Princesse D'Isenbourg Et Cie Ltd v. Kinder Caviar, Inc. et al

Filing 64

MEMORANDUM OPINION & ORDER: that Plaintiff Princesse d'Isenbourg et Cie., Inc.'s Motion for S/J (Record No. 30 ) is DENIED. Signed by Judge Danny C. Reeves on 1/14/2013.(AKR)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Frankfort)
PRINCESSE D’ISENBOURG ET CIE
LTD,
Plaintiff,
V.
KINDER CAVIAR, INC.,
Defendants.

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Civil Action No. 3: 12-004-DCR

MEMORANDUM OPINION
AND ORDER

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This matter is pending for consideration of Plaintiff Princesse D’Isenbourg et Cie, Ltd.’s
(“Isenbourg”) Motion for Summary Judgment. [Record No. 30] Isenbourg contends that
Defendants Kinder Caviar, Inc. (“Kinder Caviar”); Blackstar Fish Co., Inc. (“Blackstar Fish”);
Cornelia Joyce Kinder (“Joyce Kinder”); Cornelia Joyce Kinder d/b/a Black Star Caviar Co.
(“BlackStar Caviar”); Stephen Kinder; and Donald Kinder should be held jointly and severally
liable for the judgment of $299,240.001 entered against Defendant Kinder Caviar in a previous
case. [See Civil Action No. 3:09-29-DCR at Record No. 135.] Isenbourg first argues that
summary judgment is appropriate because Kinder Caviar transferred assets “without valuable
consideration while it was a Debtor,” rendering the transfers voidable under Kentucky Revised
Statutes (“KRS”) § 379.010. [Record No. 30-2, p. 5] Next, Isenbourg argues that the Kinders

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The previous judgment awarded Plaintiff Isenbourg $299,240.00, together with pre-judgment interest
at the rate of 8% and post-judgment interest in the amount of 0.11% against Defendant Kinder Caviar, Inc.
Isenbourg was also awarded all taxable costs incurred in the action.

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fraudulently transferred and conveyed assets of Kinder Caviar to hinder, delay, and impede
Isenbourg’s ability to collect upon the judgment entered against Kinder Caviar. [Id., p. 6]
Isenbourg avers that sufficient “badges of fraud” exist to create a rebuttable presumption of
fraudulent intent on the part of the defendants, and that the defendants have failed to rebut that
presumption. [See id., p. 9; see also Record No. 50, pp. 6-8.]
The defendants respond that summary judgment is inappropriate because a judgment
against Kinder Caviar in this case would be redundant to the judgment already entered against
it in the previous case. The defendants point out that, other than Kinder Caviar, none of the other
defendants were parties to the original action and, therefore, did not have the opportunity to
defend themselves in that action. [Record No. 33, p. 2] Second, the defendants argue that there
are genuine issues of material fact regarding whether the transfers in question were fraudulent
or voidable. [Id., pp. 11-12] Finally, the defendants argue that the remedy that Isenbourg seeks
— to impose the previous judgment against the defendants in this action — is improper under
the statute, and because doing so would violate the defendants’ due process rights under the
United States Constitution. [Record No. 33, p. 9] For the reasons stated below, the Court will
deny Isenbourg’s motion.
I.
This action arises out of a prior case between Isenbourg and Defendant Kinder Caviar,
Civil Action No. 3: 09-29-DCR. Defendant Kinder Caviar is a producer and exporter of caviar
located in Owenton, Kentucky.2 Isenbourg is a purveyor of fine wines and gourmet foods
2

The facts regarding the prior contract between Kinder Caviar and Isenbourg are taken from the
previous action. [See Civil Action No. 09-29-DCR at Record No. 95.]

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located in London, England. In the fall of 2008, Isenbourg and Kinder negotiated a transaction
whereby Isenbourg would purchase approximately 550.80 pounds of caviar to be imported into
the United Kingdom. A one-page invoice memorialized the contract on October 20, 2008. For
a variety of reasons, Kinder Caviar was unable to meet its obligations under the agreement.
On June 26, 2009, Isenbourg filed a complaint against Kinder Caviar alleging breach of
contract and unjust enrichment arising out of this breach of contract. On February 2, 2011, the
Court granted summary judgment in favor of Isenbourg on liability for the breach of contract
claim, but withheld judgment on the issue of damages. [See Civil Action No. 3: 09-29-DCR at
Record No. 95.] Following a bench trial on the issue of damages, the Court entered Judgment
against Kinder Caviar, awarding damages of $299,240.00 together with interest and costs. [Id.
at Record No. 135] At some point prior to the entry of the Judgment, Kinder Caviar ceased its
business operations and closed its bank accounts. [Record No. 7, p. 2; Record No. 30-2, p. 2]
Additionally, on March 14, 2011, a federal indictment was filed in the Southern District of Ohio
against Stephen and Joyce Kinder, Kinder Caviar, and Black Star Caviar on various charges
“arising from their operation of a commercial fishing and caviar production business.” [Record
No. 33, p. 2] Although the parties dispute the reasons for the transfers in question, it appears to
be undisputed3 that a number of monetary transfers were made among the defendants, both prior
to and after the entry of the Judgment. [Record No. 33-1] Additionally, Isenbourg claims that

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Defendants state that “[a]ssuming, arguendo, the various transfers itemized did occur, each of these
transfer was made in return for valuable consideration.” [Record No. 33, p. 11] Despite the fact that the
defendants seem to admit the transfers did occur only “for the sake of argument,” at other places in the
defendants’ response and in attached affidavits, the defendants do acknowledge that various transfers
occurred. The only questions appears to be the intent behind the transfers.

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it is undisputed that it has been unable to collect the previous judgment against Kinder Caviar.
Although Kinder Caviar does not address this assertion, it does appear that Isenbourg has been
unable to collect the prior judgment.
In its Complaint, Isenbourg argues that it is entitled to relief because the transfers among
the defendants in this case were fraudulent. [Record No. 7] Isenbourg attaches two bank
statements, one it identifies as Kinder Caviar’s account, and one it identifies as BlackStar
Caviar’s account. [Record Nos. 30-2, 30-4] There are 73 transactions in the Exhibit identified
as Kinder Caviar’s account during the time from when the original Complaint was filed on June
26, 2009, and ending on December 29, 2011, about two weeks after the Judgment was entered
in that case. [Record No. 30-3] The account identified as BlackStar Caviar’s account lists 86
transactions, from the time the original Complaint was filed on June 26, 2009 until January 13,
2012. [Record No. 30-4] It is unclear whether Isenbourg is alleging that all of these transactions
are fraudulent; however, Isenbourg cites two specific conveyances as fraudulent:
1) Mr. and Mrs. Kinder sold the 550 pounds of caviar that was the basis of the prior
proceeding for approximately $66,000.00 in “late 2011.” “The sale proceeds were deposited to
a bank account in the name of Black Star Caviar Company, which is the Defendant, Cornelia
Joyce Kinder’s assumed business name.” [Record No. 7, p. 4]
2) Mr. and Mrs. Kinder and Black Star Caviar Company made “large cash ‘loans’” to
Defendant Donald Kinder in 2011, “during the pendency of the prior lawsuit, presumably to
assist in the start up, funding and operation of Blackstar Fish Co., Inc.” [Record No. 7, p. 4]

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Isenbourg requests attorney’s fees and costs, as well as punitive damages in the amount
of “at least” $250,000.00. [Id., p. 5] In addition, Isenbourg asks the Court to not only void the
transfers, but to impose the previous Judgment on all the defendants in this case.
II.
Summary judgment is appropriate when the moving party shows, using evidence in the
record, “that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see (c)(1). In deciding whether to grant
summary judgment, the Court views all the facts and inferences drawn from the evidence in the
light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986). To avoid summary judgment, the nonmoving party must do more
than cast some “metaphysical doubt” on the material facts. Chao v. Hall Holding Co., 285 F.3d
415, 424 (6th Cir. 2002) (citing Matsushita, 475 U.S. at 586). Instead, it must present
“significant probative evidence” of a genuine dispute in order to defeat the motion for summary
judgment. Id. With this standard in mind, the Court turns to Isenbourg’s arguments regarding
why summary judgment is proper in this case.
A.

Fraudulent Transfers

Isenbourg alleges that Defendants Stephen and Joyce Kinder “caused the transfer of all
of Kinder Caviar, Inc.’s assets and all of its operations over to the Defendants, Cornelia Joyce
Kinder, a/b/a Black Star Caviar and the Defendant, Blackstar Fish Co., Inc.” [Record No. 7, p. 2]

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Isenbourg first argues that it is entitled to summary judgment because these transfers were
fraudulent based upon KRS § 378.020,4 which states:
Every gift, conveyance, assignment, transfer or charge made by a debtor, of or
upon any of his estate without valuable consideration therefor, shall be void as to
all his then existing creditors, but shall not, on that account alone, be void as to
creditors whose claims are thereafter contracted, nor as to purchasers from the
debtor with notice of the voluntary alienation or charge.
KRS § 378.020. The purpose of the fraudulent conveyance statutes in Kentucky is to place
creditors in the same position they were in prior to the voidable transfer. See Mattingly v.
Gentry, 419 S.W.2d 745, 747 (Ky. 1967). Isenbourg argues that it is entitled to summary
judgment under this statute because:
(1) The Kinders caused the transfer of all Kinder Caviar’s to themselves, Black
Star Caviar, Donald Kinder, and BlackStar Fish, (2) the transfers were made at
a time when Kinder Caviar was a debtor, (3) without valuable consideration of the
transfers, and (4) Isenbourg was a creditor at the time of the transfers.
[Record No. 30-2, p. 6]
In response, the defendants first argue that Kinder Caviar did not transfer any assets
without receiving valuable consideration. [Record No. 33, p. 11] Kinder Caviar states that the
following consideration exists for the transfers:
Stephen and Joyce Kinder loaned Kinder Caviar money to keep it afloat, this is
certainly valuable consideration that Kinder Caviar received in exchange for its
payments on those loans. Likewise, Donald Kinder executed a promissory loan
on the loan from his parents to purchase real property. His promise to pay
according to that agreement is also valuable consideration. The attorneys who
received the proceeds from a Kinder Caviar sale provided valuable consideration
to Kinder Caviar in the form of legal services. In fact, each of the transactions
4

The Court notes that Isenbourg erroneously cites to § 379.020; however, it is clear that it is actually
referring to § 378.020.

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that took place during the time between the filing of the complaint in the prior
litigation and the date of the Judgment is subject to the same analysis and
conclusion --- each of those hundreds of transfers was for valuable consideration.
[Record No. 33, p. 11] Thus, the defendants argue that each of the “hundreds” of monetary
transfers that occurred from the date of the filing of the original complaint and the Judgment
were for valuable consideration – either of a benefit to a third party,5 to keep its business afloat,
a promise to pay, or in exchange for legal services.
The defendants next argue that Isenbourg was not a “then existing creditor” during the
pendency of the earlier litigation. The defendants argue that KRS § 378.020 “only works to void
transfer made only as to ‘then existing creditors.’” [Record No. 33, p. 11] They argue that they
“had every expectation that Kinder Caviar would prevail in its earlier litigation with Plaintiff.
They did not consider Plaintiff to be a creditor of Kinder Caviar prior to the entry of judgment
against it.” [Record No. 33, p. 12] Thus, they argue that any transfers of assets made before
December 14, 2011, by Kinder Caviar cannot be rendered void under KRS § 378.020.
KRS § 378.020, by its plain language, applies only to creditors existing at the time of the
transfer. See Universal C.I.T. Credit Corp v. Bell High Coal Corp., 454 S.W.2d 706, 708 (Ky.
1970). In addition, KRS § 378.010 only protects subsequent creditors from fraudulent
conveyances when the transfer is made with actual fraudulent intent. Id.
Isenbourg is not entitled to summary judgment under KRS § 378.020. The defendants
have raised a genuine dispute regarding an important issue of material fact that cannot be
properly resolved by this summary judgment motion. The Court cannot decide on summary
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Kentucky recognizes that a benefit to a third party can constitute valuable consideration. Burnett’s
Adm’x v. Farmers Nat’l Bank, 49 S.W.2d 1033 (Ky. 1932).

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judgment whether the consideration the defendants received in exchange for the monetary
transfers was “valuable consideration” within the meaning of the statute. Because of the number
of transfers complained of by Isenbourg, the Court is unable to determine from the summary
judgment motion which, if any, conveyances were made for valuable consideration, and which
were not. The defendants have raised a factual issue regarding the transfers, and whether
consideration existed for the transfers that occurred after the date that Isenbourg became a “thenexisting creditor.” Therefore, the Court declines to grant summary judgment in favor of
Isenbourg under KRS § 378.020.
Isenbourg also argues that the conveyances in question were fraudulent under KRS §
378.010, which states that
[e]very gift, conveyance, assignment or transfer of, or charge upon, any estate,
real or person, or right or thing in action, or any rent or profit thereof, made with
the intent to delay, hinder or defraud creditors, purchasers or other persons . . .
shall be void as against such creditors, purchasers and other persons. This section
shall not affect the title of a purchaser for a valuable consideration, unless it
appears that he had notice of the fraudulent intent of his immediate grantor or of
the fraud rendering void the title of such grantor.
Isenbourg acknowledges that KRS § 378.010 requires proof of the transferor’s intent to defraud,
but argues that fraud should be presumed in these circumstances because “the necessary
consequence of a deliberate act by a debtor is to delay, hinder, or defraud his creditors.” Alt v.
Burt, 242 S.W.2d 974, 980 (Ky. App. 1951). To determine whether Isenbourg has sufficiently
shown evidence of fraud in this case, the Court turns to Isenbourg’s arguments regarding
“badges of fraud.”

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B.

Badges Of Fraud

Isenbourg argues that sufficient badges of fraud exist to establish that the transfers in
question are fraudulent. [Record No. 30-2, p. 9] Generally, in an action to set aside a
conveyance for fraud, the fraud must be established by the heightened standard of clear and
convincing evidence. Russell Cnty. Feed Mill, Inc. v. Kimbler, 520 S.W.2d 309, 311 (Ky. App.
1975). However, one exception to the standard of proof is the doctrine of badges of fraud.
Badges of fraud exist when: 1) the transfer or conveyance is between persons who are related
or occupy a confidential relationship, 2) where the transfer or conveyance contains false
statements and recitals as to consideration, 3) where the transfer or conveyance is made by a
debtor in anticipation of a suit against him or after a suit has begun or is pending against him,
and 4) where the transfer or conveyance is made by a debtor who transfers all or any appreciable
part of his property when he is insolvent or financially embarrassed. Id. at 311. A plaintiff’s
showing of a badge of fraud allows a court to presume intent to defraud. Id. at 312. This
presumption shifts the burden of proof to the defendant, who must then establish, by clear and
convincing evidence, a legitimate reason motivating the transfer. Id.
Isenbourg argues that there are two such badges of fraud in the transfers in this case.
First, Isenbourg argues that the transfers to Donald Kinder give rise to a presumption of
fraudulent intent because “the parties to the transfers in question occupy a confidential and close
familial relationship.” [Record No. 30-2, p. 9] Isenbourg also argues that all transfers made
after the previous suit was filed in 2009 are presumed to be fraudulent because they were made
after the lawsuit was filed. A transfer by a debtor in anticipation of a suit against him or while

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it is pending against him is a badge of fraud. Allen v. Ligon, 175 Ky. 767, 771 (1917); see also
Hager v. Coleman, 208 S.W.2d 518 (Ky. Ct. App. 1948); Trent v. Carroll, 380 S.W.2d 87 (Ky.
Ct. App. 1964). A conveyance in anticipation of a lawsuit is prima facie fraudulent. James v.
Stokes, 261 S.W. 868, 876 (Ky. Ct. App. 1924)
Isenbourg has sufficiently shown that both of these badges of fraud exist, and has shifted
the burden to the defendants to show that transfers made after the filing of the original suit had
a legitimate reason motivating the transfer. See In re Montalvo, 324 B.R. 619 (Bankr. W.D. Ky.
2005). However, the defendants have created a genuine issue of material fact regarding why the
previous transfers occurred. The defendants have submitted affidavits regarding the transfers,
and detailing their intent in making the transfers. [Record Nos. 36-39] The defendants state that
they “never attempted to defraud or otherwise hinder the Plaintiff in collecting its judgment.”
[Record No. 33, p. 12] In addition, they have asserted legitimate reasons motivating the
transfers, including an attempt to keep their business afloat, a business loan to their son in
exchange for a promissory note, as well as following the advice of their accountant and other
reasons that, if true, would constitute legitimate reasons. Therefore, the Court declines to
conclude that all transfers made after the filing of the original lawsuit are void. Instead, the
defendants have the burden of proving that each of the transfers was for a legitimate reason, and
the defendants must prove this by clear and convincing evidence.
C.

The Proper Remedy For Fraudulent Conveyances

The defendants argue that Isenbourg is asking for an improper remedy under the
fraudulent conveyance statute for several reasons. First, the defendants argue that the remedy

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sought is improper because it asks the Court to re-impose the previous Judgment already entered
against Kinder Caviar. The defendants further argue that the remedy sought is improper because
it violates the defendants’ right to due process, by imposing a judgment whereby Defendants
BlackStar Fish Co., BlackStar Caviar, and Donald Kinder were unable to defend themselves.
The proper remedy for a fraudulent conveyance claim is the nullification of the transfer
by returning the property at issue back to the transferor. GATX Corp. v. Addington, No. 11-122DLB, 2012 U.S. Dist. LEXIS 64819, at *17 (E.D. Ky. May 9, 2012). Regardless of the remedy
sought, a direct liability fraudulent conveyance claim is only actionable against the transferor
or transferee. Id. Although the primary remedy in a fraudulent conveyance claim is to void the
fraudulent conveyance, some states allow the creditor to seek compensatory damages from a
transferee as an alternative form of relief. Because “Kentucky courts have not explicitly reached
this conclusion,” the Court declines to extend Kentucky law to allow for compensatory damages
from a transferee. Id. at *17-18. Thus, the remedy available to Isenbourg is for the Court to void
the conveyances deemed fraudulent by the Court. Because the Court is limiting the remedy to
voiding the fraudulent conveyances, there are no due process concerns regarding any defendants
— including BlackStar Fish Co. and Donald Kinder — not party to the original suit. Thus, the
defendants’ due process concerns on this issue are without merit.
D.

Then-Existing Creditor

Additionally, there is a genuine issue of fact regarding the point at which Isenbourg
became a creditor of the defendants. Isenbourg asserts that it became a “then-existing creditor”
at the time that the original complaint was filed on June 26, 2009. In the alternative, Isenbourg

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argues that it became a “then-existing creditor” at the time that the Court granted summary
judgment in its favor on the issue of liability on February 22, 2011. Defendant Kinder Caviar
contends that it reasonably believed that it would prevail in the previous matter, and asserts that
Isenbourg did not become a creditor until the entry of the Judgment in December 2011.
Although Kentucky courts have given little guidance regarding when a party becomes a “thenexisting creditor” within the purview of fraudulent conveyances, the reasonableness of Kinder
Caviar’s belief that it would prevail in the prior litigation is not relevant to the issue of
Isenbourg’s status as a creditor.
Kentucky courts have held that, within the context of real property, the transfer of
property in anticipation of or pending a lawsuit is a badge of fraud. Trent v. Carroll, 380 S.W.2d
87, 90 (Ky. 1964). However, Kentucky courts have not explicitly decided whether a creditor can
be considered a “then-existing” creditor prior to the entry of a Judgment against the debtor.
There is some authority that KRS § 378.020 includes obligations to pay that are contingent on
the happening of other events. See Madison Capital Co., LLC v. Smith, No. 3:08CV-382-H,
2009 U.S. Dist. LEXIS 17748, at *12-13 (W.D. Ky. Mar. 4, 2009) (recognizing that no recent
Kentucky cases provide guidance on the definition of the terms under KRS § 378.020, but stating
that “the fact that a guarantor’s obligation to pay is continent (or dependent on other events) does
not make him any less a debtor in the broad sense of the term”).
When examining the intent of the fraudulent conveyance statutes under Kentucky law,
the main purpose is to place the creditors — in this case Isenbourg — in the same position it
would have been in immediately prior to any voidable conveyance. Id. at *10. Thus, the Court

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finds that the relevant date of inquiry in this matter is the date on which Isenbourg filed its
original complaint (i.e., June 26, 2009). The reason for this finding is two-fold: first, Isenbourg
has sufficiently shown that a badge of fraud has cast suspicion over transfers made during the
pendency of the prior lawsuit. Second, using the date of the filing of the prior complaint is the
most likely mechanism for accomplishing the goal of putting Isenbourg in the position it would
have been prior to any transfers of property made without good faith. Thus, Kinder Caviar is
required to show, by clear and convincing evidence, that all transfers made after June 26, 2009,
were made in good faith and for legitimate reasons.
III.
Although Isenbourg has shown that “badges of fraud” exist regarding at least some of the
transfers at issue, the defendants have raised genuine issues of material fact regarding whether
certain transfers were made for valuable consideration under KRS § 378.020. At trial, Defendant
Kinder Caviar will be required to show, by clear and convincing evidence, that the transfers in
questions were made in good faith and for legitimate reasons. However, because material
disputes of genuine fact exist surrounding some of the transfers, it is hereby
ORDERED that Plaintiff Princesse d’Isenbourg et Cie., Inc.’s Motion for Summary
Judgment [Record No. 30] is DENIED.
This 14th day of January, 2013.

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