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Giese v. Lexington Coal Company (In re HNRC Dissolution Co.)

Case Type:
Case Status:
16-8013 (6th Circuit, Jun 01,2018) Published
On de novo review, the BAP affirmed the Bankruptcy Court's decision to hear, and to dismiss, all seven (7) counts of the State Action. The BAP agreed that a "proceeding" under 28 U.S.C. 1334(c) includes the entire case, not each discrete claim within that case, and that the Bankruptcy Court had jurisdiction to hear 2 arguably non-core claims when already hearing 5 core claims based on the same facts between the same parties. The BAP also agreed that the sale and confirmation orders barred Giese's claims. Giese was in privity with the parties who could have timely objected to the sale.
Procedural context:
ICG and the Bank removed the State Action to District Court in 2014. Giese claimed that the District Court was required to abstain from hearing the State Action, which the District Court declined to do. The District Court referred the State Action to the Bankruptcy Court. The Bankruptcy Court held that it had "arising in" jurisdiction and found that the Sale Order, the Confirmation Order, and the Disbursal Order were res judicata as to ownership of the Royalties, and dismissed the AP. Giese appeals both the abstention ruling and the dismissal.
Prepetition, Leslie Resources, one of HNRC's affiliate debtors (collectively, "Debtors"), paid $316,358.00 of mining royalties ("Royalties") into an escrow account at Community Trust Bank ("Bank") for the benefit of someone called E. Begley and Begley's heirs and successors. Debtors filed for Bankruptcy in 2002 and scheduled the Royalties among the estate assets. Debtors then sold substantially all of their assets to Lexington Coal Company ("LCC") through a 363 auction sale (the "363 Sale") without objection. Debtors provided notice of the 363 Sale to all creditors, parties-in-interest, and other parties to related contracts and leases including the heirs of E. Begley. The sale notice was also published in the Wall Street Journal and at least five other trade and regional newspapers. No one objected to the Debtors' Sale of all assets expressly including, among other things, the Debtors' "cash and cash equivalents" (collectively, the "Assets") to LCC and ICG free and clear of all interests and claims against or related to the Assets. No one objected to confirmation of the liquidating Plan that incorporated and approved the Sale. Because the Sale Order did not include a list of bank accounts purchased by LCC and ICG, Bank interpleaded the Royalties into an adversary proceeding ("AP") against ICG, LCC, and E. Begley and Begley's heirs. Unable to locate E. Begley or his heirs, the Bankruptcy Court granted leave for the Bank to serve E. Begley by publication. Only LCC and ICG answered. After ICG and LCC reached and agreement to split the Royalties, the Bankruptcy Court entered an order distributing the Royalties to ICG and LCC pursuant to that agreement in 2006 (the "Disbursal Order"). Giese bought the real estate from which the Royalties were derived in 2009. Five (5) years later in 2014, Giese sued the Bank, ICG and LCC in Kentucky state court (the "State Action") asserting (1) Collection of Royalties, (2) Conversion, (3) Breach of Fiduciary Duty, (4) Negligence, (5) Fraudulent and Negligent Misrepresentation, (6) Breach of Contract, and (7) Unjust Enrichment. Giese argued that the case neither arose under Title 11 nor arose in the bankruptcy case. The Bankruptcy Court disagreed, and held that the causes of action arose in the Bankruptcy Case because Giese seeks title to the Royalties, the ownership of which the Bankruptcy Court "already adjudicated at lease once, if not twice." ICG and LCC moved to dismiss the case, asserting that the Sale Order fully and finally disposed of any and all issues and interests regarding the Royalties. Equating the State Action claims as a collateral attack on the Sale Order, the Confirmation Order and the Disbursal Order. Bankruptcy Court granted the motion to dismiss, holding that Giese's claims could and should have been brought, if ever, by his predecessor in interest, with whom he was in privity.
Harrison, Opperman, and Preston

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