UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CORBIN
IN RE:
PINNACLE COAL CORPORATION CASE NO. 87-60282
DEBTOR
CHARLES KING
FLORENCE KING PLAINTIFFS
V. ADV. NO. 99-6017
ELMER KINCAID COAL CO., INC.,
et al. DEFENDANTS
MEMORANDUM OPINION
This
proceeding was referred, sua sponte,
to this court pursuant to order of April 1, 1999 by the U. S. District Court
for the Eastern District of Kentucky.
(Doc. # 7) It is now before the
court on motions of the defendants James R. Westenhoefer (hereinafter referred
to as "Westenhoefer") to dismiss the case against him (Doc. # 25) and
on motion of the defendants Elmer Kincaid, Jr., Elmer Kincaid, Jr. Trucking,
and Elmer Kincaid Coal Co., Inc. (hereinafter referred to collectively as
"Kincaid") to dismiss them as parties to the proceeding (Doc. #
31). This court has jurisdiction of the
proceeding pursuant to 28 U.S.C. § 1334; it is a core proceeding pursuant to 28
U.S.C. § 157(b)(2)(A) and (O).
By order
of this court entered July 15, 1999 the motions were scheduled for hearing on
August 19, 1999 with briefing time allowed.
(Doc. # 33) By order of August
5, 1999, also scheduled for hearing on August 19, 1999 were the plaintiffs'
motion for leave to amend their complaint for a second time and motion
objecting to the "use" of the main bankruptcy case of Pinnacle Coal
Company (hereinafter referred to as "Pinnacle Coal" or
"Pinnacle"). (Doc. # 47)
A hearing
was conducted on August 19, 1999. (See judge's minutes of hearing, Doc. #
51.) Arguments by counsel for the
defendants and by the pro se
plaintiffs were heard. At the hearing
Mr. King, speaking on behalf of the plaintiffs, stated the motion objecting to
"use" of the Pinnacle Coal main case was in fact intended as a response
to the motions to dismiss. Accordingly,
the motion should be overruled.
Further,
at the hearing Charles King stated the plaintiffs have no cause of action
against former counsel John C. Ryan and Robert E. Cato. Mr. King also stated there is no cause of
action against Elizabeth Hardy, an attorney in the office of the U. S. Trustee;
or against Ann E. Samani, counsel in this proceeding to the defendant James
Westenhoefer; or against Elmer Kincaid, Sr., deceased. Mr. King stated Clinch Mountain Trucking,
Inc. was named as a defendant because the company is an asset of the defendant
Elmer Kincaid, Jr.; there is no cause of action against Clinch Mountain
Trucking, Inc.
In
accordance with the court's ruling from the bench, an order was entered on
August 20, 1999 dismissing as defendants John Ryan and Robert Cato; Elizabeth
Hardy; Ann Samani; Elmer Kincaid, Sr.; and Clinch Mountain Trucking, Inc. (Doc. # 54)
In
addition, as the order of August 20, 1999 indicates, Charles King was dismissed
as a plaintiff herein. (Doc. # 54) The property which is the subject of this
adversary proceeding was the property of Pinnacle Coal Corporation. Charles King has never been a shareholder or
an officer of the corporation. He has
no cause of action in this proceeding.
Rule 7012(b)(6), Federal Rules of Bankruptcy Procedure
("FRBP.") Therefore,
reference hereinafter to allegations in the complaint, as amended (Doc. # 13),
will be to the "King Complaint," as the allegations of the remaining
plaintiff, Florence King.
FINDINGS
OF FACT:
The court
has studied extensively the record in this adversary proceeding which
encompasses litigation that has been ongoing for 12 years. The court has carefully considered all of
the parties' arguments presented at the hearing and in pleadings and has
reviewed the following bankruptcy cases filed in the United States Bankruptcy
Court for the Eastern District of Kentucky:
Pinnacle Coal Company, Case No. 87-60282, Florence King, Case No.
89-60564, and Charles King, Case No. 84-60081, as well as Adversary Proceeding
93-6001.
Plaintiff's Statement of the Case:
At the
hearing on August 19, 1999, the court permitted Charles King, speaking on
behalf of himself and Florence King, to address at length the background of
this proceeding and the history of the Pinnacle Coal Corporation case, the
Florence King case, as well as Adversary Proceeding No. 93-6001 ("AP
93-6001"). He was asked to
describe the claims and causes of action set forth in the King Complaint.
Mr. King
described the basis of the King cause of action against Westenhoefer as the
trustee's allegedly false affidavit of August 8, 1994 filed in AP 93-6001 (Doc.
# 88, AP 93-6001). The plaintiff
asserts that Westenhoefer's affidavit was signed to "assist" Kincaid
in purchasing Pinnacle Coal property and that this "perjury" led to
the court's decision which was "based solely" on the affidavit. The King allegations additionally include
that as a result of the sale to Kincaid, the trustee received funds he did not
earn, presumably trustee commission.
The King
Complaint also asserts that Westenhoefer was not trustee of the bankruptcy
estate of Pinnacle Coal at the time of the adversary proceeding and resultant
conveyance of property to Kincaid.
However, the record shows an order was entered on February 5, 1993,
prior to the filing of the adversary complaint by Kincaid, which set aside the
order
dismissing the bankruptcy case of Pinnacle
Coal. (Doc. # 17, Pinnacle Coal case)
At the
hearing Mr. King also stated the basis in this adversary proceeding for the
action against Kincaid. The King
Complaint alleges the filing of false affidavits by Elmer Kincaid Jr.
("EKJr.") in 1997 with the Kentucky Department for Surface Mining
Reclamation and Enforcement ("Kentucky Reclamation Department") and
the Commonwealth of Kentucky Secretary of State. The King Complaint asserts EKJr. stated he was President and
agent of Pinnacle Coal in applying for renewal of, and obtaining, the
(grandfathered-in) mining permit of Pinnacle Coal from the Kentucky Reclamation
Department. The King Complaint is that
EKJr. through a similar false affidavit filed with the Secretary of State was
able to reinstate the corporate charter of Pinnacle Coal. Thus, the King Complaint argues, EKJr.
"stole the Charter and Permit" of Pinnacle; the property of Pinnacle
Coal was transferred to Kincaid, specifically Elmer Kincaid Coal Co., Inc.,
(Doc # 33, Pinnacle Coal case) by the trustee in bankruptcy but not the stock
certificates or mining permit which EKJr. acquired through the filing of false
affidavits.
Additionally,
the King Complaint alleges nonpayment of royalties due under the terms of a
lease agreement dated October 4, 1990.
Judge Coffman's Statement of the Case:
District
Court Judge Jennifer S. Coffman adeptly set out in her Memorandum of Opinion
dated April 1, 1999 (Doc. # 7) what she perceived to be the basis of the King
Complaint. First is complaint of fraud
on the Kings and on the court by Kincaid and by the trustee. The alleged fraud by Westenhoefer is alleged
fraud by the defendant as trustee of the Pinnacle Coal chapter 7 case, Case No.
87-60282, and as trustee of Florence King's chapter 7 case, Case No.
89-60564. The King Complaint alleges
this fraud by the trustee resulted in fraud upon the court in the Pinnacle Coal
case and in Adversary Proceeding 93-6001, an adversary proceeding brought by
Elmer Kincaid, Jr. and others against Pinnacle Coal and by amended complaint
against Florence King, majority shareholder in Pinnacle.
The second
complaint in the King Complaint as viewed by Judge Coffman, breach of contract
by Kincaid, is breach under the lease agreement of October 4, 1990 and a
sale/"loan" agreement dated August 1, 1991. The third, allegation of breach of duty, whether brought against
the trustee or Kincaid, appears to be subsumed in the other two.
Adversary Proceeding 93-6001:
In AP
93-6001 the bankruptcy court determined Elmer Kincaid Coal Co., Inc. had
"a substantial equity position" in property which was property of the
bankruptcy estate of Pinnacle Coal, namely, payment on February 19, 1991 of
$163,500 by Elmer Kincaid Trucking into the bankruptcy estate of Pinnacle
Coal. Findings of Fact, Conclusions of
Law and Judgment, 10/19/94 (Doc. # 106, AP 93-6001). Ultimately, and undoubtedly as result of the court's findings in
the adversary proceeding, the property was conveyed to Elmer Kincaid Coal Co.
in the Pinnacle Coal bankruptcy case.
Order, 3/1/95 (Doc. # 33, Pinnacle Coal case.)
Pinnacle
Coal and Florence King countered in the adversary proceeding that Kincaid had
agreed first to lease the property and then to loan Pinnacle Coal money in
order for it to purchase the property.
Answer and Counterclaim of Pinnacle (Doc. # 6, AP 93-6001; Answer and
Counterclaim of Pinnacle and Florence King to Amended Complaint (Doc. # 50, AP
93-6001). The court found that the
trustee, not Pinnacle Coal or Florence King, had standing to bring the
counterclaims. The counterclaims brought
by Pinnacle Coal and Florence King were dismissed, and the trustee was given time
to intervene, if decision was made to assert the claims raised or if questions
arose concerning disposition of estate property. (Doc. # 106, AP 93-6001)
The trustee, Westenhoefer, did not intervene, and the adversary
proceeding was closed. Order of 8/9/95 (Doc. # 113, AP 93-6001). As stated, the King Complaint alleges there
has been a fraud upon the court by Westenhoefer and Kincaid.
The
trustee has moved in this adversary proceeding for dismissal of the
complaint. One basis for his motion is
pursuant to FRBP 9024 since the complaint was filed some three years after AP
93-6001 was closed. Order closing (Doc.
# 113, AP 93-6001); Complaint (Doc. # 1, AP 99-6017). However, Rule 9024 incorporates Rule 60(b) of the Federal Rules
of Civil Procedure which states, in part, that the rule does not limit the
power of a court "to set aside a judgment for fraud upon the
court." Thus, dismissal under FRBP
9024 is not available.
CONCLUSIONS OF LAW:
Construing
the facts most favorably to the nonmovant Florence King, Scheuer v. Rhodes, 94 S.Ct. 1683, 1686 (1974), and viewing the
complaint-- specifically, the three versions of the complaint: the initiating
complaint filed in District Court (Doc. # 1), the (first) Amended Complaint
(Doc. # 13), and including the offered (second) Amended Complaint (Doc. # 44)--
and viewing the other pleadings by Florence King as having been filed pro se, Malone v. Colyer, 710 F.2d 258 (6th Cir. 1983), the
court finds that for the following reasons the King Complaint must be dismissed
for failure to state a claim upon which relief can be granted. FRBP 7012(b)(6).
Complaint Against the Trustee:
The King
Complaint against the trustee will be addressed first since those allegations
encompass the allegations against Kincaid.
Florence King
asserts in this adversary proceeding, as has been done for years on various
occasions, that Pinnacle Coal was to purchase the property in question by way
of a lease and the subsequent Agreement with Elmer Kincaid Coal Co., Inc., that
in fact the money paid by Elmer Kincaid, Jr. Trucking into the Pinnacle Coal
bankruptcy estate was a loan to Pinnacle in order for it to purchase the
property. She alleges the chapter 7
trustee, Westenhoefer, committed fraud in representing to the court, by way of
a false affidavit provided to the court in the adversary proceeding brought
by Kincaid, that Westenhoefer did not
know about the lease arrangement or about the "loan." She further asserts that the trustee's fraud
upon the court (and suggested breach of fiduciary duty to Pinnacle Coal and
Florence King) resulted in the court's conclusion in its Findings of Fact,
Conclusions of Law and Judgment entered on October 19, 1994. (Doc. # 106, AP 93-6001). It should be reiterated that Westenhoefer
was not a party to AP 93-6001.
To state
the King Complaint another way, it alleges that but for the
"false" statement of the trustee, his affidavit presented to the
court in AP 93-6001 that he was not aware of the lease between Kincaid and
Pinnacle Coal entered into on October 4, 1990 and "loan" agreement of
August 1, 1991, the court would not have concluded as it did that Elmer Kincaid
Coal Co., Inc. had "a substantial equity position" in the
property. Florence King asserts the
subsequent transfer of Pinnacle Coal property to Kincaid would not have
occurred if the court had been aware of Westenhoefer's knowledge of the
agreements. This court disagrees.
It is the
conclusion of this court that even if the trustee's affidavit, and
therefore his testimony, were false, which the court sincerely doubts but
which is not the basis for this decision, Lawler v. Marshall, 898 F.2d 1196, 1199 (6th Cir. 1990),
the decision rendered by Judge William S. Howard in AP 93-6001 was based on many
facts not the least of which was proof that Pinnacle Coal, through its
representative Florence King, and Kincaid entered into a contract for sale of
Pinnacle Coal property, a sale of estate property, during the pendency of the
chapter 7 case without the required approval of the bankruptcy
court. 11 U.S.C. § 541.
As stated by Judge Howard at an August 15,
1994 hearing, a court speaks through its record. Transcript of 8/14/94 hearing, p. 26 (Doc. # 107, AP
93-6001). No order was entered
approving the lease with Kincaid of property belonging to the bankruptcy estate
of Pinnacle Coal. No order was entered
approving loan of money to Pinnacle Coal or sale of property by Pinnacle
Coal. It is important to note that the
sale/ "loan" agreement includes as Paragraph 9 the language
"This agreement superceeds (sic) all agreements, leases, etc. prior to
this date." The effect of this
language is to cancel the lease agreement upon the signing of the sale/
"loan" agreement. (For a copy
of the Lease Agreement and subsequent Agreement, see exhibits attached to memorandum
of defendant Kincaid in support of motion to dismiss, Doc. # 49, AP 99-6017.)
The fact
that Pinnacle Coal/ Florence King entered into these agreements not only was
not controverted by Pinnacle Coal or Florence King, individually and as
Pinnacle's representative, but was supported by Pinnacle Coal and Florence King
in documents offered for trial. The
agreements are attached as exhibits to the Trial Brief hand-delivered by
counsel for Florence King and Pinnacle Coal on August 15, 1994. (Doc. # 96, AP 93-6001) Both agreements are referenced in Joint
Stipulations filed August 15, 1994.
(Doc. # 94, AP 93-6001) The
agreements, the lease as well as the later agreement whether viewed as a sale
contract or a loan agreement, were the result of action taken by a bankrupt
entity through its unauthorized representative without authority of the court
during the pendency of a chapter 7 bankruptcy case. Further, the agreements were entered into by the major
shareholder of the bankrupt company who herself was debtor in a chapter 7
bankruptcy case, in the same court, with the same trustee, and before the same
judge. See Federal Rule of Bankruptcy Procedure 4002, "Duties of
Debtor."
Florence
King cannot be excused for not knowing the duties of a debtor under the
Bankruptcy Code when she herself was at that same time a debtor in a chapter 7
case. In addition, she and Pinnacle
Coal were represented by various counsel through the years. Florence King was represented by counsel
through out the pendency of her chapter 7 case-- first by Henry S. Johnson and
then by J. Randall Reinhardt. (See Doc. # 7, Florence King case.) Likewise, Pinnacle Coal was first
represented by Attorney Johnson who was replaced by Attorney Reinhardt. (Doc. # 40, Pinnacle Coal case) In Adversary Proceeding 93-6001 Pinnacle
Coal was represented by John C. Ryan who was replaced by Robert E. Cato. Cato represented both Pinnacle and Florence
King in the proceeding. (Doc. # 49, AP
93-6001) Neither Mrs. King nor Pinnacle
Coal is relieved of knowledge and responsibility of a debtor in a chapter 7
case because Mrs. King disagrees with the results reached during representation
by counsel of the two debtors.
Certainly Pinnacle Coal Corporation and Florence King have had numerous
opportunities and often have utilized those opportunities to protest the
directions their bankruptcy cases were taking, protesting both with and without
counsel.
Further,
neither Pinnacle Coal nor Florence King is relieved of knowledge and
responsibility of a debtor in a chapter 7 case because their cases began under
chapter 11 of the Bankruptcy Code. FRBP
2015, FRBP 9001(5)(A). Both had been
converted to chapter 7 and a trustee appointed well before the lease and sale/
"loan" agreements were signed-- conversion in both cases occurred in
June of 1990, the lease agreement is dated October 4, 1990, and the sale
agreement, August 1, 1991. Florence
King's bankruptcy case lasted from 1989 to 1999; Pinnacle Coal's, from 1987 to
1996; and Charles King's from 1984 to 1995.
The court
in its Findings of Fact, Conclusions of Law and Judgment of October 19, 1994
concluded that Elmer Kincaid Coal Co., Inc. had "a substantial equity
position" and that the adversary proceeding should remain open to allow
the trustee to intervene should there be any questions regarding disposition of
estate property. That decision was
reached on the basis of many findings of fact and conclusions of law
articulately set out by Judge Howard in his Judgment, a conclusion reached by a
court intimately familiar with-- because of years of litigation-- the
Pinnacle Coal bankruptcy case, the bankruptcy case of Florence King, and that
of Charles King, as well as the adversary proceeding brought by Kincaid.
This court
notes that Judge Howard found Florence King personally received some $51,000
under the August 1, 1991 agreement which was properly property of the Pinnacle
Coal bankruptcy estate but which was not reported to the trustee. The court commented that criminal charges
could be brought against Mrs. King by the U. S. Attorney. (Doc. # 106, AP 93-6001)
To
summarize, the complaint against the trustee for fraud and breach of fiduciary
capacity cannot stand; it must be dismissed.
It is apparent beyond doubt that the plaintiff can prove no set of facts
in support of the claim which would entitle the plaintiff to relief on the
complaint. Conley v. Gibson, 78 S.Ct. 99, 102 (1957). Clearly the cause of action against the
trustee, Westenhoefer, as stated by Charles King on behalf of Florence King at
the August 19, 1999 hearing, does not rise to the level of fraud.
In
addition, pursuant to 28 U.S.C. § 959 and due to the failure of the allegation
of fraud, the cause of action against the trustee cannot be maintained. The actions of Westenhoefer were taken in
his capacity as trustee to the bankruptcy estate of Pinnacle Coal Corporation
and as such are accorded immunity from prosecution. In re DeLorean Motor
Company (Allard v. Weitzman), 991 F.2d 1236, 1240 (6th Cir.
1993).
Complaint Against the Kincaids:
The King
Complaint regarding breach of contract by Kincaid must be dismissed because
that complaint is res judicata and
"the law of the case." The
final judgment rendered by Judge Howard on October 19, 1994 is conclusive as to
the rights of Florence King and of Kincaid and constitutes an absolute bar to
this action. Matchett v. Rose, 344 N.E.2d 770, 779 (Ill.App.Ct. 1976). The prior adversary proceeding is the
"law of the case"-- the law of this
case-- in that the decision by Judge Howard was never appealed. A pro
se party although given some latitude in pleading is not excused from the
rules of law. See Neitzke v. Williams, 490 U.S. 319, 327, n.6 (1989). Without question the cause of action against
Kincaid for breach of contract must be dismissed.
At this
juncture it is important to repeat, as Judge Howard did in his precise and
well-reasoned opinion of October 19, 1994, that Florence King had no standing
to bring the claim asserted as counterclaim in AP 93-6001. (Doc. # 106, AP 93-6001) For the same reasons she has no standing to
bring the claims asserted in this action against Kincaid. FRBP 7017.
A claim
against Kincaid for renewal of a mining permit in the name of Pinnacle Coal
Corporation with the Kentucky Department of Reclamation or reinstatement of
Pinnacle Coal Corporation with the Kentucky Secretary of State must be brought
by the trustee in the Pinnacle Coal Corporation bankruptcy case. Likewise any claim against Kincaid for
non-payment of monies due under the lease agreement of October 4, 1990 must be
brought by the trustee. Florence King
has no standing to bring these claims.
For the
reasons cited earlier in this opinion, any claim against Kincaid for breach of
duty or fraud upon the court cannot stand.
Conley, 78 S.Ct. at 102.
Mr. Siemon,
counsel for Kincaid, commented on the vexatious nature of this lawsuit, that
this adversary proceeding is an untimely appeal of AP 93-6001 which has
resulted in considerable expense to Kincaid to defend. Although the Kings (first) Amended Complaint
uses the word "appealing," Charles King stated at the August 19, 1999
hearing that the Kings did not intend to use the word in its legal sense.
There is
no Rule 11 motion before the court.
This is not to say that even if there were such a motion before the
court it would be granted. However, the
Kings should be mindful of the language in Farguson
v. MBank Houston, N.A., 808 F.2d 358, 359 (5th Cir. 1986):
"[O]ne acting pro se has no
license to harass other, clog the judicial machinery with meritless litigation,
and abuse already overloaded court dockets." A party acting pro se
is given some latitude but not a license to litigate.
The court
having concluded that the complaint, that is, the (first) Amended Complaint
filed April 16, 1999 (Doc. # 13), should be dismissed under FRBP 7012(b)(6),
the motion of the Kings for leave to amend the complaint a second time is
moot.
Dated:
By
the court
________________________
JOSEPH
M. SCOTT, JR.
U.
S. BANKRUPTCY JUDGE
Copies to:
Charles and Florence King, pro se
Edward A. Siemon, Esq.
Ann E. Samani, Esq.
U. S. Trustee
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CORBIN
IN RE:
PINNACLE COAL CORPORATION CASE NO. 87-60282
DEBTOR
CHARLES KING
FLORENCE KING PLAINTIFFS
V. ADV. NO. 99-6017
ELMER KINCAID COAL CO., INC.,
et al. DEFENDANTS
ORDER
In
accordance with the memorandum opinion this day entered, IT IS HEREBY ORDERED
that the motion of the plaintiff,
Florence King, objecting to "use" of the Pinnacle Coal Company
bankruptcy case is OVERRULED. The
motions of the defendants Elmer Kincaid, Jr.; Elmer Kincaid, Jr. Trucking
Company; Elmer Kincaid Coal Co., Inc.; and James R. Westenhoefer, trustee, to
dismiss the complaint are SUSTAINED; the complaint is dismissed with
prejudice. Having so found, the motion
of the plaintiff for leave to file a second amended complaint is MOOT.
This is a
final and appealable order.
Dated:
By
the court
________________________
JOSEPH
M. SCOTT, JR.
U.
S. BANKRUPTCY JUDGE
Copies to:
Charles and Florence King, pro se
Edward A. Siemon, Esq.
Ann E. Samani, Esq.
U. S. Trustee