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In re HNRC Dissolution Co.

United States Bankruptcy Appellate Panel of the Sixth Circuit

June 1, 2018

In re: HNRC Dissolution Company, Debtor.
v.
Lexington Coal Company, Defendant-Appellee. Terry Giese, Plaintiff-Appellant,

          Argued: August 22, 2017

          Appeal from the United States Bankruptcy Court for the Eastern District of Kentucky at Ashland. No. 02-14261-Tracey N. Wise, Judge

         ARGUED:

          Michael J. Gartland, DELCOTTO LAW GROUP PLLC, Lexington, Kentucky, for Appellant.

          Janet Smith Holbrook, DINSMORE & SHOHL, LLP, Huntington, West Virginia, for Appellee.

         ON BRIEF:

          Michael J. Gartland, DELCOTTO LAW GROUP PLLC, Lexington, Kentucky, Philip G. Fairbanks, MEHR FAIRBANKS TRIAL LAWYERS, PLLC, Lexington, Kentucky, for Appellant.

          Janet Smith Holbrook, DINSMORE & SHOHL, LLP, Huntington, West Virginia, for Appellee.

          Before: HARRISON, OPPERMAN, and PRESTON, Bankruptcy Appellate Panel Judges.

          OPINION

          DANIEL S. OPPERMAN, CHIEF BANKRUPTCY APPELLATE PANEL JUDGE.

         This case involves a dispute regarding funds allegedly held in escrow to pay royalties connected to coal mining. According to Appellant, Terry Giese ("Giese"), a company known as Horizon Natural Resources Company ("HNRC") paid royalties derived from those mining operations into an account for the benefit of someone identified as E. Begley and Begley's heirs and successors. After buying the property on which the relevant mining operations occurred, Giese filed a complaint in a Kentucky state court asserting a right to the escrowed royalties.

         Appellee Lexington Coal Company ("Lexington Coal") disputed Giese's claim, arguing it purchased all cash and accounts of HNRC and HNRC's parent company during a bankruptcy case involving those entities. Lexington Coal had been a defendant in an interpleader action, before the Bankruptcy Court, to determine the rightful owner of the funds at issue. Following notice to all interested parties, the Bankruptcy Court overseeing that interpleader action determined that Lexington Coal and another company-International Coal Group, Inc. ("ICG")-owned the funds. Ultimately, Giese's state court action was removed and referred to the Bankruptcy Court.

         In response to the case being removed, Giese argued, as he argues here, that the Bankruptcy Court was required to abstain from adjudicating two counts of his state court complaint. The Bankruptcy Court declined to abstain. The Court, after determining it had jurisdiction over all of Giese's claims, dismissed his complaint. Giese appeals both the Court's decision to not abstain and the Court's decision to dismiss his adversary complaint. Because the Bankruptcy Court acted properly, this Panel affirms its decision.

         ISSUES ON APPEAL

         1. Whether the Bankruptcy Court was required to abstain from adjudicating the causes of action asserted by Giese's state court complaint and required to remand same to the state court under 28 U.S.C. § 1334(c)(2).

         2. Whether the Bankruptcy Court erred in entering the Dismissal Opinion and Judgment on the basis of res judicata.

         JURISDICTION

         Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by the Bankruptcy Court. For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497 (1989) (quotation marks and citation omitted). The orders and opinions at issue in this appeal are final and none of the parties to this appeal challenge the Panel's jurisdiction to hear it.

         STANDARD OF REVIEW

         1. Standard of Review Regarding Mandatory Abstention Decision

         The Panel reviews the Bankruptcy Court's decision regarding abstention de novo. Brown v. Tidwell, 169 F.3d 330, 332 (6th Cir. 1999). The Bankruptcy Court's conclusions of law also are reviewed de novo. Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 88 (6th Cir. 1993). When conducting a de novo review, the Panel decides the issues independent of and without deference to the Bankruptcy Court's conclusions. Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007).

         2. Standard of Review Regarding the Dismissal Opinion and Judgment

         The second issue Giese raises is the propriety of the Bankruptcy Court's Opinion and Judgment relying on res judicata to dismiss his adversary proceeding. In this case, that analysis involves determination of whether a certain financial account was property of the bankruptcy estate. The Panel reviews the Bankruptcy Court's order of dismissal de novo. Hughes v. Sanders, 469 F.3d 475, 477 (6th Cir. 2006). It also applies de novo review to the determination of whether an asset is estate property. Johnston v. Hazlett (In re Johnston), 209 F.3d 611, 612 (6th Cir. 2000). When conducting a de novo review, the Panel decides the issues independent of and without deference to the Bankruptcy Court's conclusions. Morgeson, 371 B.R. at 800. Additionally, when reviewing the order dismissing Giese's adversary complaint, the Panel ...


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