Brock v. Hammonds (In re Triton Enterprises, Inc.)

Summarized by Paul Hage , Taft, Stettinius & Hollister, LLP
14 years 8 months ago

Citation:

2011 WL 2646549 (6th Cir. BAP, July 7, 2011)

Tag(s):

Ruling:

The Sixth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court's findings of fact and conclusions of law holding that the trustee had not met her burden of proof with respect to fraudulent transfer, breach of fiduciary duty and aiding and abetting breach of fiduciary duty claims. Applying a clearly erroneous standard of review with respect to the bankrutpcy court's factual conclusions, the BAP concluded that it was not clearly erroneous, given the admitted evidence in the record, for the bankruptcy court to have found that the defendants did not usurp a corporate opportunity, did not divert profits to the detriment of the debtor and its creditors, and paid reasonably equivalent value for the debtor's assets.

Procedural context:

The appeal arose from an adversary proceeding brought by the trustee seeking to set aside alleged fraudulent transfers, and seeking a judgment for breach of fiducary duty and aiding and abetting breach of fiduciary duty. The bankruptcy court ruled that the trustee had not proved her case and, thus, found that the defendants did not control the debtor corporation and did not cause its principal to usurp a corporate opportunity or divert the profits to the defendants. The trustee appealed the bankrutpcy court's factual findings.

Facts:

The debtor corporation was an entity established by defendant Randy Hammonds to, among other things, mine a gob pile. Hammonds entered into a profit sharing agreement with two other individuals which split profits with respect to the mining operation equally amongst the three individuals. The Debtor entered into a lease with the owner of the mine property for the purpose of mining it. Thereafter, a dispute arose between the three individuals regarding the management of the debtor and the distribution of profits therefrom. Upon the expiration of the Debtor's lease, Hammonds and his father established a new company, Cotton Coal, which entered into a similar lease with the owner of the mine property. Hammonds also caused the debtor to enter into a purchase agreement with Cotton Coal to purchase all of the necessary permits and mining operations of the debtor. The other two principals of the debtor sued Hammonds and the debtor in state court. Thereafter, the debtor filed its bankruptcy petition. The chapter 7 trustee for the debtor commenced an adversary proceeding seeking to set aside the transfer of the debtor's assets to Cotton Coal and seeking monetary recovery from the Hammonds, and other related parties, for conspiring to defraud the debtor's creditors.

Judge(s):

Fulton, Harris and Rhodes, Bankruptcy Appellate Panel Judges

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