Opinion ID: 2516776
Heading Depth: 5
Heading Rank: 2

Heading: The debt to Coal Factors, Inc.

Text: Judge Hunt found that Coal Factors was a consultant to Nerox Power and had advanced them funds for use in developing the mine, making them either an investor or an unsecured creditor. Because Nerox Energy satisfied its debts to consultants by issuing stock, Judge Hunt found that the debts owed to Coal Factors had been satisfied. Coal Factors thus could not be preferred over bona fide creditors. [25] Yet, the evidence Judge Hunt cites to show that Coal Factors was a consultant actually suggests that Coal Factors was a standard contractor rather than a consultant. Furthermore, the billing statements in the record demonstrate that a substantial amount of Coal Factors's billing was for material goods provided to Nerox Power for use in developing the mine. There is also very little testimony at trial to support the conclusion that Coal Factors served as a consultant. However, M-B argues an alternative ground on which to affirm the equitable subordination ordered by Judge Hunt. It is unclear exactly how much was owed to Coal Factors. There are no specific debt figures contained in the 1997 10-K report. Artus testified conflictingly that Coal Factors was owed $115,000 and that it was owed $130,000. Nerox Power and Coal Factors do not provide in their combined briefs any clarification of the amount owed other than to rely on Artus's testimony. [26] Because the deed of trust was drafted for payment of $191,576, subtracting the $151,016 that Artus received leaves $40,560 for Coal Factors. However, the timing between the debts incurred, the payments made, and the April 11, 1997 recording of the deed confuses matters further. The largest expense incurred by Coal Factors$80,000 for structural steel for a coal wash plantwas invoiced on September 8, 1997, several months after the deed of trust was recorded on April 11, 1997. It is conceivable that some or perhaps all of this expense was incurred prior to the recording of the deed of trust. [27] Certain other expenses apparently were incurred prior to April 11, 1997, even though they were not invoiced until several months later. M-B alleges that Coal Factors was only owed $27,541.44 on April 11, 1997, when the deed of trust was recorded. Ultimately, it is impossible to get a clear accounting from the record of the expenses Coal Factors incurred before April 11, 1997. Based upon the evidence in the record, there is insufficient justification for the amount of the Coal Factors deed of trust. [28] The record shows that prior to April 11, 1997, Coal Factors had incurred costs of $33,394.46 [29] for work done and materials provided to Nerox Power [30] and been paid $17,794.90 for these costs, leaving indebtedness of only $15,599.56. The deed of trust, as far as the record goes, provides collateral to Coal Factors for a debt of only $40,560. There is no indication in the deed of trust as to what the deed is securing and no indication of what consideration, if any, Coal Factors gave to Nerox Power to justify any amount in excess of its existing debt. This court cannot act as the accountant for Coal Factors, determining when its debts were incurred and which ones are valid for the purpose of the deed of trust. [31] Were the deed of trust clearer or the record more complete, it is possible that Coal Factors could demonstrate that it was error for Judge Hunt to shift the priority of the liens of M-B, Tope, and Alaska Law Offices. [32] As the record stands before this court, however, a sufficient implication of fraud exists with regard to the dealings between Coal Factors and Nerox Power to support Judge Hunt's conclusion that Coal Factors's interest in the deed of trust must be equitably subordinated to the claims of other creditors.