IN RE:  PINNACLE COAL CORPORATION           CASE NO.  87-60282   ADV. NO.  99-6017  MEMORANDUM OPINION MOTION TO DISMISS

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