The Trustee aims to recover $1,830,242.86 in payments made to NLF on behalf of ECM and Goggin, claiming those payments were constructively fraudulent, particularly focusing on $1,065,564.58 paid within two years of U.S. Coal's Petition Date.

The dispute centers on whether U.S. Coal received "valuable consideration" under Kentucky law or "reasonably equivalent value" under federal law for its payments to NLF. ECM asserts that under the terms of its loan documents, specifically provisions that require U.S. Coal to cover expenses related to the enforcement of loan rights, U.S. Coal was legally obligated to pay NLF's fees. It contends these fees were incurred in connection with the enforcement of rights related to the loan documents, thus fulfilling U.S. Coal's indemnity obligation.

ECM's fees, once incurred, became a debt owed by U.S. Coal, which received "valuable consideration" through dollar-for-dollar reductions in that debt. The Trustee acknowledges ECM's right to indemnification under loan documents but contends this does not permit the charging of unreasonable or excessive fees. According to the Trustee, U.S. Coal could not have received "reasonably equivalent value" for NLF's fees if they were unreasonable under New York law governing the relevant credit agreements. She cites Windisch's deposition, labeling the fees as "egregious," and references an email expressing alarm over NLF's fees being three times higher than those of U.S. Coal's counsel, Nixon Peabody. Additionally, depositions from Collins and Stephen Nelson support the assertion that NLF’s fees were excessive. However, the Court previously rejected similar arguments regarding NLF's fees in a related case, ruling that the Trustee failed to specify particular charges or present sufficient evidence of unreasonableness, rendering mere allegations inadequate. Consequently, ECM is granted summary judgment on Count 10. Furthermore, Goggin, as a U.S. Coal Board member, is also entitled to summary judgment based on indemnification rights outlined in U.S. Coal's corporate charter, which allows indemnification for directors against reasonable expenses incurred while acting in good faith for the corporation's benefit.

Article 8 of U.S. Coal's By-Laws limits the liability of directors for monetary damages due to breaches of fiduciary duty, except in specific circumstances: (1) breaches of loyalty, (2) acts not in good faith or involving misconduct or legal violations, (3) liabilities defined by law, and (4) transactions resulting in improper personal benefits. The provision aims to protect directors from liability to the fullest extent allowed by law. Goggin claims his indemnification under these provisions covers NLF fees incurred during the CAM lawsuit, arguing that U.S. Coal benefitted from this payment through a reduction in debt. The Trustee does not dispute Goggin's general right to indemnification but argues that his conduct, which allegedly breached fiduciary duties by favoring ECM over other creditors, nullifies this right. The Trustee asserts that the fees U.S. Coal paid were connected to Goggin's alleged breach of duty and that if she prevails in her claims, U.S. Coal effectively paid fees for conduct constituting a breach. She contends U.S. Coal cannot claim to have received "reasonably equivalent value" for the payments made on Goggin's behalf. Although some of the Trustee's breach of fiduciary duty claims against Goggin survived summary judgment, this does not affect her Count 10 constructive fraud argument, as the value of consideration is determined at the time of transfer. She failed to demonstrate that U.S. Coal's payments to NLF were fraudulent transfers, given that no court had invalidated the indemnification provisions or found Goggin in breach at the time of the payments.

Goggin is granted summary judgment on Count 10. ECM and ECM II are also granted summary judgment on Count 13, where the Trustee seeks to avoid payments made to them by the Debtors as constructively fraudulent transfers under Kentucky law, claiming no value was received in exchange. The Trustee's ability to succeed on Count 13 is contingent upon the outcome of Count 12, which involves the recharacterization of ECM and ECM II’s claims. Since the court granted summary judgment on Count 12, this eliminates its use as a basis for Count 13. Although equitable subordination was raised as a separate issue under Count 11, ECM II is entitled to summary judgment on it, while the claim against ECM will proceed to trial. The court clarifies that equitable subordination does not invalidate a claim but alters its priority, meaning it does not affect the validity of the debt or imply that the Debtors did not receive value from their payments. Consequently, the Trustee has not provided sufficient evidence to support her claim in Count 13, leading to summary judgment in favor of ECM and ECM II. Conversely, Goodwin and Goggin are denied summary judgment on Count 14, which concerns the Trustee's attempt to avoid conveyances related to the 2013 Amended Notes.

Trustee aims to avoid obligations incurred by JAD Debtors from guaranteeing U.S. Coal's 2013 Amended Notes totaling $1,097,620.03 to Goodwin and Goggin, as well as the pledging of all their assets to secure these debts. The Trustee requests preservation of any avoided liens for the benefit of the Debtors' estates. Goodwin and Goggin seek summary judgment to dismiss Count 14, asserting that the material terms of the 2013 Amended Notes transaction are undisputed, with only the consideration at issue. The Trustee contends that JAD Debtors gained no value from the transaction, having increased their liabilities by almost $2.2 million and encumbered all assets without receiving any benefits.

Goodwin and Goggin argue that JAD Debtors did receive "valuable consideration" or "reasonably equivalent value" under K.R.S. 378.020 and 548(a)(1)(B), citing benefits such as a waiver of defaults on previous Bridge Notes, a reduction in interest rates, and a six-month payment holiday. However, the Trustee counters that JAD Debtors had no existing obligations that required waivers or payments, thus rendering these claims of benefit invalid. Goodwin and Goggin also suggest that since U.S. Coal benefitted from the transaction, JAD Debtors indirectly benefitted, but this argument is dismissed as lacking merit.

They further assert that U.S. Coal utilized the payment holiday to settle debts with creditors, including Pryor Cashman, but did not quantify these payments or demonstrate that the holiday was essential for these payments. Even if the holiday reduced JAD Debtors' exposure, the significant increase in debt to Goodwin and Goggin negates the argument of receiving valuable consideration. Lastly, Goodwin and Goggin argue that the Trustee cannot prove damages to the estate due to the pledges made in exchange for refinancing the earlier Bridge Notes.

The court references a Sixth Circuit opinion and three state law opinions which are not binding or persuasive in the context of this case. Under Kentucky law and the Bankruptcy Code, damages are not considered an element of a constructively fraudulent transfer. The remedy for avoiding such transfers involves the recovery or preservation of the transfer, negating Goodwin and Goggin's argument that they are entitled to summary judgment on Count 14, which is therefore denied. 

However, the court grants summary judgment to Goodwin and Goggin on Count 17 concerning payments related to the 2013 Amended Notes. The Trustee is seeking to avoid payments made to Goodwin and Goggin within two years before the Debtors’ Petition Dates as constructively fraudulent transfers, asserting that these payments lacked value or consideration. The Trustee argues that if the Debtors’ obligations to Goodwin and Goggin are invalidated, all corresponding payments should also be deemed constructively fraudulent. 

Goodwin and Goggin contend that the success of the Trustee's Count 17 claim is contingent on her Count 12 recharacterization claim, which was previously dismissed. The court agrees that Count 12 cannot support Count 17. Furthermore, equitable subordination claims in Counts 11 and 16 are also deemed insufficient for the constructive fraud claim. The only basis remaining for Count 17 relates to fraudulent transfer claims tied to the payments made in 2013 and 2014, specifically referencing Counts 14 and 15.

Count 14 aims to avoid the JAD Debtors' guarantees and liens related to the 2013 Amended Notes on grounds of constructive fraud. Count 15 seeks to avoid the same guarantees and liens, as well as those of the LR Debtors, on grounds of actual fraud. The Amended Complaint does not challenge U.S. Coal's obligations to Goodwin or Goggin under these notes. The Trustee notes that Goodwin and Goggin received $645,408.58 from U.S. Coal between February 2013 and May 2014, without establishing a connection to JAD Debtors or LR Debtors’ funds. The Trustee’s argument for avoiding payments made to Goodwin and Goggin hinges on potentially avoiding the obligations of JAD and LR Debtors, but the Court finds this reasoning flawed. Even if the Trustee succeeds in Counts 14 or 15, such avoidance would not justify disputing the payments made by U.S. Coal, which are undisputed obligations, thus supporting Goodwin and Goggin's entitlement to summary judgment on Count 17.

Regarding avoidance of actually fraudulent transfers, the Trustee seeks to utilize her "strong arm" powers under 11 U.S.C. § 544(b)(1), relying on Kentucky law, specifically K.R.S. 378.010, which voids transfers made with intent to defraud creditors. The statute outlines that any transfer made to hinder or defraud creditors is void against them. The relevant statute of limitations for actual fraudulent transfers in Kentucky is five years, establishing a lookback period from the Debtors' Petition Dates. While proving fraudulent intent is necessary, direct evidence is not required as Kentucky law recognizes the inherent difficulties in demonstrating such intent.

Kentucky courts recognize "badges of fraud" as circumstances indicative of fraudulent intent in conveyances. These circumstances include: 1) transfers between related parties or those in a confidential relationship; 2) false statements regarding consideration in the transfer; 3) transfers made by a debtor in anticipation of or during a lawsuit; and 4) transfers made by an insolvent debtor. Additional badges include inadequate consideration, secret or hurried transactions, use of fictitious parties, retention of benefits by the transferor, and control of property by the debtor.

Under the Bankruptcy Code, specifically Section 548, a trustee can avoid transfers made within two years before filing a petition that are intended to hinder, delay, or defraud creditors. The trustee must demonstrate, by a preponderance of evidence, that a transfer or obligation was made with actual fraudulent intent, alongside the timing of the transfer. Intent can similarly be established through badges of fraud, which consider factors such as inadequate consideration, close relationships, retention of property benefits, financial condition pre- and post-transfer, and the overall transaction history relative to financial distress or creditor actions.

Summary judgment is generally not appropriate when intent is a crucial factor; however, it may be granted if reasonable inferences support one party's claims. In cases involving fraudulent transfer claims, a plaintiff does not need to provide clear and convincing evidence of fraud at the summary judgment stage but must present enough evidence for a reasonable factfinder to support a determination of fraud. To oppose a defendant's summary judgment motion, the plaintiff must demonstrate sufficient "badges of fraud" indicating the transfer was fraudulent. If such badges are established, the defendant can still prevail by providing countervailing proof that the transfer was made fairly and without intent to defraud. If genuine material facts remain disputed, summary judgment will be denied.

In this case, Counts 6 (ECM II), 9 (ECM), and 15 (Goodwin and Goggin) allege actual fraudulent transfers under Kentucky law and § 548(a)(1)(A). The defendants have moved for summary judgment on all counts, while the trustee has not sought summary judgment. ECM II is entitled to summary judgment on Count 6 regarding the guarantees and liens from JAD Debtors and LR Debtors, as it aims to avoid obligations incurred by these debtors related to the ECM II Loan and certain payments made within two years of their bankruptcy petitions. ECM II argues that the trustee has not shown any intent by the debtors to defraud creditors, claiming the transfers were for refinancing existing debt. Conversely, the trustee contends that the transactions aimed to increase control over the debtors and solidify the ECM Credit Agreement.

Trustee has provided adequate evidence for two badges of fraud: anticipation of litigation and inadequate consideration, while the badge of insolvency remains disputed. Arguments related to the confidential relationship badge will not be addressed at trial. ECM II's attempt to counter Trustee's claims with a "good faith" argument is ineffective due to the lack of evidence demonstrating that the LR Debtors or JAD Debtors acted without fraudulent intent. Consequently, ECM II cannot secure summary judgment on this aspect of Count 6. 

Trustee's opposition highlights actions by Goodwin and Goggin concerning the ECM II Loan as direct evidence of fraudulent intent. An email from Goggin suggests that the ECM II transaction would allow ECM and ECM II to control the operating businesses, while Collins' testimony indicates that Goodwin and Goggin were aware the Debtors required the ECM II Loan to prevent default and bankruptcy, despite the high-interest rate. Trustee argues that Goggin and Goodwin used insider information to persuade the Debtors to reject a more favorable deal with Macquarie in favor of ECM II for their benefit. However, to succeed on Count 6, Trustee must demonstrate that JAD Debtors and LR Debtors, not Goodwin and Goggin, acted with fraudulent intent, a connection that Trustee fails to establish.

Trustee argues that the ECM II transaction is surrounded by several badges of fraud, including: (a) the transfer of a significant portion of assets while insolvent, (b) a confidential relationship, (c) a conveyance made in anticipation of litigation, and (d) inadequate consideration. ECM II concedes that there is a genuine dispute regarding the solvency of LR Debtors and JAD Debtors, which necessitates a trial. The granting of liens on all assets to secure the ECM II Loan confirms that an appreciable portion of assets was transferred. 

Regarding the confidential relationship badge, while Kentucky law recognizes it under K.R.S. 378.010, existing case law has not clearly defined its meaning outside of familial relationships. However, prior cases indicate that equity may apply the doctrine of confidential relationships based on circumstances where one party exerts dominion over another, regardless of the formal relationship.

In a fiduciary duty case, the Sixth Circuit defined a "confidential relationship" under Kentucky law as one where one party places trust in another, referencing various precedents. The Trustee argued that the roles of Goodwin and Goggin on the Board of U.S. Coal and their stakes in the Debtors' primary and new debtholders (ECM and ECM II) established a "confidential relationship" with ECM II, despite acknowledging their "alleged recusal" from the Board vote concerning the ECM II transaction. The Trustee claimed that Goodwin and Goggin's actions prior to the vote forced the Debtors to accept ECM II's offer after terminating another transaction. However, the argument was flawed, as Goodwin and Goggin were not parties to the ECM II transaction, and there was no established relationship between the subsidiary Debtors and ECM II at that time. Consequently, the court found that the Trustee could not use this alleged relationship to support her claim.

Regarding the "anticipation of litigation" badge, the Trustee cited that the Debtors entered into the ECM II Loan while facing threats from CAM Entities for payment. Although ECM II acknowledged this situation, it argued that the Debtors' use of ECM II Loan funds to pay off the CAM JAD Bridge Notes contradicted the Trustee's position. ECM II contended that preventing a debtor from securing a loan to pay a threatening creditor would undermine Kentucky's fraudulent transfer law. The Trustee maintained that the mere existence of a threat of litigation sufficed to prove her case, asserting that the identity of the transferee was irrelevant. However, her reasoning overlooked the fundamental purpose of fraudulent transfer laws, which is to prevent debtors from placing assets out of reach of creditors.

Finding an actual fraudulent transfer under K.R.S. 378.010 requires demonstrating that the transfer was intended to place assets beyond the reach of existing unsecured creditors to their detriment. The court cited Pope v. Cawood, which emphasizes that actual fraud entails an effort by the grantor to shield property from creditors. In this case, although the Trustee failed to show that Debtors had the intent to shield assets from potential future claims by the CAM Entities, the court determined that there is sufficient evidence for a reasonable factfinder to conclude that the transfers related to the ECM II Loan were made in anticipation of litigation by these entities. 

Despite some proceeds of the ECM II Loan being received by the CAM Entities, this alone does not negate the presence of fraud indicators. The Trustee is permitted to present evidence related to these indicators at trial. Regarding inadequate consideration, the Trustee is entitled to summary judgment indicating that LR Debtors did not receive valuable consideration for their guarantees and pledges to ECM II, supporting the badge of inadequate consideration for Count 6. For the JAD Debtors, the significant discrepancy between the secured debt assumed ($6.7 million) and the unsecured debt replaced ($5.4 million) further substantiates this badge.

The Trustee has established genuine issues for trial concerning the intent of both JAD and LR Debtors regarding the guarantees and liens granted in the ECM II Loan transaction. The badges of "inadequate consideration," "anticipation of litigation," and the disputed badge of "transfer of appreciable assets while insolvent" are all present. However, ECM II contends that despite these badges, they are entitled to summary judgment, asserting the Debtors acted in good faith without intent to defraud. ECM II argues that the loan transaction was for legitimate refinancing purposes, negotiated in good faith, formally approved by a disinterested board, and believed by Debtors to be beneficial. The approval meeting's minutes are heavily relied upon by ECM II to support their good faith claim, noting the attendance of board members, officers, and legal counsel, and the purpose of discussing refinancing options.

Windisch elaborated on the business rationale for extending existing debt, noting its benefits for the Company and its subsidiaries. During this discussion, Goggin and Goodwin recused themselves, and the remaining Board members concluded that the ECM II Loan transaction was fair and in the best interests of the Debtors, ultimately deciding to proceed with the transaction. The Trustee did not contest the Board minutes, yet the Court identified a material factual dispute regarding whether the Board members were adequately informed about the ECM II Loan terms prior to their vote. Consequently, ECM II is not entitled to summary judgment concerning the avoidance of JAD and LR Debtors' guarantees and liens. However, ECM II is granted summary judgment regarding payments made to it, as the Trustee did not challenge the legitimacy of the payments made by U.S. Coal under the ECM II Loan obligation. As such, ECM II's motion for summary judgment is approved concerning the avoidance of payments, but denied regarding the guarantees and liens. Additionally, ECM is not granted summary judgment on Count 9, which seeks to avoid an $800,000 payment from U.S. Coal to USCM and recover that amount from ECM, as well as recover payments made to ECM totaling $99,846.98 within two years before the Petition Date, claiming they were actually fraudulent under Kentucky law and federal law.

ECM claims that U.S. Coal's $800,000 payment to USCM was made to fulfill employee bonus obligations or to incentivize employees to remain with the company, arguing that there is no evidence of fraudulent intent to hinder creditors. In contrast, the Trustee asserts that the payment favored ECM's interests and was made with the intent to defraud other creditors, citing several indicators of fraud: 

1. **Transfer of Appreciable Assets While Insolvent**: Both parties submitted expert reports on U.S. Coal's solvency, which ECM admits is disputed. The determination of whether the $800,000 constitutes a significant asset will require a trial.

2. **Confidential Relationship**: ECM argues that the transfer was not between related parties as it was not a shareholder or creditor. However, the Trustee argues that the transfer was indeed between related parties since USCM was owned by U.S. Coal's management, including Board members who benefited from the transfer. This connection suggests a badge of fraud.

3. **Inadequate Consideration and False Statements of Consideration**: There is a genuine dispute regarding what, if any, consideration U.S. Coal received for the $800,000 payment. This issue is linked to Count 8, indicating that further examination is necessary regarding the adequacy and truthfulness of consideration.

In conclusion, the Trustee has presented sufficient evidence of potential fraud regarding the $800,000 transfer, and ECM is not entitled to summary judgment on this issue. Additionally, Count 9 includes a claim for the avoidance of U.S. Coal's payments to ECM within two years before its Petition Date as fraudulent transfers, contingent on the $800,000 transfer's avoidance.

ECM is denied summary judgment on the $800,000 transfer and the smaller transfers totaling $99,846.98, as reflected in the ruling on Count 9. Goodwin and Goggin are similarly denied summary judgment on Count 15, which challenges the JAD Debtors' guarantees and liens associated with the 2013 Amended Notes. The Count aims to avoid allegedly fraudulent obligations incurred by the JAD Debtors, totaling $1,097,620.03, and the liens granted by the JAD and LR Debtors to Goodwin and Goggin.

In their defense, Goodwin and Goggin assert that the transfers were made to secure better terms on valid debts. The Trustee contends that the transfers were intended to prioritize Goodwin and Goggin in the Debtors' capital structure, suggesting fraudulent intent supported by several indicators: (1) Transfer of assets while insolvent, (2) Transfers between parties in a confidential relationship, and (3) Inadequate consideration.

The Court recognizes a factual dispute about the Debtors' insolvency during the transaction, warranting a trial. Both Debtors granted all-asset liens, confirming a significant asset transfer. Regarding the confidential relationship, Goggin, as a U.S. Coal Board member, had fiduciary duties, and the Trustee may present evidence of this relationship against him at trial. However, there is insufficient evidence to establish a confidential relationship involving Goodwin, who had resigned prior to the negotiations, preventing the Trustee from presenting this badge against him. Lastly, the Trustee has satisfactorily demonstrated inadequate consideration regarding the JAD Debtors and LR Debtors, claiming they received no consideration for the guarantees and pledges.

JAD Debtors' liabilities increased by $2 million due to their guarantees of the 2013 Amended Notes, which were outside their prior obligations, and the granting of blanket liens to secure these debts. The Trustee contends that LR Debtors received no value in exchange for their all-asset liens securing the previously unsecured 2013 Amended Notes, originally tied to the 2008 Bridge Notes. Goodwin and Goggin claimed that the JAD and LR Debtors received indirect benefits from these transactions; however, they failed to provide sufficient evidence to counter claims of inadequate consideration. Consequently, the Trustee is permitted to present this evidence at trial regarding Count 15. The analysis indicates that there are genuine issues of material fact concerning the intent of JAD and LR Debtors regarding their obligations and transfers in the 2013 transaction, leading to the denial of Goodwin and Goggin's motions for summary judgment.

In Count 18, the Trustee seeks to avoid and recover preferential transfers made by U.S. Coal to Goodwin and Goggin, amounting to $470,408.58 each, with $104,535.24 paid to each within the 90 days before the bankruptcy filing, categorized as "90-Day Transfers." Goodwin argues for partial summary judgment, asserting he was not an insider of U.S. Coal during the relevant timeframe. The legal standard under Section 547(b) allows the Trustee to avoid certain transfers to creditors, including those made while the debtor was insolvent and those made within specific timeframes relative to the bankruptcy petition. The Trustee classifies Goodwin as an "insider" based on his relationship with an affiliate of U.S. Coal, as defined by Section 101(31)(E).

An "affiliate" is defined under 11 U.S.C. 101(31)(E) as an entity that owns or controls 20% or more of a debtor's voting securities. B. Goodwin is entitled to summary judgment on the Insider Transfers under Count 18 because the Trustee failed to provide evidence that Goodwin is an insider of USCCPG, a Delaware LLC, despite Goodwin owning a 25.86% membership interest. The Operating Agreement of USCCPG clarifies that Goodwin did not possess control or governance over the LLC, making him only a minority interest holder. Similarly, Goodwin's 10.69% interest in ECM, another Delaware LLC, also did not confer insider status, as he was not its manager. Therefore, Goodwin is not considered an "insider" under 11 U.S.C. 101(31)(B), negating the need to assess USCCPG's affiliation with U.S. Coal.

The Trustee is denied summary judgment on Count 18, which involves two preference claims against Goodwin and Goggin: the 90-Day Transfers and Insider Transfers (the latter dismissed for Goodwin). Both defendants acknowledge receiving $104,535.24 from U.S. Coal within 90 days of its Petition Date. The Trustee meets the elements of 11 U.S.C. 547(b)(1, 2, 4)(A), but the defendants argue material facts on solvency and the ordinary course of business exception under 11 U.S.C. 547(c)(2). The Trustee must demonstrate that U.S. Coal was insolvent at the time of the transfers, which is presumed for the 90 days preceding the petition date per 11 U.S.C. 547(f). This presumption establishes insolvency unless the defendants present evidence to counter it.

A corporate debtor is considered insolvent if its debts surpass its assets at fair valuation, as established by the 'balance sheet' test under 11 U.S.C. 101(32). This determination excludes exempt property and assets that have been fraudulently transferred. Insolvency must be assessed at the time of any alleged preferential transfer rather than the bankruptcy petition filing date. The trustee bases insolvency claims on the 547(f) presumption and expert reports, while the defendants argue their expert findings indicate the debtors were solvent on all dates except two. The court notes a lack of dispute regarding U.S. Coal's insolvency on the last transfer date, May 2, 2014.

In terms of preferential transfers, Section 547(b)(5) allows a trustee to void transfers that provide a creditor with more than they would receive in a hypothetical Chapter 7 liquidation, which is evaluated from the petition's filing date. If an unsecured creditor receives payment during the preference period, they may gain more than in liquidation unless the estate can fully satisfy all claims. The secured status of creditors is crucial in this analysis, as secured creditors are typically entitled to recover the value of their collateral, meaning prepetition payments usually do not constitute a preference under 547(b)(5).

Goodwin and Goggin argue that the Trustee cannot meet the requirements of 11 U.S.C. § 547(b)(5) at the summary judgment stage for two reasons: they claim to be secured creditors due to U.S. Coal’s subsidiary ownership of equipment and property, and they reference the value of U.S. Coal’s interests in its subsidiaries. However, the court finds these arguments unconvincing. First, Goodwin and Goggin fail to provide legal authority supporting their claim that they should be considered secured creditors of U.S. Coal simply because its subsidiaries owned the relevant assets; U.S. Coal is a separate entity. Second, the Defendants’ assertions regarding asset values do not account for significant liabilities, with expert testimony indicating that as of May 2, 2014, U.S. Coal and its affiliates were balance-sheet insolvent by over $21 million and failed other solvency tests. Consequently, the Trustee has demonstrated that U.S. Coal's estate could not provide a full distribution to creditors, negating any genuine dispute over this aspect of the § 547(b) test.

Additionally, Goodwin and Goggin assert an ordinary course of business defense, claiming that the payments made by U.S. Coal were not preferential as they were incurred in the ordinary course of business. Under 11 U.S.C. § 547(c)(2), a trustee cannot avoid transfers made in the ordinary course of business. The BAPCPA of 2005 modified § 547(c)(2) to require only one of two prongs—either a subjective inquiry (ordinary in the context of the creditor-debtor relationship) or an objective inquiry (consistent with ordinary business terms)—to be satisfied for the defense to apply.

Proof of payment must align with industry standards, as established in Logan v. Basic Distrib. Corp. and further detailed in In re Fred Hawes Org. Inc., where ordinary payments in the course of business are protected under Section 547(c)(2). Defendants challenge both aspects of this test, citing Waldschmidt v. Ranier, which emphasizes the protection of customary credit transactions. The Court identified a material dispute of fact regarding both prongs of the affirmative defense under Section 547(c)(2), preventing summary judgment in favor of the Trustee concerning the 90-Day Transfers.

Regarding insider transfers to Goggin, the Trustee cannot secure a judgment against him for $470,408.58 transferred within one year of the Petition Date, as genuine issues of material fact about U.S. Coal's solvency and the ordinary course of business defense exist. Consequently, Goodwin’s Motion regarding these insider transfers is granted, while the Trustee’s Motion is denied.

The Court’s findings serve as its conclusions of law per Bankruptcy Rule 7052. The Debtors include various coal-related companies, and the Defendants—ECM, ECM II, Goodwin, and Goggin—collectively face the summary judgment motions. The Court previously dismissed Counts 1-4 and resolved parts of the Motions concerning other counts through an Agreed Order. The timing of Goodwin's resignation is not a significant issue for the resolution of the related Counts. Additionally, the ECM Credit Agreement defines "Value Right Payable" and "Credit Agreement Payable" as amounts due as of September 30, 2009, and Trustee's claims regarding these definitions lack necessary context, rendering them misleading.

Weeks before finalizing the ECM II Loan transaction, U.S. Coal received a refinancing proposal from Macquarie for nearly all its debt at an 8% interest rate, raising questions about the fairness of the concession involved. The Trustee may pursue an equitable subordination claim against Goodwin and Goggin based on alleged inequitable conduct. References to the Bankruptcy Code are made where appropriate, noting that K.R.S. 378.020 was repealed in 2016 with the adoption of the Uniform Voidable Transactions Act (UVTA), applicable to transactions prior to its enactment under the old law. The alleged transfers in this case occurred before May 22, 2014, thus invoking the now-repealed K.R.S. 378.020.

The case lacks substantial legal discussion on centralized cash management systems in fraudulent transfer actions, particularly as the Trustee is targeting fraudulent transfer claims against creditors for all ten Debtors, unlike typical multi-debtor cases. The ECM II Loan's interest rate escalates by 5% to 23% upon default. ECM II cites Wilkinson II and Montalvo to argue that indirect benefits may count as "valuable consideration" under Sixth Circuit law, though these cases are specifically related to a constructive fraud claim under the Bankruptcy Code, not K.R.S. 378.020.

The Trustee's claim identifies Harlan as a JAD Debtor, but Harlan was not responsible for the CAM JAD Bridge Notes. The ECM Credit Agreement modifies certain aspects of the JMB Credit Agreement, with unmodified terms still in effect, including its "Governing Law provisions." Harlan was not a party to the Pryor Cashman Security Agreement. Additionally, it is noted that a previous case found no fraudulent transfer occurred because the plaintiff could not demonstrate that the transfer diminished the debtor's assets available to creditors.

Plaintiffs failed to establish a fraudulent transfer claim under the Michigan Uniform Fraudulent Transfer Act because there were insufficient assets to satisfy the senior creditor's lien or the plaintiffs' junior interest, as highlighted in Mehrtash v. Mehrtash. In a California case, the appellate court upheld a trial court's judgment for defendants under the California Uniform Fraudulent Transfer Act, noting the plaintiff did not demonstrate injury from the transfer. The New York law stipulates that a creditor's remedy in a fraudulent conveyance action is confined to reaching property that could have satisfied a judgment absent the conveyance, as referenced in Marine Midland Bank v. Murkoff. The arguments presented by Goodwin and Goggin regarding actual fraud in Count 15 were found to apply equally to Count 14. 

K.R.S. 378.010 was repealed on January 1, 2016, and the relevant transfers occurred before the enactment of the Uniform Voidable Transactions Act, so K.R.S. 378.010 applies. The issue of whether JAD Debtors received "valuable consideration" under K.R.S. 378.020 remains for trial. ECM contended that the trustee cannot recover avoided transfers from them under Count 8, arguing that USCM was the initial transferee and acted in good faith. However, the trustee countered that the good faith transferee defense does not apply to recover an avoided transfer from the entity for which the transfer benefited, which the court accepted as ECM's argument was not addressed in their reply. The court will also determine the issue of "valuable consideration" under K.R.S. 378.020 and "reasonably equivalent value" under 11 U.S.C. 548(a)(1)(B) at trial. Goodwin and Goggin's request for summary judgment on Counts 14 and 15 was rejected based on the inadequacy of their cited cases. Goggin, identified as an "insider" due to his directorship at U.S. Coal, did not file for summary judgment.