I think Paul saw an opportunity to grow his business in a big way and overlooked the myriad of warning signs. It is true that at that point Kevin appeared to be on the up and up, as most folks were drinking the koolaid, but putting you whole business on the line requires a higher level of due diligence then putting money down on a Predator machine. Paul seemed to claim he had done that due diligence, but it certainly appears that was not the case.
As it said in the doc, Kevin told him he wanted 10 per day, and thus the reason Paul was growing to meet that demand (which then was lowered). The plan was for Kevin to set up shop in the same complex so the cabinets could easily be moved between facilities. It also said that Paul did require a deposit and then additonal payments and he did indeed spend some, if not a large chunk, of that money. His lawyer obviously hit hard on it was more than two years before the bankruptcy, so therefore was not tied to some movement of funds to hide it from bankruptcy.
To believe Kevin was ever going to 10 a day is somewhat laughable. Even if he could, why would he? and why would Paul go along with that? Assuming that could occur is a pretty risky thing and did he really think Kevin was going to gear up to that volume and be done in 5 weeks? Then want, you have this huge overhead and no work to do. Even with the announcement of EoD, there is just nothing there that makes you see a 10 per day need on any sustainable level. Heck, two cabinets a day, which he likely could have already done with his current setup, would have likely gotten it done.
As we have seen with JJP and Heighway, attempting to go real big fast, when there is more you don't know about the business then you do know, is a recipe for disaster. Just hard as a business guy to see how this huge expansion could have made sense for virtuapin.
I can understand why Paul feels he owes no money back, he took that money in good faith and spent that money accordingly (or so he claims). Of course, that assumes that what he is saying is truthful and he can show it was not a move to make illegal transfers. What is interesting is that while the counter claim has pages of Pinside posts, I don't recall seeing paper work on the contract with Kevin or invoices/receipts for delivery of product to Kevin, although there was talk of the receipts and payments for the CNC.
I am no lawyer, so I have no clue relative to what rights the estate has to money paid, well before bankruptcy, to a vendor. Although I would assume that unless he can show a contract with terms indicating these payments were non-refundable (which would not be unheard of in a situation requiring a business to buy equipment, expand, etc., and I have been involved in deals that have done that), then not sure he has a valid claim against refunding money paid to him for cabinets not delivered.
Obviously Paul is not helping his position in the community with what he is doing, but I get that he is trying to save his business. However, it appear that he may be doing just as much damage to his business and reputation with this action, then whatever damage has been done to his reputation as a result of the action against Kevin. Again, no lawyer, but seems hard to seen how he can prove the damage to his business was a result of Keith vs him choosing to get into bed with Kevin.
While Paul did not set out to be a part of the fraud, he made poor business decisions, and that does not relieve you have responsibilities and liabilities. Paul losing on this, could certainly result in his business declaring bankruptcy, so while he can blame Kevin for part of that, the big part of that sits on his shoulders.