UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

PIKEVILLE DIVISION

IN RE:

MARK AUBRY NICHOLS

DEBTOR CASE NO. 94-70034

BETHENERGY MINES, INC.;

BETHLEHEM STEEL CORPORATION;

KENACRE LAND CORPORATION PLAINTIFFS

VS. ADV. NO. 94-7006

MARK AUBRY NICHOLS DEFENDANT

MEMORANDUM OPINION

The record in this case reveals the following undisputed facts: the defendant filed his Chapter 7 petition in this Court on February 1, 1994. On September 14, 1984, the defendant had entered into a lease agreement with Appletree Mining Company, Inc. ("Appletree"). Pursuant to the lease agreement, Appletree entered upon the surface owned by the defendant at Love's Branch in Letcher County, Kentucky. Appletree established mining operations and extracted coal owned by the plaintiffs. Appletree agreed to pay royalties to the debtor and others in the amount of $2.50 per ton for every ton of coal extracted from the premises. A deed of conveyance between the defendant and Gladys Oliver Quillen, entered into on December 8, 1980, and conveying an interest in the surface of two tracts of land on Love's Branch, was attached to the lease agreement. Mrs. Quillen's deposition provided testimony concerning her knowledge that the plaintiffs owned the mineral tract (identified as mineral tract 3198) underlying her property, and the fact that she had provided this information to the defendant's father. She also testified that it was common knowledge that the plaintiffs owned the mineral rights from ridge to ridge under the entire surface of Love's Branch.

Further testimony was provided by Edna Turner, who performed title searches on the Love's Branch property for the defendant. She stated that her records clearly indicated that the defendant owned only the surface of the Quillen property, and that the plaintiffs owned the minerals underlying the surface. Randy Hall, the Letcher County Property Valuation Administrator, testified that tax records indicated that the surface tracts owned by the defendant did not include mineral ownership, and in fact showed that the owner of the minerals was Consolidated Coal Company, the plaintiffs' predecessor in interest.

The defendant's direct knowledge of the plaintiff's ownership interest in the minerals is evidenced by the Joint Stipulation filed by the parties which states in part that when the defendant applied for a mining permit for the subject property, he advertised on March 18, 1982, a Notice of Intent to Mine in the newspaper of largest circulation in the county where mining was intended.

In response to the advertised notice, the plaintiff, by counsel, sent a warning letter dated May 4, 1982, to Mark Nichols Mining Company, objecting to the mining and laying claim to the mineral sought to be mined. The letter advised the defendant of the plaintiff's ownership interest in the mineral and provided the deed book and page numbers where its ownership interest was recorded. The defendant received the letter and upon his request, Edna Turner provided him a copy of the recorded deed.

Between May 1985 and May 1988, Appletree mined 340,000 tons of coal from mineral tract 3198, and paid the defendant and others more than $920,000.00 in royalties. On April 11, 1988, the plaintiffs filed a suit in United States District Court to quiet title to five mineral tracts, including 3198, and to recover damages and restrain trespass to, the same minerals.

On September 18, 1989, the Court entered an Agreed Partial Judgment in Bethenergy Mines Inc., et al. v. Appletree Mining Company, et al., Civil Action No. 88-126, finding that the defendant had no claim, title or right to any portion of the mineral and mineral rights, titles and privileges in Mineral Tract 3198 on Love's Branch in Letcher County, Kentucky.

The defendant had asserted by an unverified answer and counterclaim in the above-referenced suit the existence of an oral contract with the plaintiffs whereby he would be allowed to mine or lease their coal. However, the District Court entered a Partial Summary Judgment on February 14, 1991, finding that the defendant had produced no evidence from the record in support of this assertion and concluding that no oral contract existed. By an Agreed Judgment entered into on February 24, 1992, the defendant and others admitted liability to the plaintiffs for trespass and damages in the amount of $922,071.65.

This Court's standard for determining what constitutes a "willful and malicious injury" was set forth in Perkins v. Scharffe, 817 F.2d 392 (6th Cir. 1987). Therein the court stated, quoting from 3 Collier on Bankruptcy 523-111 (15th ed. 1986), "... a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury." Id., p. 394. This is the so-called "more lenient test."

The element of maliciousness is demonstrated by evidence that the debtor had knowledge of the creditor's rights and despite that knowledge took action in violation of those rights. In re Boren, 47 B.R. 293 (Bkrtcy.W.D.Ky. 1985). Willfulness speaks to the debtor's intent. Willful conduct is that which the debtor intended, as opposed to conduct that was accidental or unintentional. In re Clayborn, 67 B.R. 522 (Bkrtcy.N.D.Ohio 1986).

The facts in this matter fit these requirements. Here the defendant knew that he did not own the minerals underlying his property, property to which he held only surface rights. In spite of that knowledge, he intentionally entered into a lease agreement with a mining concern to take minerals from this property. The defense to this conduct offered by the defendant, an oral contract that allowed him to mine coal from the property, was litigated in the district court action and that court found that no such contract existed.

Dated:

By the Court -

______________________________

Judge

Copies to:

Debtor

Susan S. Armstrong, Esq.

Jerry Anderson, Esq.

Trustee

U.S. Trustee