# OGGUSA, Inc. v. Louisville Dryer Company

> United States Bankruptcy Court, E.D. Kentucky · March 31, 2022

URL: https://www.frixlaw.com/law-library/cases/10457898

## Case

- **Court:** United States Bankruptcy Court, E.D. Kentucky
- **Decided:** March 31, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10457898

## How later opinions describe it (automated extraction)

- stating the remedy under § 542(b) “cannot be used to determine the rights of parties in legitimate contract disputes”
- stating that, to invoke K.R.S. § 355.2-609, the seller must make a written demand for assurances

## Opinion text

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEXINGTON DIVISION
IN RE

OGGUSA, INC., et al1 CASE NO. 20-50133
DEBTORS JOINTLY ADMINISTERED
OGGUSA, INC., fka GenCanna Global
USA, Inc. PLAINTIFF

V. ADV. NO. 20-5032

LOUISVILLE DRYER COMPANY DEFENDANT
MEMORANDUM OPINION
Plaintiff OGGUSA, Inc., fka GenCanna Global USA, Inc. (“GenCanna”), filed a
Complaint against Defendant Louisville Dryer Company (“LDC”), contending that LDC
breached the parties’ agreement relating to LDC’s manufacture of equipment for GenCanna’s
use at its Mayfield production facility. LDC insists GenCanna breached the agreement and filed
a proof of claim in GenCanna’s bankruptcy case for damages. At the trial held on February 22,
2022, GenCanna failed to prove that LDC breached the parties’ agreement and LDC failed to
justify allowance of its claim.
I. Facts.2
GenCanna and its co-debtors comprised a vertically integrated agriculture-technology
company primarily engaged in the development of hemp genetics and the production and
distribution of cannabinoid products. As a component of their business, GenCanna and the

1 The Debtors in these Chapter 11 cases are OGGUSA, Inc., OGG, Inc., and Hemp Kentucky, LLC.
2 Nearly all facts described in this Opinion stem from the parties’ pretrial stipulations. [ECF No. 133.] Facts
generated from trial testimony are separately identified.
other debtors processed hemp plants into products containing hemp-derived substances including
legal, non-intoxicating cannabidiol (“CBD”).
LDC manufactures equipment, including massive rotary dryers and coolers used to
process hemp. Dan Claycamp, GenCanna’s former vice president of operations, confirmed that

each dryer is approximately the size of a school bus, with the coolers only slightly smaller.
[ECF No. 129-413 at 17; see also ECF No. 124-74 (scale drawings of dryer and cooler).]
The parties began exchanging information for the manufacture and sale of dryers and
coolers in late 2018. The discussions and proposals ultimately resulted in a written contract for
four dryers and two coolers. The equipment was slated for installation and use in GenCanna’s
new hemp production facility under construction in Mayfield, Kentucky (the “Mayfield
Facility”).
A. LDC and GenCanna agree to manufacture and purchase dryers and coolers.
In December 2018, LDC provided two initial proposals to GenCanna for the manufacture
and supply of equipment: a proposal for three rotary steam tube dryers at the price of $4,074,135

and a proposal for one counter-current rotary air cooler for $275,366. On January 2, 2019,
GenCanna paid LDC $1,300,000, just under 30% of the purchase price for the quoted equipment.
On January 15, 2019, GenCanna paid LDC $490,023 for two unrelated projects. After
those projects were canceled, the parties agreed to apply GenCanna’s second payment to the
purchase price of the dryers and coolers, resulting in a total payment by GenCanna of
$1,790,023.
On February 21, 2019, LDC sent GenCanna a second proposal for four dryers, and the
next day it sent a revised proposal for two coolers (the “Proposals”). The Proposals provided:

3 The parties used Mr. Claycamp’s deposition transcript as his trial testimony because he was unavailable.
“The equipment offered in this proposal is quoted FCA from point of origin, loaded on customer-
supplied transport; all permits, taxes, installation, and freight are the responsibility of the
purchaser.” [ECF No. 129-3 at 5; ECF No. 129-4 at 3.] FCA means “free carrier,” which is a
business term that defines the seller’s limited obligation to ship goods. The parties agreed that

the FCA obligation is interpreted using the Incoterms created by the International Chamber of
Commerce. [See ECF No. 129-34.]
LDC’s General Manager, Trey Mathis, explained at the trial that the Proposals and
Incoterms obligated LDC, as the manufacturer/seller, to load the equipment at the LDC facility.
Once loaded, the equipment is deemed delivered.
The Incoterms set out other pertinent provisos related to the equipment’s delivery from
LDC to GenCanna. The Incoterms obligated GenCanna to “contract at its own expense for the
carriage of the goods from the named place of delivery” and delivery was to occur “at the named
place on the agreed date or within the agreed period.” [Id. at 2.] GenCanna agreed to “take
delivery of the goods when they have been delivered as envisaged….” [Id. at 3.] LDC would

“give [GenCanna] sufficient notice either that the goods have been delivered in accordance with
[the Incoterms] or that the carrier or another person nominated by [GenCanna] has failed to take
the goods within the time agreed.” [Id. at 4.] GenCanna was further obligated to notify LDC
of “the name of the carrier … within sufficient time as to enable [LDC] to deliver the goods”
and, “where necessary, the selected time within the period agreed for delivery when the carrier
… will take the goods[.]” [Id.]
The Proposals also set forth “REQUIREMENTS TO BE PROVIDED BY THE BUYER
NOT INCLUDED IN THIS PROPOSAL” that included “[a]ll freight from the point of origin[,]”
“[a]ll labor, materials and associated equipment required for installation and start-up[,]” “[h]eavy
lift equipment and cranes[,]” and “[s]ite preparation, foundation design, footings, anchor bolts
and/or necessary blocking to provide support for equipment.” [ECF No. 129-3 at 5; ECF No.
129-4 at 4.]
Another pertinent term in the Proposals was LDC’s standard project payment terms:

30% project initiation payment, due net[,]
30% upon receipt of shell plate, due net 10 days,
30% upon completion of shell less internals, due net 10 days[, and]
10% upon readiness to ship, due net.
[ECF No. 129-3 at 4; ECF No. 129-4 at 3.]
On April 4 and 5, 2019, the parties’ representatives exchanged writings confirming their
assent to the Proposals’ terms. [ECF No. 124-25; ECF No. 129-7; see also infra at Part I.B.]
The price of the four dryers was $5,432,180 and the price of the two coolers was $603,674, for a
total price of $6,035,854.
B. GenCanna obtains third-party financing for certain equipment and the
parties execute the Agreement.
LDC began work on the dryers and coolers in early 2019. By mid-March, it requested
the progress payment required by the Proposals or it would stop work on the project. GenCanna
did not pay, so LDC declared a default and halted production on March 21, 2019.
GenCanna searched for third-party financing and eventually agreed to a sale leaseback
arrangement with SQN Asset Income Fund V, L.P. a/k/a Arboretum Group, LLC (“SQN,” a non-
party to this proceeding). LDC, GenCanna, and SQN entered into the Ratification and Partial
Assignment dated May 31, 2019. [ECF No. 129-14 (the “Agreement”).] The Agreement
incorporated the Proposals and their progress payment terms and assigned GenCanna’s rights
under the Proposals for three dryers and one cooler to SQN (the “Assigned Equipment”). SQN
delivered $3,600,000 to LDC, representing full payment for the Assigned Equipment (the “SQN
Payment”).4
At trial, LDC and GenCanna referred to SQN as a sale-leaseback financier. Richard
Drennen, GenCanna’s former Chief Operating Officer and Director of Administration, explained

that GenCanna sought to finance long term assets over time to enhance cash flow. GenCanna
would have financed a higher proportion of the total price of the dryers and coolers, but SQN
would not go higher.
The Agreement revised the delivery dates to provide: “Seller can have the first two (2)
dryers … ready for load-out on Tuesday, October 1, 2019; the third dryer ... may be ready for
load-out on Wednesday, October 9, 2019.” [Id. at 2.] In addition, the Agreement provided that
the revised delivery date for the fourth dryer “will be determined after delivery of” the first three
dryers. [Id.] The parties never set an expected delivery date for the coolers. The testimony
offered at trial reflected the parties’ mutual understanding that LDC would manufacture the first
cooler at the same time as the first three dryers. The parties would coordinate completion and

delivery of the fourth dryer and second cooler after delivery of the Assigned Equipment.
The Agreement did not modify GenCanna’s obligation under the Incoterms to arrange
and pay for transfer of the equipment from LDC’s manufacturing facility to GenCanna’s
Mayfield Facility. The Agreement also did not affect GenCanna’s responsibility to prepare the
Mayfield Facility for the arrival and installation of the equipment via the design and construction
of a reinforced foundation and piers. Further, nothing in the Agreement obligated SQN to take

4 The Agreement referenced the correspondence between Plaintiff and Defendant for the four dryers and two coolers
at a total price of $6,035,854 and specifically provided that the terms of the Proposals “remain[] in full force and
effect except as are specifically modified as hereinafter set forth[.]” [ECF No. 129-14 at recitals.] The Agreement
also stated “[i]n the event of a conflict between” the terms and conditions of the two contracts, “the terms and
conditions of the [Proposals] shall govern, supersede, and prevail [over the terms of the Agreement].” [Id. ¶ 5.]
on any obligation for delivery or possession of the equipment; it was merely the financier in a
sale leaseback transaction.
LDC applied the SQN Payment to the full purchase price of all the equipment, resulting
in a $645,831 balance owed to LDC for the four dryers and two coolers. Neither party offered

testimony addressing allocation of the SQN Payment to the four dryers and two coolers. On
June 5, 2019, GenCanna emailed LDC and asked for a date “to check on the dryer progress next
week and finalize a path forward with equipment deliveries?” [ECF No. 129-15 at 2.]
GenCanna visited LDC’s facility in Louisville to inspect the equipment on June 26, 2019, and
did not visit LDC’s facility again thereafter.
C. LDC learned that GenCanna was experiencing financial problems in the
summer and fall of 2019.
As 2019 progressed, GenCanna experienced financial difficulties due mostly to a
precipitous drop in the market price of CBD. Drennen explained at trial that GenCanna failed in
its efforts to raise additional equity. Alan Calderon, GenCanna’s Vice President of Finance at
that time, testified that GenCanna obtained financing from a new lender in June 2019 that put
GenCanna under onerous financial constraints. By late summer, GenCanna lacked the available
funds to pay hemp suppliers and the contractors, subcontractors, and material suppliers working
at the Mayfield Facility. GenCanna’s former General Counsel, Gary Broadbent, testified that
GenCanna was attempting to conserve cash in this time frame by prioritizing payments to its
employees and certain creditors.

The contractors and suppliers at the Mayfield Facility stopped negotiating payment terms
and began filing mechanic’s liens starting in early September 2019. A foreclosure complaint
lists over 20 mechanic’s liens recorded by the November 19, 2019, filing date. [ECF
No. 124-49.] On September 3, 2019, GenCanna issued a notice that it would cease work on the
Mayfield Facility for four months. [ECF No. 129-17.] Drennen explained that GenCanna
lacked the capital to both complete the construction project and pay farmers for harvested hemp.
It was more important to obtain the hemp and generate sales to support the business. Broadbent
recounted that a significant portion of his job responsibilities since his hiring in June 2019

involved managing payment defaults.
Mathis testified that he and other LDC personnel were aware of GenCanna’s troubles in
the summer and fall of 2019, and they feared GenCanna could not pay for the balance owed on
the dryers and coolers. Nevertheless, LDC completed work on the Assigned Equipment and had
the three dryers (along with one cooler) ready for load-out at LDC’s manufacturing facility by
early October 2019 as the Agreement required.
But the Mayfield Facility was not ready to receive the Assigned Equipment. The
appropriate reinforced footings sufficient to support such massive pieces of equipment, which
required planning by a qualified civil engineer, were not yet constructed at the Mayfield Facility.
So GenCanna did not arrange for delivery of the Assigned Equipment. As a result, the Assigned

Equipment, each piece roughly the size of school bus, continued to take up space on LDC’s
manufacturing floor and impeded its ability to construct equipment for other customers.
On November 7, 2019, GenCanna’s existing hemp processing facility in Winchester,
Kentucky, was destroyed by fire. The fire stopped all hemp production, a result Drennen
described as devastating.
D. Attempts to work out an arrangement continued in October, November, and
December 2019.
Much of the trial testimony concerned the import of communications between the parties
in the months leading to GenCanna’s January 2020 bankruptcy proceeding. The first significant
exchange of correspondence occurred on October 16, 2019, when LDC’s president, Mike
Mercer, sent an email to GenCanna executives Drennan and Claycamp that stated:
GenCanna remains in default under its contract with Louisville Dryer Company.
To mitigate the damages caused by GenCanna’s continuing default, Louisville
Dryer Company will, in a private sale, begin immediately to attempt to resell the
remaining dryer.
Please respond immediately if you have any objection to this action or wish to
discuss the viability of a cure period.
[ECF No. 124-37 (the “October 16 Email”).] Eleven minutes later, Drennen responded
(copying Broadbent):
Looping in our General Counsel under the circumstances but please know that we
are close to a financing that should close on or before the end of the month, at
which time we intend to pay the balance of the dryer.
[ECF No. 124-38.] At trial, Broadbent testified that he viewed the October 16 Email as an
invitation to discuss matters relating to the equipment with LDC. Drennen testified that, if he
were in LDC’s shoes at that time, he would have done whatever he could to protect its interests.
At the time of this exchange, LDC had received all but $645,831 on the full price of all
the equipment, which was approximately 10% of the total contract price. The project payment
scheduled provided that the final 10% payment was not due until the equipment was completed
and ready for “load-out”; it was not. LDC had purchased and received parts for the fourth dryer
and second cooler, and only performed some construction work. The parties had not even set a
delivery date for that equipment.
On November 4, 2019, LDC’s Mathis sent an email message to an SQN representative
and to GenCanna’s Drennen, asking, “Would you please advise when the (3) dryers and (1)
cooler will be picked up by your freight carrier?” [ECF No. 129-22.] SQN’s representative
responded to the message the following day, copying Drennen:
We will need to touch base with GenCanna again to see how preparations are
coming along in order to accept delivery – when we spoke last week, the concrete
foundation pads for the dryers needed to be poured and would require 7 days to
set. Once those are finished, I believe they will be ready for delivery.
I will reach out to GenCanna for updates and get back to you later this week.
[ECF No. 124-41.]
Mathis sent a follow-up message to GenCanna and SQN representatives on November 8,
2019, asking them to “please let us know your schedule[.]” [ECF No. 124-47.] Discussions
regarding delivery continued in November 2019, but no date was set and no freight arrangements
were made. The conversations also included a request by SQN to determine if LDC had an
interested buyer if things did not work out. [ECF Nos. 129-23, 129-24.]
Several weeks later, on December 3, 2019, LDC’s Mathis sent a letter to GenCanna’s
Broadbent regarding the fourth dryer and second cooler (referred to in the letter as the
“Collateral”). [ECF No. 129-25 (the “December 3 Letter”).] The letter offered to waive the
remaining amount due in exchange for release of any claim to the work-in-progress on the final
dryer and cooler. [Id.]
A “Consent and Full Release” paragraph followed the body of the letter acknowledging
the debt, the payment default, and surrender of any interest in the work-in-progress. [Id.] The
consent was drafted for Broadbent’s signature, but he did not act on the walk-away proposal.
And the Assigned Equipment remained in LDC’s manufacturing facility.
E. GenCanna enters bankruptcy.
On January 24, 2020, three creditors filed an involuntary chapter 11 petition to put

GenCanna into bankruptcy. On February 6, 2020, GenCanna consented to the bankruptcy and
filed voluntary petitions for its related entities.
GenCanna’s operations continued in other locations, but the Mayfield Facility never
reached a point where it was set up for installation of the dryers and coolers. GenCanna rejected
the lease for the Mayfield Facility property effective May 29, 2020.
GenCanna determined post-petition that it did not need the remaining dryer and cooler.

GenCanna rejected its executory contracts with LDC and demanded the return of the $1,790,023
GenCanna had paid LDC in January 2019. LDC refused the demand. On June 20, 2020, LDC
filed a Proof of Claim for the balance due for the dryers and coolers, although it was
unintentionally off by $800 ($645,031). GenCanna commenced this adversary proceeding
against LDC on September 17, 2020.
As of June 2020, the Assigned Equipment was housed at LDC’s business, taking up
significant space and impairing work on other equipment for paying customers. LDC thus sued
SQN in Kentucky state court and reached a settlement that included removal of the Assigned
Equipment at SQN’s cost in October 2020.
II. Jurisdiction.

The Court has jurisdiction over this adversary proceeding. 28 U.S.C. § 1334(b). It is a
core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (E), and (O). The parties consented to the
entry of a final order and judgment. [ECF Nos. 1, 5.]
III. Discussion.
A. Count II of the Complaint was dismissed and GenCanna did not argue it was
entitled to relief under Count III at trial.
Prior to trial, Count II of the Complaint for unjust enrichment was dismissed. [ECF
No. 53.]
Count III is a request for turnover of the January payments totaling $1,790,023 pursuant
to 11 U.S.C. § 542. GenCanna did not discuss Count III in its trial brief or pursue it at trial.
GenCanna’s abandonment of, or failure to prosecute, this claim entitles LDC to judgment on
Count III. FED. R. BANKR. P. 7041(b); see also Qui v. Zhou (In re Zhou), 331 B.R. 274, 275
(Bankr. E.D. Mich. 2005) (deeming claims pleaded in adversary complaint abandoned when not
asserted in joint final pretrial order or pursued at trial).

Even if GenCanna had pursued Count III at trial, seeking relief under § 542 is not
appropriate when the debt stems from a contractual dispute. See, e.g., United States v. Inslaw,
Inc., 932 F.2d 1467, 1472 (D.C. Cir. 1991) (“It is settled law that the debtor cannot use the
turnover provisions to liquidate contract disputes[.]”); Mazel v. Lovelace Health Sys. (In re
Infinity Home Health Care, LLC), No. 16-10062-j7, Adv. Pro. No. 18-1051-j, 2018 WL
5310659, at *2 (Bankr. D.N.M. Oct. 25, 2018) (holding a party cannot liquidate breach of
contract or unjust enrichment claims through a turnover action; a turnover action “applies to a
debt [only] when the debt is undisputed and presently payable”); In re Asousa P’ship, 264 B.R.
376, 384 (Bankr. E.D. Pa. 2001) (stating the remedy under § 542(b) “cannot be used to
determine the rights of parties in legitimate contract disputes”).

GenCanna also did not provide any law in its trial brief to address whether or when LDC
earned the January payments demanded in the Complaint or otherwise deal with this issue at
trial. LDC’s standard payment terms in the Proposals required a 30% “project initiation
payment,” which is approximately the amount of the January 2019 payments. The Agreement
referred to these payments as GenCanna’s “initial down payment,” and also referred to “work
stoppages made by [LDC] pending resolution of interim payment milestones by” GenCanna.
[ECF No. 129-14 at 1, 2.] Mathis testified that LDC used the project initiation payment to
procure the materials needed to construct the dryers and coolers, and LDC in fact manufactured
three dryers and one cooler for delivery.
GenCanna offers no reason to believe the $1,790,023 was not akin to a progress payment
earned by a contractor for performance under a construction contract. See American States Ins.
Co. v. Glover Const. Co., Inc. (In re Glover Const. Co., Inc.), 30 B.R. 873, 875 (Bankr. W.D.
Ky. 1983) (explaining “[p]rogress payments are those funds which the owner contracts to pay

periodically based upon satisfactory performance [– the] compensation enables the contractor to
embark on costly and lengthy projects without himself financing the enterprise[,]” and discussing
contractor earning a legal and enforceable right to progress payments through performance).
B. GenCanna did not meet its burden of proof on Count I of the Complaint.
GenCanna proceeded to trial on Count I, breach of contract, and Count IV, dismissal of
LDC’s proof of claim pursuant to 11 U.S.C. § 502.
“To prove a breach of contract, the complainant must establish three things: 1) existence
of a contract; 2) breach of that contract; and 3) damages flowing from the breach of contract.”
Metro Louisville/Jefferson County Gov’t v. Abma, 326 S.W.3d 1, 8 (Ky. Ct. App. 2009). The
parties agree they had a contract for specially manufactured goods and related services that is
evidenced by the Agreement and the incorporated Proposals. They also agree Kentucky’s

version of the Uniform Commercial Code applies. See KY. REV. STAT. §§ 355.2-102, 355.2-
105(1), 355.2-106(1).5
GenCanna contends that LDC anticipatorily repudiated (and thus breached) the
Agreement under K.R.S. § 355.2-610 by sending the October 16 Email and December 3 Letter,
entitling GenCanna to damages under K.R.S. § 355.2-711.6 However, neither communication

5 See also Laurel Grocery Co., LLC v. Freshway, Inc., No. 6:18-CV-243-REW, 2019 U.S. Dist. LEXIS 222379, at
*6-7 (E.D. Ky. Dec. 30, 2019) (“In Kentucky, the sales article of the UCC applies to ‘transactions in goods’
[including] ‘mixed contracts for goods and services where the predominant factor is the sale of goods.’” (citations
omitted)).
6 Before the presentation of evidence at the trial began, LDC objected to GenCanna’s right to proceed based on the
theory of prepetition anticipatory repudiation by LDC. LDC argued that GenCanna’s Complaint alleged that LDC
constituted an anticipatory repudiation of the Agreement. Accordingly, GenCanna did not
establish an essential element of its claim.
1. The October 16 Email did not constitute an anticipatory repudiation
of the Agreement.
GenCanna primarily focuses on LDC’s October 16 Email that began by declaring
GenCanna in “default under its contract with” LDC. [ECF No. 124-37.] The correspondence
does not describe the alleged default. At trial, LDC explained the need to get the completed
dryers out of the facility because they were the size of a bus and taking space needed to work on
equipment for other buyers. But LDC focused its arguments on its concern over the payments
due for the final dryer and cooler. [Id. (referring to “the remaining dryer” and not the Assigned

Equipment).] Also, GenCanna established at trial that LDC was not owed a progress payment
for the remaining dryer and cooler under the Proposals as of October 16, 2019.7
GenCanna did not, however, prove that the October 16 Email constituted an anticipatory
repudiation under Kentucky law because it did not communicate an unequivocal and clear
determination by LDC to cease performance under the Agreement. LDC expressly asked
GenCanna to respond if it had “any objection” to the proposed private sale or “wish[ed] to
discuss the viability of a cure period.” [Id.]
The Kentucky Court of Appeals explained:

breached the Agreement post-petition when it neither completed and delivered the fourth dryer and second cooler
nor returned GenCanna’s payments upon demand. [ECF No. 1 at ¶¶ 42-47.] The Court overruled LDC’s objection
because LDC never raised it until the morning of trial – including in connection with the parties’ three summary
judgment motions on the breach of contract claim – and LDC suffered no surprise or undue prejudice because
GenCanna’s legal theory changed as the case progressed. GenCanna thus was allowed to amend its pleading to
conform to the evidence. See FED. R. BANKR. P. 7015, incorporating FED. R. CIV. P. 15(b)(1).
7 The payments GenCanna and SQN already made were more than enough to pay off the Assigned Equipment. The
remaining portion of those payments would cover the first two progress payments (60%) on the final dryer and
cooler, leaving less than $20,000 to apply to the final two progress payments (completion of the shell, 30%, and the
amount due on shipping, 10%). The written record suggests the final dryer was at this stage, or maybe farther
along. The final cooler was probably not completed to this stage. But the evidence does not clearly describe the
extent of progress on the final dryer and cooler to allow allocation of the amounts paid.
The Official Comment to [K.R.S. 355.2-610] states that “anticipatory repudiation
centers upon an overt communication of intention or an action which renders
performance impossible or demonstrates a clear determination not to continue
with performance. U.C.C. § 2-610 (1958). Official Comment 1. The words or
facts alleged to constitute the repudiation must be “unequivocal.” Brownsboro
Road Restaurant, Inc. v. Jerrico, Inc., 674 S.W.2d 40 (Ky. [Ct.] App. 1984).
Upton v. Ginn, 231 S.W.3d 788, 791 (Ky. Ct. App. 2007); see also Automated Cutting Techs.,
Inc. v. BJS N. Am. E, No. 5:10-CV-208-REW, 2012 U.S. Dist. LEXIS 96745, at *34-35 (E.D.
Ky. July 12, 2012) (citing Upton and Brownsboro Road Restaurant).
The record also confirms GenCanna did not treat the email as a repudiation of future
performance by LDC. GenCanna’s Drennen responded almost immediately to assure LDC that
GenCanna was pursuing additional financing and intended to satisfy its payment obligation.
[ECF No. 124-38.] Broadbent did not testify that he viewed the October 16 Email as a
termination; he understood the October 16 Email as a request to discuss issues involving the final
dryer and cooler.
LDC characterized the October 16 Email as an inartfully worded demand for adequate
assurance in accordance with K.R.S. § 355.2-609. LDC convincingly established at trial that it
had reasonable grounds for insecurity as of October 16, 2019.
By September, many unpaid contractors, subcontractors, and materialmen filed liens
against the Mayfield Facility. In early September, GenCanna paused construction on the
Mayfield Facility through the end of the year without completing the foundations necessary to
accept delivery of the Assigned Equipment. Then, GenCanna refused to discuss delivery of the
three dryers after notice they were ready by the dates required in the Agreement.8 Any

8 GenCanna suggested that SQN assumed responsibility to take delivery of the Assigned Equipment via the
Agreement, but this is illogical. SQN was merely a financer in a sale-leaseback transaction and did not expressly or
by implication accept the obligation to receive the huge pieces of equipment that were only useable by GenCanna.
GenCanna’s argument also is inconsistent with Kentucky’s Uniform Commercial Code:
manufacturer would have a reason to feel insecure regarding future payments and demand some
form of adequate assurance in accordance with K.R.S. § 355.2-609.
But Mathis’s trial testimony and the text did not show the October 16 Email was a
request for adequate assurance. “To invoke UCC Section 2-609, a party’s written

communication must ‘mention 2-609 of the code or demand assurances.’ The demand for
assurances must be ‘a clear demand so that all parties are aware that, absent assurances, the
demanding party will withhold performance.’” Koursa, Inc. v. Manroland, Inc., 971 F. Supp.
2d 765, 792 (N.D. Ill. 2013) (citations omitted)); see also Duddy v. Kitchen and Bath Distribs.,
Inc. (In re H.J. Scheirich Co.), 982 F.2d 945, 951 (6th Cir. 1993) (stating that, to invoke K.R.S.
§ 355.2-609, the seller must make a written demand for assurances).
The October 16 Email does not state that LDC had “reasonable grounds for insecurity”
regarding GenCanna’s future performance, does not invoke the applicable statute, and does not
include a clear demand for assurances from GenCanna. Ultimately, the October 16 Email has no
legal significance. Mathis’s trial testimony revealed that LDC simply wanted to open a line of

communication to understand how GenCanna intended to proceed under the Agreement given its
financial circumstances.
Drennan’s response and the testimony from Drennan and Broadbent confirmed
GenCanna interpreted the October 16 Email similarly. They did not believe the email
repudiated the Agreement and neither party changed its position based on the October 16 Email.

An assignment of “the contract” or of “all my rights under the contract” or an assignment in
similar general terms is an assignment of rights and unless the language or the circumstances (as
in an assignment for security) indicate the contrary, it is a delegation of performance of the duties
of the assignor and its acceptance by the assignee constitutes a promise by him to perform those
duties. This promise is enforceable by either the assignor or the other party to the original
contract.”
KY. REV. STAT. § 355.2-210(5) (emphasis added).
2. The December 3 Letter did not repudiate the Agreement.
GenCanna also contends that the December 3 Letter constituted an anticipatory
repudiation of the Agreement because LDC claimed GenCanna was “in default” for failure to
pay the $645,831 balance due. The preceding discussion confirmed no progress payment was

due. The failure to accept delivery of the three dryers in early October likely was a default, but
that was not mentioned in the settlement proposal.
The testimony confirmed the December 3 Letter was intended as a walk-away resolution
of the parties’ situation given the dire financial circumstances facing GenCanna. The cessation
of construction at the Mayfield Facility and lien problems were exacerbated by the destruction of
GenCanna’s only operating processing facility in early November. Any manufacturer would
feel insecure on these facts and look for a solution.
The settlement offer did not refer to termination of the Agreement or the obligations
thereunder. Broadbent, the recipient of the December 3 Letter, did not testify that he viewed it
as an anticipatory repudiation of the Agreement by LDC. He took no action on the letter

because it simply was not one of GenCanna’s more pressing problems in November and
December 2019.
Further, there is no evidence that LDC took any steps to sell or otherwise dispose of the
unfinished dryer and cooler (or its components) after sending the December 3 Letter. This
information could have evidenced repudiation, but the absence supports the conclusion that LDC
only intended to propose a resolution. The December 3 Letter, like the October 16 Email, had
no legal effect on the parties’ relationship; it was an offer of settlement by LDC that GenCanna
did not accept.
C. The LDC proof of claim is not allowed.
LDC filed a proof of claim for $645,031 in GenCanna’s bankruptcy case on June 20,
2020, offering “Breach of Contract” as the basis for the claim [Case No. 20-50133, Claim
No. 10082]. “A proof of claim executed and filed in accordance with these rules shall constitute
prima facie evidence of the validity and amount of the claim.” FED. R. BANKR. P. 3001(f).
Under the Bankruptcy Code, “a claim or interest, proof of which is filed under section 501 of this
title, is deemed allowed, unless a party in interest ... objects.” 11 U.S.C. § 502(a). GenCanna
filed its Complaint, inter alia, objecting to and seeking disallowance of LDC’s proof of claim on
September 17, 2020. See FED. R. BANKR. P. 3007(b).
The prior discussion confirmed the final progress payment was not yet due. Further,
LDC conceded in closing arguments that a fair result based on common sense precluded a
judgment for GenCanna and allowance of the LDC claim. This concession was reasonable
because, even assuming GenCanna breached the Agreement and Proposals by rejecting them in
bankruptcy, LDC made no effort at trial to establish its damages in accordance with the Uniform
Commercial Code. See Ky. REV. STAT. § 355.2-708. Instead, LDC relied on arithmetic to
establish the $645,831 claim for the balance due on the Agreement.
Therefore, the LDC claim is disallowed.
IV. Conclusion
The foregoing constitutes findings of fact and conclusions of law in accordance with
Federal Rule of Bankruptcy Procedure 7052. In reaching these findings and conclusions,
consideration was given to all the parties’ stipulations, evidence, and the arguments of counsel,
regardless of whether they are referred to specifically herein. A separate Judgment consistent
herewith shall be entered.

17

The affixing of this Court's electronic seal below is proof this document has been signed by the Judge and □
electronically entered by the Clerk in the official record of this case.

Signed By:
LAX Pe Gregory R. Schaaf
Sm Mi Bankruptcy Judge
Bi alll Dated: Thursday, March 31, 2022

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10457898. Public record. Not legal advice.