Glasgow Daily Times, Glasgow, KY

Local News

November 5, 2011

Eastern suits moved to federal court

GLASGOW — As dozens of farmers who lost money to Eastern Livestock continue to fight their battle in court against the bank they deem responsible, two of the cases have been remanded to federal court, where potentially sympathetic locals will have less opportunity to impact the cases.

Jimmy Hendrick, et al., vs. Fifth Third Bank and Marcia Cloyd, et al., vs. Fifth Third Bank were the first two civil cases filed by farmers impacted in the Eastern Livestock bankruptcy scandal of 2010. The cases were filed in September against Fifth Third Bank, the bank who canceled Eastern Livestock’s credit line and caused the livestock company’s checks to bounce, in Metcalfe Circuit Court, located in the same county as the livestock market at which the plaintiffs sold cattle to Eastern Livestock. On Oct. 24, Fifth Third Bank filed a notice of removal for the two cases to be remanded to United States District Court, Western District of Kentucky.

The plaintiffs, all represented by attorney Thomas Davis of Glasgow, allege in the civil cases that Fifth Third Bank, when it discovered a check kiting scheme by its client, Eastern Livestock, acted reprehensibly and showed indifference or a reckless disregard to the health, safety and legal interests of the plaintiffs by canceling Eastern Livestock’s line of credit and failing to honor its checks without giving timely notice to the farmers. Farmers across Kentucky and Tennessee lost about $900,000 in one day at the Edmonton Livestock Market on Nov. 2, 2010, along with thousands more dollars in the weeks preceding that market. While the farmers, banks and other creditors are also wrapped up in a federal bankruptcy case with Eastern Livestock and its owner, Thomas P. Gibson, some local farmers have chosen to file civil cases and seek compensation from Fifth Third, which they believe could have honored their checks despite Eastern Livestock’s solvency or lack thereof. The actions further accuse Fifth Third of purposely choosing not to give notice as part of a planned effort to “minimize and reduce” its deficiency loss and acquire a first lien on the livestock. The bank’s notice of removal accuses the plaintiffs of simply trying to skirt bankruptcy law.

“The present lawsuit is merely plaintiffs’ attempt to make an end run around the priority scheme established under federal bankruptcy law,” court documents said.

Fifth Third’s primary grounds for removing the cases to federal court are bankruptcy jurisdiction, diversity jurisdiction and supplemental jurisdiction.

Under the argument that the cases fall under federal court due to bankruptcy jurisdiction, Fifth Third argues that the cases are core bankruptcy proceedings, because the allegations would not exist without the Eastern Livestock bankruptcy. The plaintiffs’ claims could conceivably have an effect on the bankruptcy case, in which case the bank argues that if the farmers receive money from Fifth Third, then what they may possibly receive from Eastern Livestock would be changed.

“It is axiomatic (unquestionable) that a plaintiff cannot receive a double recovery for the same injury ... and, accordingly, any recovery by plaintiffs for the value of their livestock in this action, would reduce or extinguish their claims for the value of their livestock against the bankruptcy estate,” the documents said.

Along with affecting how much the farmers might get from Eastern Livestock in the bankruptcy proceeding, the cases against Fifth Third may also affect how much money Fifth Third could be owed by Eastern, because if they were to lose money in a case related to Eastern Livestock, an indemnification clause could result in Fifth Third recouping its losses through Eastern Livestock.

Fifth Third’s final reason for remanding the case under jurisdictional is judicial economy, or the most efficient use of judicial resources.

“This action and the Eastern Livestock bankruptcy proceeding share common parties, common facts, and common issues,” the documents said. “Plaintiffs have alleged virtually identical claims against the Eastern Livestock bankruptcy estate and Fifth Third. This action presents the same factual and legal questions that will be determined in the Eastern Livestock bankruptcy proceedings, and the outcome of this case will have numerous effects upon the bankruptcy estate. Allowing this action to proceed in state court would be a waste of judicial resources and would unduly delay the administration of the bankruptcy case.”

Diversity jurisdiction in the cases means that the cases have a diversity of citizenship that encompasses residents of Kentucky and Tennessee as plaintiffs and Fifth Third, as the defendant, is a Cincinnati-based bank. The fact that the plaintiffs are claiming amounts underneath federal jurisdiction has no bearing, argues Fifth Third, because of the ambiguity of the request for compensatory damages, punitive damages and “all other proper relief” leaves room for the money in question to far exceed state level jurisdiction. A nine to one punitive to compensatory damages ratio, which is average, according to Fifth Third’s notice of removal, would place several of the plaintiffs over $200,000 in claims.

When the amount in controversy requirement is met with one or more of the plaintiffs, the federal court has jurisdiction over all the plaintiffs, falling under supplemental jurisdiction, the court documents said.

Now that the cases have been remanded to federal court, Metcalfe Circuit Court will no longer have anything to do with the cases, unless they are removed back to state court. Davis was unavailable for comment by press time.

Along with the original two civil cases filed against Fifth Third, Davis has filed four more cases in Metcalfe Circuit Court on behalf of 16 Kentucky and Tennessee farmers. Some received bad checks from Eastern Livestock at the Nov. 2, 2010, market, while others sold their livestock in the months leading up to Eastern Livestock’s bankruptcy. The four current cases will remain in Metcalfe Circuit Court unless they are also remanded to federal court.

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