The opinion of the court was delivered by: JAMES MUNLEY, District Judge
Presently before the Court for disposition is Appellant Coal
Contractors (1991), Inc.'s appeal of Bankruptcy Judge John J.
Thomas' decision to grant Appellee General Electric Capital
Corporation's claim. This matter has been fully briefed and is
ripe for disposition. For the reasons that follow, we will grant
the appeal in part and remand to the bankruptcy court for further
proceedings consistent with this opinion.
Coal Contractors is a coal mining company currently operating
in Chapter 11 bankruptcy in the Middle District of Pennsylvania.
Royal Scot Materials is a coal mining company currently in
Chapter 7 bankruptcy in the Southern District of West Virginia,
In re Royal Scot Materials, Inc., Chapter 7 Case No. 99-50629
(S.D.W.V.). General Electric Capital Corporation is the assignee
of all right, title, and interest of H. Lynden Graham, Royal
Scot's Chapter 7 trustee.
On January 6, 2003, H. Lynden Graham filed a proof of claim for
an undetermined amount in Coal Contractors' Chapter 11 case. He
alleges that on May 19, 1999, pursuant to a "Heads of Agreement" contract, Coal Contractors agreed to
purchase a coal processing plant, a sizing plant, and two
Demags*fn1 from Royal Scott for $1.2 million and royalties
from the sale of excavated coal. (Appellant App. 8-9). The claim
asserts that at the time of the sale, the equipment was located
at Royal Scot's coal mining operations in Greenbrier, West
Virginia. (Id. at 7). Coal Contractors filed an objection to
this claim, arguing that it entered into no such agreement, but
if it did, it had already paid the amounts due.
On January 31, 2005, the Bankruptcy Court for the Middle
District of Pennsylvania held a hearing to determine the validity
of the claim. Following the presentation of evidence from both
parties, the bankruptcy court overruled Coal Contractors'
objections and allowed Royal Scot's claim for $1.2 million
secured by the equipment. Coal Contractors appeals this decision.
We have jurisdiction over the instant bankruptcy appeal
pursuant to 28 U.S.C. § 158(a)(1), which provides that the
district courts of the United States have jurisdiction to hear
appeals from final judgments, orders, and decrees of the
This court reviews the bankruptcy court's conclusions of law
de novo. In re O'Brien Environmental Energy, Inc.,
188 F.3d 116, 122 (3d Cir. 1999). The bankruptcy court's findings of fact
will only be set aside if clearly erroneous. BANK. R. 8013 ("On
appeal the district court . . . may affirm, modify, or reverse a bankruptcy
judge's judgment order, or decree or remand with instructions for
further proceedings. Findings of fact, whether based on oral or
documentary evidence, shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the bankruptcy court to judge the credibility of the
witnesses."); In re O'Brien, 188 F.3d at 122.
A bankruptcy claimant bears the initial burden to "allege facts
sufficient to support a legal liability to the claimant." In re
Allegheny International, Inc., 954 F.2d 167, 143 (3d Cir. 1992).
Once the claimant satisfies its initial burden, its claim is
prima facie valid. Id. To rebut the prima facie claim, the
objector "must produce evidence which, if believed, would refute
at least one of the allegations that is essential to the claim's
legal sufficiency." Id. at 174. If the objector meets this
burden, "the burden reverts to the claimant to prove the validity
of the claim by the preponderance of the evidence." Id.
Coal Contractors argues that the bankruptcy court erred in
finding that it failed to rebut the prima facie validity of
General Electric's claim. We agree.*fn2 The testimony of
Jack Munley*fn3 rebutted the prima facie claim because he
set forth evidence, which if believed, refuted General Electric's
allegation that Coal Contractors entered into the "Heads of Agreement" contract in 1999 to purchase the equipment from Royal
Scot. The bankruptcy court found that Munley testified only that
he was unaware of the transaction, which, given Munley's ...