UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
R.M. & S. COAL COMPANY
DEBTOR CASE NO. 87-00283
COMMONWEALTH OF KENTUCKY,
NATURAL RESOURCES AND
VS. ADV. NO. 90-0123
R.M. & S. COAL COMPANY,
SAM KING, THE FIRST STATE BANK OF
PINEVILLE, and THE UNITED STATES
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter came on for trial before the Court on October 29, 1990, and concluded on October 30, 1990. The Court having considered the testimony offered at trial, the joint stipulation of the parties, the briefs of the parties, and the documentary and other pertinent evidence of record in this case, and being otherwise fully advised, now, in accordance with Rule 52 of the Federal Rules of Civil Procedure, makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. The defendant/debtor R.M. & S. Coal Company ("R.M. & S.") and an individual named Kelly Asher entered into a written agreement (hereinafter referred to as "the Kelly Asher Agreement") on August 12, 1987, whereby Asher agreed to pledge a certificate of deposit in the amount of $110,300.00 to assist R.M. & S. in obtaining a bond for surface mining in McCreary County on a tract of land referred to by the parties as "the 3-C property".
2. Pursuant to the terms of the Kelly Asher Agreement, Asher purchased CD No. 8157 from the First State Bank of Pineville ("the Bank") in the amount of $110,300.00. The funds for the purchase were provided by the proceeds of a note signed by Asher and Ralph Sizemore, president of R.M. & S. Collateral for the promissory note was Asher's real property. The Bank was the issuer and escrow agent for the CD.
3. On or about August 13, 1987, the Commonwealth issued Permit No. 874-0083 to R.M. & S. which authorized it to conduct surface coal mining and reclamation operations on 79.94 acres in McCreary County, Kentucky. R.M. & S. posted a performance bond which was secured by CD No. 8157, and the Bank, R.M. & S. and the Commonwealth executed an Escrow Agreement.
4. On September 4, 1987, R.M. & S. disturbed a small amount of surface area (less than 1/2 acre) on Permit No. 874-0083. R.M. & S. was removed from the property that same day, and was prevented from going back on the permitted area by court order. R.M. & S. did not mine any coal at this site.
5. R.M. & S. filed a Chapter 11 bankruptcy petition in this Court on August 21, 1987.
6. On October 6, 1987, a preliminary hearing was held on a Notice of Non-Compliance and Order for Cessation and Immediate Compliance wherein it was alleged by the Natural Resources and Environmental Protection Cabinet ("the Cabinet") that R.M. & S. had committed various violations. A $1500.00 penalty was recommended by the hearing officer on November 8, 1987, and the Secretary of the Cabinet entered a final Order adopting the hearing officer's recommendation on January 19, 1988. This Order was not appealed. This civil penalty is the only final, unappealable penalty assessed against R.M. & S. on Permit No. 874-0083.
7. On January 25, 1988, this Court entered an Order permitting Ralph Sizemore/R.M. & S. to go back onto the permitted property for the purpose of conducting necessary reseeding and regrading or such other action as was necessary to reclaim the property to the satisfaction of the Commonwealth of Kentucky so as to obtain release of the bond securing performance thereof.
8. By motion filed April 6, 1988, the prior approval of this Court was sought for R.M. & S., Asher, and Sam King to enter into an agreement. The agreement was approved on June 20, 1988. Pursuant to its terms, King paid $20,000.00 to R.M. & S. as debtor in possession and $119,372.36 to Kelly Asher for all of their interests in the permit, bond, and CD's.
9. On June 28, 1988, Asher advised the Bank that he had assigned, transferred, and sold his interest in CD No. 8157, plus any interest due at the time of surrender, to Sam King. On June 30, 1988, Asher repaid the Bank the loan by which CD No. 8157 was purchased to secure the bond on Permit No. 874-0083.
10. Pursuant to the agreement approved by this Court, Sam King applied for a successor permit to Permit No. 874-0083. His formal application, No. 874-0086 was filed in October 1988.
11. On November 18, 1988, the Cabinet served an Administrative Complaint seeking revocation of Permit No. 874-0083, $45,000.00 in penalties, and forfeiture of R.M. & S.'s bond. Sam King was not named a party to this action nor given notice of it.
12. The disturbance on Permit No. 874-0083 caused by R.M. & S. was reclaimed prior to the declaration of bond forfeiture.
13. On instructions from the Cabinet, the Bank split CD No. 8157 into two smaller CD's, Nos. 9697 and 9698, amended the bond permit number from 874-0083 to 874-0086, and tied the two CD's to the new bond in the name of Sam King.
14. Sam King caused his Application No. 874-0086 to be permanently withdrawn by the Cabinet in April 1989, and in September 1989 submitted Application No. 874-0087 for a successor permit to Permit No. 874-0083. Again the Bank amended the bond permit number from 874-0083 to 874-0087 and tied CD Nos. 9697 and 9698 to the new bond in the name of Sam King.
15. In October 1989 the Cabinet informed King that R.M. & S.'s bond could not be released or transferred because of the company's unpaid civil penalties. King was informed that he must provide a new, separate bond in his own name.
16. In November 1989, R.M. & S. moved this Court to release CD Nos. 9697 and 9698 to it. King filed a response claiming that said certificates were not R.M. & S.'s property, and moved this Court to order and direct the Bank to release the certificates to him. The Bank filed an objection. This Court heard all motions on November 22, 1989, and on January 9, 1990, entered an Order overruling without prejudice the motion of the debtor in possession for an order releasing the certificates to it.
17. On December 1, 1989, King posted a surety bond with the Commonwealth on Application No. 874-0087. On December 8, 1989, the Cabinet declared the bond on Permit No. 874-0083 forfeited. On January 22, 1990, the McCreary Circuit Court ordered the Cabinet to issue King a successor operator permit. This order was amended on January 23, 1990, and on that day Permit No. 874-0087 was issued.
18. R.M. & S. filed a petition for review in McCreary Circuit Court of the final Order of the Commonwealth entered on December 8, 1989. King was an intervening plaintiff in this action, designated Civil Action No. 89-CI-250. On October 26, 1990, the McCreary Circuit Court entered its Findings of Fact, Conclusions of Law and Judgment in said action, reversing the Secretary's Order of December 8, 1989, and remanding the matter to the Cabinet for the entry of an order releasing the bond on Permit No. 874-0086.
19. On October 10, 1990, the United States filed a Motion to
Intervene asserting that on April 30, June 5, and July 10, 1987, notices of federal tax liens which named RM & S as the taxpayer were filed in the records of the Laurel County Clerk, and that as of the time that RM & S had any interest in the subject CD's or any funds underlying them, the tax liens of the United States attached to such funds and certificates. This Court sustained the Motion on October 23, 1990.
CONCLUSIONS OF LAW
1. This Court has jurisdiction of this matter pursuant to 28 U.S.C. §1334(b) and 28 U.S.C. §157(c)(2).
2. On June 29, 1988, pursuant to an agreement approved by this Court, Sam King acquired all of the interests of R.M. & S. and Kelly Asher in Permit No. 874-0083, the performance bond accompanying it and Certificate of Deposit No. 8157, by the payment of a valuable consideration.
3. Certificates of Deposit Nos. 9697 and 9698 (the result of the splitting of CD No. 8157) are not assets of the bankruptcy estate, and R.M. & S. therefore has no interest in them.
4. The interest of the United States Internal Revenue Service in the certificates of deposit being co-extensive with the interest of R.M. & S., it also has no interest in said certificates.
5. Pursuant to the October 26, 1990, ruling of the McCreary Circuit Court, the Cabinet's forfeiture of the performance bond for Permit No. 874-0083 was improper, and the Cabinet thus retains no interest in the certificates of deposit securing said bond, except for securing payment of the $1500.00 penalty assessed by the Secretary's Order of January 19, 1988.
6. The First State Bank of Pineville has no interest in the certificates of deposit other than the payment of the proceeds to the proper party.
7. Sam King is the only person or entity with any interest in the certificates of deposit, except for the Cabinet's interest in securing the payment of the $1500.00 penalty.
8. Judgment should be entered in conformity with this decision, finding against the plaintiff and for defendant Sam King on his Answer and Cross-Claim filed herein and directing the release of Certificates of Deposit Nos. 9697 and 9698 to Sam King without further delay.
Entered this ______day of January, 1991.
By the Court -
Patricia V. Abbruzzese Peery, Esq.
RM & S Coal Company, Inc.
J. Michael Poole, Esq.
Stephan Charles, Esq.
Anne Adams Chesnut, Esq.
Marilyn Benge McGhee, Esq.
David Middleton, Esq.
Kathryn Brown, Esq.
The First State Bank of Pineville
Henry Lawson, Esq.
John C. Tobin, Esq.
John F. Lang, Esq.
James D. Brannon, Esq.
Hon. Jerry D. Winchester, Judge
McCreary Circuit Court