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In Re: Gilberton Coal Company v. Split Vein Coal Company

April 29, 2011

IN RE: GILBERTON COAL COMPANY, APPELLANT
v.
SPLIT VEIN COAL COMPANY, APPELLEE/ DEBTOR IN POSSESSION



The opinion of the court was delivered by: Chief Judge Kane

MEMORANDUM

Before the Court is an appeal filed September 17, 2010, by Defendant-Appellant Gilberton Coal Company ("Gilberton") pursuant to 28 U.S.C. § 158(a). Gilberton filed a supporting brief on October 1, 2010. (Doc. No. 7.) Plaintiff-Appellee Split Vein Coal Company ("Split Vein") filed a brief in opposition on October 25, 2010. (Doc. No. 10.) Gilberton filed a reply brief on November 5, 2010. (Doc. No. 11.) For the reasons that follow, the Court will affirm the decision of the Bankruptcy Court.

I. STANDARD OF REVIEW

A district court sits as a court of appeals reviewing a final order of the Bankruptcy Court under 28 U.S.C. § 158(a)(1). See also Fed. R. Bankr. P. 8001(a). Under Federal Rule of Bankruptcy Procedure 8013, the district court may affirm, modify, or reverse the decision of the Bankruptcy Court, or may remand with instructions for further proceedings. The district court reviews the Bankruptcy Court's legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. In re O'Brien Envtl Energy, Inc., 188 F.3d 116, 122 (3d Cir. 1999). When an issue is a mixed question of law and fact, the issue is broken down into its component parts and the appropriate standard is applied to each component. In re Fegley, 118 F.3d 979, 982 (3d Cir. 1997). As such, the Court "accept[s] the trial court's findings of historical or narrative facts unless they are clearly erroneous, but we must exercise a plenary review of the trial court's choice and interpretation of legal precepts and its application of those precepts to the historical facts." Universal Minerals, Inc. v. C. A. Hughes & Co., 669 F.2d 98, 103 (3d Cir. 1981) (footnote citation omitted).

II. PROCEDURAL BACKGROUND

On January 1, 2007, Split Vein filed a complaint against Gilberton and Seedco NP, LLC ("Seedco"). (Doc. No. 2, Ex. 1.) Split Vein filed an amended complaint on May 10, 2007, and Seedco was dismissed from the case on February 12, 2009. (Doc. No. 2, Ex. 2.) Split Vein alleged that it deposited approximately 600,000 tons of residual coal waste on properties owned by Gilberton and Seedco, and that Gilberton improperly removed and converted this waste, also referred to as culm, which was actually owned by Split Vein. After Split Vein filed its amended complaint, Gilberton filed its answer and counterclaim with the Bankruptcy Court on February 9, 2007. (Doc. No. 2, Ex. 6.) Gilberton filed a motion for partial summary judgment on August 6, 2007, seeking partial summary judgment on the issue of who legally owned the culm and Split Vein's requests that it be compensated for the culm removed. Chief Bankruptcy Judge Mary France denied the motion by a memorandum and order dated December 7, 2007.

Judge France held a two-day trial in this action on February 11 and 12, 2009. After post-trial briefing by the parties, the Bankruptcy Court issued an order resolving the case on December 11, 2009. In the order, Judge France concluded that (1) Split Vein had met its burden in proving that Gilberton had converted the culm, (2) the culm in fact was not abandoned by Split Vein, (3) the agreement that had been reached between Split Vein and Gilberton in 1991 ("the Agreement") had not been abandoned by Split Vein, (4) the Agreement was not rejected by law pursuant to 11 U.S.C. § 365(d)(4), and (5) Gilberton was not protected by the defense of privilege concerning its conversion of the culm. (Doc. No. 2, Ex. 12.)*fn1

Gilberton filed a motion for reconsideration on December 12, 2009. (Doc. No. 2, Ex. 11.) On January 5, 2010, Gilberton filed a brief in support. (Doc. No. 2, Ex. 9.) Split Vein filed its brief in opposition to the motion for reconsideration on January 19, 2010. (Doc. No. 2, Ex. 8.) Judge France issued an order on August 11, 2010 denying Gilberton's motion for reconsideration. (Doc. No. 2, Ex. 14.) Gilberton filed a notice of the instant appeal from the decision of the Bankruptcy Court on September 17, 2010. (Doc. No. 1.)

III. FACTUAL BACKGROUND

The factual findings contained in Judge France's thorough memorandum and order dated December 11, 2009, are as follows.*fn2 Split Vein is a Pennsylvania corporation whose sole shareholder and president is Elwood Swank.*fn3 Split Vein's principal place of business is in Northumberland County, Pennsylvania. Gilberton*fn4 is also a Pennsylvania corporation and is owned and operated by the relatives of John Rich.

A. The Agreement Between Gilberton and Split Vein

Gilberton and Split Vein entered into an agreement ("Agreement") on or about September 12, 1991. According to the Agreement, Split Vein received "a license and easement" to remove culm*fn5 that was located on an area of land owned by Gilberton and referred to as the Excelsior Bank. In paragraph 22 of the Agreement, the Agreement is referred to not as a license or easement, but instead as a lease.

At a minimum, the terms of the Agreement and the oral modifications agreed to by the parties included the following:

(1) After an initial term of one (1) year, the Agreement was to run on a month-to-month basis;

(2) Split Vein was entitled to remove culm that was a size of three inches or smaller;

(3) In light of its right to recover this culm from the Excelsior Bank, Split Vein was required to make a royalty payment of $3.50 for each ton of culm removed;*fn6 and

(4) At a minimum, Split Vein was required to make royalty payments to Gilberton in the amount of $1,000 each month; (Doc. No. 2, Ex. 12 at 4.) Importantly, the Agreement did not address whether Split Vein was entitled to place for storage on Gilberton's property foreign culm that had been removed from other locations.

According to Section 8 of the Agreement:

All bank material not removed and transported from the Premises at the expiration of this Agreement, or not removed at the time of any breach of this Agreement, shall be and remains the property of Gilberton. Split Vein's failure to commence removal of the bank material, or a suspension or stoppage of removal on the Premises for a continuous period of four (4) months, shall nullify this Agreement, and thereupon, at any time thereafter, Gilberton may declare this Agreement terminated and void, and without leagl procedure, Gilberton shall retake possession of the Premises together with all improvements thereon. (Id. at 5.) It is noteworthy that Gilberton did not provide Split Vein notice of its intent to terminate the Agreement until after Split Vein filed its bankruptcy petition. Pursuant to Section 19 of the Agreement, in the event of a "breach or nonperformance" by Split Vein, the Agreement "shall be subject to cancellation at the option of Gilberton and then become absolutely void, and of no effect, and after ten (10) days written notice by Gilberton to Split Vein, it shall and may be lawful for Gilberton to re-enter and take possession of the Premises and appurtenances . . . ." (Id.) In addition, should Split Vein fail to make the required royalty payments, Gilberton, at its option, could cancel the Agreement after providing Split Vein with ten days' notice of default. Pursuant to the ...


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