Opinion ID: 3012143
Heading Depth: 2
Heading Rank: 1

Heading: The Kentucky Litigation

Text: Shortly after the sale, a dispute arose as to which party would assume certain pre-existing debts of LCSDI, totaling approximately $1.213 million for the houseboat fleet it owned (including the $700,000 debt originally held by VC). In the fall of 1986, Kool Mann filed suit in federal court in Kentucky seeking declaratory relief as to the assumption of debt issue and also sought a set-off against the purchase price of LCSDI for alleged misrepresentations and accounting fraud by the Coffeys. The Coffeys counterclaimed for judgment on the $ 4 million balance due on the purchase price. The Coffeys also filed suit in state court against Moore, individually, under his personal guaranty. That action was removed to federal court and both were consolidated before the Honorable Karl S. Forester, U.S. District Court Judge for the Eastern District of Kentucky. The Kentucky federal court bifurcated the assumption of debt issue from the misrepresentation and fraud issue. 6 After a six-day trial, Judge Forester ruled on January 31, 1990 that Kool Mann had agreed to assume the company’s debt when it agreed to pay $5 million for LCSDI, and that therefore Kool Mann was not entitled to set-off the amount of the assumed debt against the money it owed. See Moore, Owen, Thomas v. Coffey, No. 87-64, slip op. atPP 6, 8, 10, 14.I (E.D. Ky. Jan. 31 1990). That ruling was not appealed. On December 20, 1990, while the fraud issue was still pending before the district court in Kentucky, Kool Mann filed for bankruptcy protection in the Virgin Islands, where it purportedly maintained certain offices. Recognizing that he could not rule against Kool Mann due to its pending bankruptcy, Judge Forester entered summary judgment against Moore on October 11, 1991, rejecting Kool Mann’s charge of fraud and holding that Moore was responsible for the balance owed to the Coffeys. The Sixth Circuit reversed, finding a material issue of fact concerning the alleged misrepresentations. That court also held that the obligation of Moore on his personal guaranty could not be determined until the amount due from Kool Mann was first ascertained, and ruled that if fraud on the part of the Coffeys were to be found, Moore’s personal liability under the guaranty would be discharged. See Moore, Owen, Thomas & Co. v. Coffey, 992 F.2d 1439, 1448-50 (6th Cir. 1993).