The opinion
UNITED STATES BANKRUPTCY COURT
FOR THE
WESTERN DISTRICT OF KENTUCKY
IN RE: )
)
BULLITT UTILITIES, INC. ) CASE NO. 15-34000(1)(7)
)
Debtor(s) )
)
ROBERT W. KEATS, as the ) AP NO. 17-3070
Chapter 7 Trustee )
)
Plaintiff(s) —)
)
Vv. )
)
CARROLL F. COGAN, et al. )
)
Defendant(s) _)
MEMORANDUM-OPINION
This matter is before the Court on the Motion for Summary Judgment of Defendant Martin
G. Cogan (“MC”), in his individual capacity. The Court considered MC’s Motion for Summary
Judgment, the Response of Robert W. Keats, as the Chapter 7 Trustee (“Trustee”) for the bankruptcy
estate of Bullitt Utilities, Inc. (“BU”) to MC’s Motion for Summary Judgment, the Reply of MC to
the Response of the Trustee and comments of counsel for the parties at the hearing held on the
matter. For the following reasons, the Court will grant MC’s Motion for Summary Judgment.
PROCEDURAL AND FACTUAL BACKGROUND
In 1976, BU, a Kentucky corporation, owned and operated wastewater treatment plants in
Bullitt County, Kentucky, including a facility that provided wastewater treatment services to the
residents of Hunters Hollow Residential Development.
The Bullitt County Sanitation District (““BCSD”) provides sewer services to the citizens of
Bullitt County, Kentucky. The BU wastewater treatment system was completely surrounded by the
BCSD.
Carroll Cogan, MC’s father, was the sole shareholder of BU. He also served as President
and as a Director of BU until his death on September 7, 2017.
Doris Cogan, MC’s mother, served as Secretary and as a Director of BU until her resignation
in July 2015.
In the 2011 Annual Report of BU filed with the Kentucky Secretary of State, MC was listed
as the Vice-President of BU, but his name was removed from the Annual Report in an Amended
2011 Annual Report filed on November 7, 2011. MC has not been listed in any subsequent annual
reports, nor are there any corporate records, including minutes of shareholders’ meetings bearing
his signature as having participated as an officer or director of BU since 2011.
MC has never been paid or compensated as a Director of BU, never loaned money to BU and
at all times relevant to the Complaint, did not attend or participate in any meetings of the Directors
or Shareholders of BU.
On March 29, 2014, the BU Wastewater Treatment Plant at Hunters Hollow suffered a
catastrophic failure, which resulted in 250,000 gallons of raw and untreated sewage wastewater
being discharged into a public waterway in and around Hunters Hollow, Kentucky. There is no
dispute that the failure was caused by a structural defect, not lack of maintenance by BU. (See
Report of Chris Crumpton attached as Exhibit 2 to MC’s Motion for Summary Judgment.)
Following this event, BU retained 25 different companies and individuals to respond to the failure
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over the next 18 months. BU incurred costs of approximately $3.4 million while only paying out
approximately $700,000 on those claims.
On July 17, 2014, BU petitioned the Public Service Commission (“PSC”) to approve a
surcharge of BU’s customers above the current rate paid for wastewater treatment services. The
purpose of the surcharge was to alleviate the increasing expenses of responding to the wastewater
treatment plant’s failure.
On August 21, 2015, BU applied to the PSC to abandon the Hunters Hollow Wastewater
Treatment Plant because it could not pay its creditors or borrow additional funds.
On August 31, 2015, the PSC authorized the abandonment of BU’s assets necessary to
provide wastewater treatment services and filed an action in which the Bullitt County Sanitation
District (“BCSD”) was appointed the Receiver for BU. After appointment of BCSD as the
Receiver, the PSC dismissed BU from the surcharge proceeding. BCSD then requested dismissal
of the surcharge case and on December 15, 2015 it was dismissed.
On December 18, 2015, BU’s two largest creditors, Perdue Environmental Contracting
Company, Inc. (“PECCO”) and Veolia Water Solutions and Technologies, North America, Inc.
(“Veolia”) filed an Involuntary Chapter 7 Petition against BU.
On December 29, 2015, the Trustee was appointed as the Interim Trustee of BU in the
bankruptcy proceeding.
On December 1, 2017, the Trustee filed a Complaint in Adversary Proceeding Case No. 17-
03072 against BCSD for breach of contract and breach of fiduciary duties owed to BU and its
creditors. Following a trial on all claims in the adversary proceeding, on April 30, 2019 this Court
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entered Judgment in favor of BU and against BCSD on all claims of its Complaint in the amount of
$2,789,436.23.
On November 22, 2017, the Trustee instituted this adversary proceeding against Defendant
Carroll F. Cogan, Doris M. Cogan, MC, Christopher Cogan, Lawrence Smither, Covered Bridge
Utilities, Inc., Camden Environmental Services Co., Inc., CFA Sunnyview, LLC and Tigers and
Rockets, LLC.!
This Memorandum-Opinion addresses only MC’s Motion for Summary Judgment in his
individual capacity. In the Complaint, the Trustee asserts that MC was a Director of BU, an insider
of BU and a relative of officers and directors of BU under 11 U.S.C. § 101(32). The Trustee also
asserts MC is one of nine members of Defendant Sunnyview, which is a beneficiary of a $145,500
Promissory Note.
Count I of the Complaint asserts a claim against MC alleging that MC with other Defendants,
was a Director of BU and breached his fiduciary duties to act in the best interest of the corporation
and its creditors to preserve and enhance the corporate value of BU.
In Count II, the Trustee asserts that MC and other Defendants, as Directors are liable for the
debts of BU. The Trustee asserts that based on MC’s actions as a Director, the Trustee is entitled
to pierce the corporate veil to impose liability on the individual defendants.
All claims in the Complaint asserted against MC are based on two theories. The first is that
MC was a Director of BU and as such he owed fiduciary duties to BU and its creditors. The second
'Defendants Lawrence Smither, Covered Bridge Utilities, Inc. and Camden
Environmental Services Co., Inc. were dismissed pursuant to a Joint Motion to Dismiss and
Order entered October 17, 2019.
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is that MC is liable as an insider under 11 U.S.C. § 101(31) of the United States Bankruptcy Code.
Neither theory can succeed based upon the law and the undisputed facts of this case.
LEGAL ANALYSIS
MC seeks an Order granting summary judgment in his favor on all claims asserted against
him in the Complaint under Fed. R. Civ. P. 56(c), made applicable to adversary proceedings through
Bankr. R. Civ. P. 7056. Under that Rule, the Court must grant summary judgment to the moving
party if the movant shows that there is no genuine issue as to any material fact and the movant is
entitled to judgment as a matter of law. The movant must demonstrate to the Court that the non-
movant’s evidence is insufficient to establish an essential element of the non-movant’s claim.
Celotex Corp. v. Catrett, 477 U.S. 317 (1986). Thereafter, the non-movant “must come forward
with ‘specific facts showing there is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986), quoting Fed. R. Civ. P. 56(e). Where the record taken as
a whole could not lead a rational fact finder to rule for the non-movant, there is no genuine issue for
trial. Jd. Here, MC has established that there is insufficient evidence to establish essential elements
of the Trustee’s claims against MC entitling him to summary judgment as a matter of law and the
Trustee has failed to come forward with specific facts showing there is a genuine issue for trial.
I. Insufficient Evidence Exists to Establish a Claim that MC was an Officer and/or
Director of BU and Therefore Owed a Fiduciary Duty to BU and its Creditors.
The Trustee asserts that MC is liable to BU and its creditors based on breach of his fiduciary
duties as a Director of BU. In order to establish a claim for breach of fiduciary duty the Trustee
must show (1) defendant owed plaintiff a fiduciary duty; (2) defendant breached that duty; and (3)
plaintiff suffered damages as a result of the breach. HNRC Dissolution Co. v. Community Trust
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Bank (In re HNRC Dissolution Co.), 549 B.R. 469, 483 (Bankr. E.D. Ky. 2016). Initially, in Count
I, the Trustee asserts that MC owed a fiduciary duty to BU and its creditors based on his capacity
as a Director of BU.
The proof set forth by MC in his Motion for Summary Judgment establishes that the claims
asserted in the Complaint are based on actions taken after the failure of the wastewater treatment
plant in March of 2014. The documents of record establish that MC was a Director and listed as
Vice President in BU’s 2011 Annual Report filed with the Kentucky Secretary of State. However,
MC’s name was removed as a Vice President and Director in an Amended 2011 Annual Report filed
with the Kentucky Secretary of State on November 7, 2011. The evidence of record demonstrates
that MC was never compensated as a Director of BU, nor did he ever invest in BU or loan money
to BU. Furthermore, there is no evidence relevant to the time frame for the claims asserted in the
Complaint that MC attended or participated in any Director or Shareholder meetings of BU.
In its own Motion for Summary Judgment, the Trustee asserts that the Defendants, including
MC, owed the creditors of BU a duty to act with diligence and in good faith. The Trustee cites to
Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189 (Ky. 2013), in
support of the claim that officers and directors of corporations in Kentucky have both statutory and
common law duties (see p. 18 of Trustee’s Motion for Summary Judgment, Dkt. 59). The record
simply does not support the Trustee’s claims that MC was an officer or director of BU at all relevant
times set forth in the Complaint. The Trustee’s deposition testimony set forth in MC’s Motion for
Summary Judgment establishes that the Trustee lacks the evidence to support these claims. See pp.
19-22 of Memorandum in Support of MC’s Motion for Summary Judgment.
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In the course of discovery in this case, the Trustee requested the corporate records of BU for
the time period of 2009 to the present. The wastewater treatment plant failure occurred in 2014.
The Minutes of the corporation that were filed as Exhibits to the Motions do not establish that MC
was a Director.
The only document the Trustee has in support of its claim that MC was an officer and
director of BU at the relevant times listed in the Complaint is the August 26, 2015 Minutes of BU
which states as follows:
The resignation of Doris M. Cogan and Martin Cogan from the Board of Directors
of Bullitt Utilities, Inc., and any other positions they may have held with Bullitt
Utilities, Inc. was discussed. On motion duly made, seconded and unanimously
carried, the following resolutions were adopted.
RESOLVED, that the resignations of Doris M. Cogan and Martin
Cogan from their positions as members of the Board of Directors of
Bullitt Utilities, Inc. and any other positions they may have held with
Bullitt Utilities, Inc. were accepted as written.
There being no further business to come before the meeting, the same was adjourned
by unanimous consent.
See Exhibit B to Trustee’s Response to the Motion for Summary Judgment.
The Trustee contends that this document alone supports their claim that a material issue of
fact exists as to whether MC was a Director of BU. The document itself was signed by “Carroll F.
Cogan, by Christopher C. Cogan, Attorney-in-Fact for Carroll F. Cogan.” There is no evidence that
Martin Cogan attended this meeting, much less in the capacity as an officer or director.” More
compelling, is the fact that there is no evidence of any actions taken by MC as a Director or Officer
*In his Reply, MC contends that at any trial of this matter, this document is hearsay under
KRE 803(6) and KRE 901 and is inadmissible. The Court declines to preliminary rule on this
issue as it is not necessary for resolution of the Summary Judgment Motion.
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of BU that either benefitted him personally or resulted in any detriment to BU or its creditors. Thus,
even if the Trustee could prove that MC was a Director or Officer of BU at all times relevant to the
Complaint, there is no evidence of any breach of any fiduciary duty by MC.
The Trustee had the burden of demonstrating probative evidence of the following: (1) MC’s
status as an officer and/or director of BU; and (2) that he breached his fiduciary duties to act in the
best interest of the corporation and its creditors. The Trustee failed to provide sufficient evidence
of a genuine issue of material fact indicating that either MC was an officer and/or director or that
even if he was an officer and/or director, that he breached his fiduciary duties. Thus, MC is entitled
to summary judgment on this claim.
Il. Insufficient Evidence Exists to Establish Any Legal Justification for Piercing the
Corporate Veil of BU.
Kentucky courts view veil piercing as an equitable remedy that allows a court to impose
personal liability on otherwise immune corporate officers, directors and shareholders for the
corporation’s wrongful acts. Howland v. Beads and Steeds Inns, LLC (In re Howland), 516 B.R.
163, 167 (Bankr. E.D. Ky. 2014). It is an equitable remedy, not a separate cause of action. □□□□
citing Daniels v. CDB Bell, LLC, 300 S.W.3d 204, 211 (Ky. App. 2009). Regardless, there is no
evidence to support any claim of liability against MC set forth in the Complaint on this basis.
The Trustee relies on Intel Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d
152, 165 (Ky. 2012). In that case, the Kentucky Supreme Court explained the doctrine of piercing
the corporate veil as follows:
The Kentucky trial court may proceed under the traditional alter ego formulation or
the instrumentality theory because the tests are essentially interchangeable. Each
resolves to two dispositive elements: (1) domination of the corporation resulting in
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a loss of corporate separateness and (2) circumstances under which continued
recognition of the corporation would sanction fraud or promote injustice.
InTel Technologies, 360 S.W.3d at 165.
Given the absence of evidence to support a claim that MC was a Director or Officer of BU
during the relevant time period asserted in the Complaint, the Trustee must establish that MC’s
relationship as a relative of officers and directors of BU meets the requirements of an insider under
11 U.S.C. § 101(31). While the evidence supports that MC could be defined as an “insider”, there
clearly is no evidence to support a claim of veil piercing against MC. There is no evidence that MC
was a shareholder or officer, undertook any actions on behalf of BU, much less controlled the
corporation, was paid by the corporation or in any way benefitted from BU after its insolvency.
The Court sees no basis for the Trustee’s assertion that MC’s actions or inactions were
detrimental to the creditors of BU. The Trustee refers to pp. 21-22 of its own Motion for Summary
Judgment against the Defendants, DKT 59, in support of its claims. Again, these allegations are
premised on MC’s status as a director or officer of BU and the statutory and common law duties
flowing from those positions. The evidence of record, however, does not support a finding that MC
was a director or officer at all times relevant to the Complaint. The Trustee’s reliance on the August
26, 2015 Minutes accepting MC’s resignation does not prove this either, particularly in light of the
paucity of evidence indicating MC’s actions in any way benefitted himself in any way or resulted
in a detriment to any creditor.
MC is an environmental engineer and holds a master’s degree in engineering from the
University of Louisville Speed School of Engineering. He acknowledged that he did, on occasion
assist his father and gave advice on environmental issues. Nothing in the record, however,
demonstrates or even suggests that these occasional actions were ever in the capacity as an officer
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or director of BU or resulted in some kind of benefit, monetary or otherwise, to himself. There is
nothing before the Court that would indicate any continued recognition of the corporate form would
sanction fraud or promote any injustice in this case based on any actions of MC. For these reasons,
summary judgment in favor of MC on Count II of the Complaint 1s appropriate.
CONCLUSION
For all of the above reasons, the Court will GRANT the Motion of Martin Cogan for
summary judgment against all claims asserted against him by the Trustee Robert W. Keats, as the
Chapter 7 Trustee of Bullitt Utilities, Inc.
Joah A. Lloyd
nited States Bankruptcy Judge
Dated: January 10, 2020
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UNITED STATES BANKRUPTCY COURT
FOR THE
WESTERN DISTRICT OF KENTUCKY
IN RE: )
)
BULLITT UTILITIES, INC. ) CASE NO. 15-34000(1)(7)
)
Debtor(s) )
)
ROBERT W. KEATS, as the ) AP NO. 17-3070
Chapter 7 Trustee )
)
Plaintiff(s) —)
)
Vv. )
)
CARROLL F. COGAN, et al. )
)
Defendant(s) _)
ORDER
This matter having come before the Court on the Motion for Summary Judgment of
Defendant Martin G. Cogan, in his individual capacity, as to all claims asserted against him in the
Complaint filed by Plaintiff Robert W. Keats, as the Chapter 7 Trustee of Bullitt Utilities, Inc., be
and hereby is, GRANTED. There are no genuine issues of material fact and Defendant Martin G.
Cogan is entitled to summary judgment as a matter of law.
Jgah A. Lloyd
nited States Bankruptcy Judge
Dated: January 10, 2020