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Giese v. Community Trust Bank, Inc.

United States District Court, E.D. Kentucky, Southern Division, London

March 31, 2015

TERRY GIESE, Plaintiff,



The underlying dispute in this case centers on the question of who is entitled to the contents of an account containing royalty payments made on mineral leases. Those leases provided Leslie Resources the right to mine land that is now owned by Plaintiff Terry Giese, but was previously owned by the Begley family. Leslie Resources made the royalty payments that funded the account, and when Leslie Resources went into bankruptcy, the Defendants bought the disputed account from the bankruptcy estate. Plaintiff now sues the Defendants for the contents of that account. In so doing, the Plaintiff both directly and indirectly challenges the propriety of the bankruptcy proceeding. Presently at issue is the subject matter jurisdiction of this Court. For the reasons set forth below, jurisdiction exists and so Giese's motion to remand will be DENIED.


Leslie Resources, Inc. mined coal in Leslie County, Kentucky in the 1990's. Like many coal companies, Leslie Resources did not own all the land from which it mined, but instead leased their mineral rights from other landowners. The heirs of Emitt Begley (Emitt, himself, died in 1936) owned one of the tracts of land that produced the royalties in the account that is central to the current dispute. [R. 1-1 at 2.] Proceeds from Leslie Resources' mining operations were deposited into this account at Citizens Bank and Trust in Hazard, Kentucky.[1] [R. 1-1 at 5.] In 2000, Leslie Resources distributed some of the money in the account to landowners but a significant amount of the money remained in the account. As of May 26, 2006, the account had $334, 054.11. [R. 1-1 at 6.]

Leslie Resources and a number of its affiliates filed for Chapter 11 bankruptcy in November 2002. [R. 1-1 at 6.] The bankruptcies were consolidated into a case styled In re Horizon Natural Resources Company, Case No. 02-14261 (Bankr. E.D. Ky.) and the above mentioned escrow account was listed as an asset of the bankruptcy estate. [R. 14 at 3; 14-1.]

Defendants International Coal Group (ICG) and Lexington Coal purchased assets out of the bankruptcy, including all "cash and cash equivalents" which included such agreements as Leslie Resources had with the "Emitt Begley Heirs." [R. 1-1 at 6.] Defendants' purchase was approved by the bankruptcy court. [ See R. 14-3; R. 14-5.] Later, the bank attempted to distribute the contents of the account but there was a dispute amongst the Defendants as to how the money was to be distributed. To resolve this dispute, the bank filed an adversary proceeding before the bankruptcy court, styled Community Trust Bank, Inc. v. Berman, et. al., Case No. 06-01022 (Bankr. E.D. Ky.). [R. 14 at 5.] As a part of that proceeding, the Court attempted to provide notice to "E. Begley" (the name that was on the account documents) through publication in the newspaper. [ Id. ] There was no response and, as a result, the bankruptcy court concluded that no person or entity besides ICG and Lexington Coal had an interest in the Account. [ Id. ] The bankruptcy court subsequently entered default judgment against "E. Begley, " which cut off his claims to any interest in the account. [R. 14-6.] Eventually the Defendants agreed as to how the money should be distributed amongst themselves and on December 19, 2006, the bankruptcy court entered an order distributing the funds amongst Lexington Coal and ICG. [R. 14 at 6.]

Plaintiff, Terry Giese, acquired real property from the heirs of Emmit Begley in the late spring and summer of 2009 and then again in July 2013. [R. 1-1 at 3-4.] Giese believes that in purchasing the land, he also acquired rights to royalties from the Leslie Resources leases. He filed suit in Leslie Circuit Court to collect those royalties, alleging state law claims for conversion, breach of fiduciary duty, negligence, fraudulent and negligent misrepresentation, breach of contract, and unjust enrichment. [R. 1-1.] Because the principal question before this Court is how closely related these claims are to the former bankruptcy action, it is worth going into a little more detail about these causes of action.

In count one (collection of royalties), Giese asserts he is "legally entitled to the proceeds that were in the Escrow Account, " which contains pre-petition royalties and was purchased by the Defendants through the bankruptcy. [R. 1-1 at 8.] Count two (conversion) asserts that the above account was taken without the consent of the Begleys. [ Id. at 9.] Count three (breach of fiduciary duty) asserts that the Defendants owed a duty to the Begleys and breached that duty when they failed to effectively notify them of their ownership interest in the account. [ Id. ] Count four (negligence) and count five (negligent misrepresentation) charge the Defendants with being negligent in searching for and ensuring that the royalty proceeds were paid to the owners of the account. [ Id. at 10-11.] Count six (breach of contract) asserts that the Defendants, as heirs, successors, or assigns of Leslie Resources, breached lease contracts by failing to pay mineral royalties. [ Id. at 11-12.] Count seven (unjust enrichment) alleges that the Defendants "inequitably retained the benefit of the escrow account funds without payment for their value." [ Id. at 13.]

The Defendants timely removed the case to Federal Court on the basis that this case is related to the earlier bankruptcy proceeding, and that jurisdiction is proper in accordance with 28 U.S.C. § 1334(b). Giese argues it must be remanded because the issues raised are not sufficiently related to the bankruptcy.



"A party may remove any claim or cause of action in a civil action... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title." 28 U.S.C. § 1452. The Defendants assert that jurisdiction arises out of Section 1334 which provides that "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). This section addresses four categories of cases "over which the district court has jurisdiction: (1) "cases under title 11, " (2) "proceedings arising under title 11, " (3) proceedings "arising in" a case under title 11, and (4) proceedings "related to" a case under title 11." In re Wolverine Radio Co., 930 F.2d 1132, 1141 (6th Cir. 1991). Because the first category ("cases under title 11") only refers to the actual bankruptcy proceeding initiated with the filing of a bankruptcy petition, see id., the Court need only consider whether jurisdiction exists per one of the latter three categories.

The "second, third, and fourth categories (proceedings "arising under, " "arising in, " and "related to" a case under title 11)... operate conjunctively to define the scope of jurisdiction." Id. ( citing In re Wood, 825 F.2d 90, 92 (5th Cir. 1987); see also In re Stewart, 62 F.Appx. 610, 613 (6th Cir. 2003).[2] As such, the real question when considering whether § 1334(b) jurisdiction exists is "whether a matter is at least related to' the bankruptcy." Id. ( citing In re Wood, 825 F.2d at 93.) This inquiry has been well explained by the Sixth Circuit:

The definition of a "related" proceeding under Section 1334(b) was first articulated by the Third Circuit in Pacor. As stated in that case, the "usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, 743 F.2d at 994. An action is "related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." Id. A proceeding "need not necessarily be against the debtor or against the debtor's property" to satisfy the requirements for "related to" jurisdiction. Id. However, "the mere fact that there may be common issues of fact between a civil proceeding and a controversy involving the bankruptcy estate does not bring ...

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