Wayne Coleman v. Pristine Clean Energy, LLC ( 2021 )


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  •                  RENDERED: DECEMBER 22, 2021; 10:00 A.M.
    NOT TO BE PUBLISHED
    Commonwealth of Kentucky
    Court of Appeals
    NO. 2020-CA-1541-MR
    WAYNE COLEMAN; BOB BENTLEY
    D/B/A BOB BENTLEY TRUCKING;
    KDC TRANSPORT, LLC; RONNIE
    LONG TRUCKING, INC.; AND
    TATER TRUCKING, LLC                                                  APPELLANTS
    APPEAL FROM PIKE CIRCUIT COURT
    v.                  HONORABLE EDDY COLEMAN, JUDGE
    ACTION NO. 20-CI-00985
    PRISTINE CLEAN ENERGY, LLC
    AND VIRGIE CLEAN ENERGY, LLC                                           APPELLEES
    OPINION
    AFFIRMING
    ** ** ** ** **
    BEFORE: ACREE, COMBS, AND MAZE, JUDGES.
    ACREE, JUDGE: Appellants appeal the Pike Circuit Court’s order dismissing
    their lawsuit for lack of subject matter jurisdiction. For the following reasons, we
    affirm the circuit court’s order.
    Appellants are truckers who hauled coal for the Cambrian Coal
    Company (Cambrian) until June 16, 2019 when Cambrian filed for Chapter 11
    bankruptcy in the United States Bankruptcy Court for the Eastern District of
    Kentucky. After Cambrian filed for bankruptcy, the truckers agreed to continue
    hauling coal for 90 days with payment coming from Cambrian’s estate. The
    purpose of this contract was to maintain Cambrian’s coaling operations.
    Subsequently, Appellee, Pristine Clean Energy, LLC (Pristine), purchased
    Cambrian’s assets through an Asset Purchase Agreement (APA) which the
    bankruptcy court approved and adopted into an order. It is undisputed that Pristine
    assumed Cambrian’s liability to pay the Appellants for their work.
    What is in dispute is whether the APA required the Appellants to
    make an administrative filing with the bankruptcy court to receive payment.
    Pristine alleges the Appellants had until October 18, 2019, a deadline set by the
    bankruptcy court, to make their administrative filing and receive payment. Pristine
    claims the Appellants did not make this filing, and, to their point, there is no
    evidence Appellants ever filed or attempted to make this filing. After the period
    for administrative filings passed, Appellants filed suit against Pristine in Pike
    Circuit Court to recover for their unpaid labor.
    Appellants argued Pristine assumed liability for Cambrian’s debt
    under Section 2.3 of the APA–an undisputed fact. Under Section 2.3, Pristine
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    assumed all liabilities Cambrian incurred after Cambrian filed bankruptcy, which
    would include the debt Cambrian owed Appellants. (Record (R.) 55.) In response
    to this suit, Pristine argued the circuit court did not have subject matter jurisdiction
    to hear this case because of Paragraph 36 of the APA–a retention of jurisdiction
    clause. Under Paragraph 36, the bankruptcy court retained “exclusive jurisdiction
    to: (a) interpret, implement and enforce the terms and provisions of this Order and
    the APAs, . . . and (b) to decide any disputes concerning this Order and the APAs,
    or the rights and duties of the parties . . . .” (R. 27-28.)1 The circuit court agreed
    with Pristine and dismissed this case because Paragraph 36 took jurisdiction away
    from state courts.
    The question on appeal is whether the circuit court had subject matter
    jurisdiction to hear Appellants’ claims. Additionally, we must determine if the
    Appellants’ claims are administrative claims or, alternatively, if they are “related
    to” Cambrian’s bankruptcy estate. This is because we must also determine if the
    bankruptcy court retained jurisdiction to hear matters concerning the APA in the
    APA’s retention of jurisdiction clause. Pristine alleges, and the APA claims, the
    bankruptcy court maintains exclusive jurisdiction over matters concerning the
    APA. Consequently, we will start our analysis there.
    1
    This is the typical language found in a retention of jurisdiction clause. See Gupta v. Quincy
    Med. Ctr., 
    858 F.3d 657
    , 664 (1st Cir. 2017).
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    Like nearly all federal courts, bankruptcy courts receive jurisdictional
    powers to hear cases from statutes. Celotex Corp. v. Edwards, 
    514 U.S. 300
    , 307,
    
    115 S. Ct. 1493
    , 1498, 
    131 L. Ed. 2d 403
     (1995). “A court cannot write its own
    jurisdictional ticket.” Zerand-Bernal Grp., Inc. v. Cox, 
    23 F.3d 159
    , 164 (7th Cir.
    1994). Unfortunately for us, “bankruptcy jurisdiction [is] among the most
    misunderstood and misapplied concepts in the law.” In re Harstad, 
    155 B.R. 500
    ,
    505 (Bkrtcy. D. Minn. 1993).
    For our purposes here, bankruptcy courts derive their jurisdictional
    power from 28 U.S.C.2 § 1334. Under 
    28 U.S.C. § 1334
    (b), bankruptcy courts
    have “original but not exclusive jurisdiction of all civil proceedings arising under
    title 11, or arising in or related to cases under title 11.” (Emphasis added.) Thus,
    
    28 U.S.C. § 1334
     demarcates a bankruptcy court’s power to retain jurisdiction to
    those matters “based on the ‘arising under,’ ‘arising in,’ or ‘related to’ language of
    [28 U.S.C. §] 1334(b) . . . .” Celotex, 
    514 U.S. at 307
    , 
    115 S. Ct. at 1498
    ; 
    28 U.S.C. § 1334
    (b). Notably, 
    28 U.S.C. § 1334
     gives no exclusive jurisdiction to
    bankruptcy courts. Nevertheless, of the three above-mentioned phrases, “related
    to” claims appear to be used as a catchall category.3 In the Sixth Circuit, a
    2
    United States Code.
    3
    Despite this, the majority of federal courts “reject the notion that bankruptcy courts have
    ‘related to’ jurisdiction over third-party actions,” In re Zale Corp., 
    62 F.3d 746
    , 753 (5th Cir.
    1995), because “a bankruptcy court’s ‘related to’ jurisdiction cannot be limitless.” Celotex, 
    514 U.S. at 308
    , 
    115 S. Ct. at 1499
    .
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    bankruptcy proceeding “relates to” a matter when “the outcome of that proceeding
    could conceivably have any effect on the estate being administered in bankruptcy.”
    In re Wolverine Radio Co., 
    930 F.2d 1132
    , 1142 (6th Cir. 1991); accord Celotex,
    
    514 U.S. at
    308 n.6, 
    115 S. Ct. at
    1404 n.6.
    The Supreme Court of Alabama determined an APA’s retention of
    jurisdiction clause gave exclusive jurisdiction to bankruptcy courts. It determined
    its state’s courts did not have subject matter jurisdiction over claims of civil
    conspiracy and tortious interference where a bankruptcy court retained exclusive
    jurisdiction of all disputes arising from the APA. Phillips v. Dickey, 
    47 So.3d 222
    (Ala. 2009). The court reasoned, “[b]ecause the bankruptcy court retained
    jurisdiction, the courts of this State lack jurisdiction.” 
    Id. at 227
    . The Supreme
    Court of Alabama relied on numerous cases where courts deferred jurisdiction to a
    bankruptcy court. 
    Id.
     A New York trial court stated, “Where jurisdiction is
    expressly retained by the bankruptcy court, it should be construed as exclusive
    jurisdiction . . . .” Wollman v. Jocar Realty Co., 
    19 A.D.3d 210
    , 211, 
    799 N.Y.S.2d 17
    , 18 (N.Y.A.D. 1 Dep’t 2005); see Phillips, 
    47 So.3d at 227
    .
    Similarly, the Fifth Circuit stated, “it has always been the law that the rule which
    operates to prevent unseemly conflicts between state and federal equity courts, that
    that which first acquires jurisdiction of a res retains possession of it[.]” Bryan v.
    Speakman, 
    53 F.2d 463
    , 465 (5th Cir. 1931); see Phillips, 
    47 So.3d at 227
    .
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    Unfortunately, it does not appear that Alabama’s approach is followed by federal
    courts reviewing retention of jurisdiction clauses.
    Contrary to Alabama’s interpretation, the First Circuit, in Gupta,
    solely utilized the “arise under,” “arise in,” or are “related to” language of 
    28 U.S.C. § 1334
     to determine if a federal district court had jurisdiction to hear claims
    from former employees of a hospital against the purchasers of the hospital. 858
    F.3d at 664; 
    28 U.S.C. § 1334
    . The claims at issue involved third parties to a
    bankruptcy proceeding seeking post-confirmation claims for severance pay, and
    similarly to the case sub judice, a federal bankruptcy court ordered an APA with a
    retention of jurisdiction clause. 
    Id. at 659
    .
    In reviewing the retention of jurisdiction clause, the First Circuit did
    not give conclusive effect to that clause in the APA. Instead, the First Circuit
    relied on language from the Third Circuit to guide their treatment of the clause: “If
    there is no jurisdiction under 
    28 U.S.C. § 1334
    [,] . . . retention of jurisdiction
    provisions in a plan of reorganization or trust agreement are fundamentally
    irrelevant.” In re Resorts Int’l, Inc., 
    372 F.3d 154
    , 161 (3rd Cir. 2004); see also In
    re Thickstun Bros. Equip. Co., 
    344 B.R. 515
    , 521-22 (6th Cir. B.A.P. 2006)
    (“Retention of jurisdiction provisions . . . do not alter the overall scope of the
    bankruptcy court’s post-confirmation jurisdiction.”); Zerand-Bernal, 
    23 F.3d at 164
     (“[O]rders approving [a] bankruptcy sale [or] . . . plan of reorganization . . .
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    [cannot] confer jurisdiction.”). The First Circuit did not give conclusive effect to
    the retention of jurisdiction clause despite “routine inclusion of retention-of-
    jurisdiction provisions in Chapter 11 plans . . . .” Gupta, 858 F.3d at 664.
    Ultimately, the First Circuit held the bankruptcy court did not have
    jurisdiction because the plaintiff’s claims had no conceivable effect on the
    bankruptcy estate and, thus, the plaintiff’s claims did not arise under 
    28 U.S.C. § 1334
    . Gupta, 858 F.3d at 664-66. The First Circuit reached this conclusion
    because “a bankruptcy court may not ‘retain’ jurisdiction it never had . . . .” Id. at
    663; see also Celotex, 
    514 U.S. at 307
    , 
    115 S. Ct. at 1498
    . As a result, “[a]
    retention of jurisdiction provision may not alter the fact that ‘the source of the
    bankruptcy court’s subject matter jurisdiction is neither the Bankruptcy Code nor
    the express terms of the Plan. The source of the bankruptcy court’s jurisdiction is
    
    28 U.S.C. §§ 1334
     . . . .” Gupta, 858 F.3d at 663-64 (quoting In re U.S. Brass
    Corp., 
    301 F.3d 296
    , 303 (5th Cir. 2002)). Therefore, “[r]etention of jurisdiction
    provisions will be given effect, assuming there is bankruptcy court jurisdiction.”
    Resorts Int’l, 
    372 F.3d at 161
    .
    Thus, we can only surmise that a retention of jurisdiction clause is
    neither conclusive, nor controlling when determining if a federal court lacks
    subject matter jurisdiction concerning bankruptcy matters. Consequently, we do
    not believe the retention of jurisdiction clause can be used to give jurisdiction to
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    the bankruptcy courts without first determining if the bankruptcy court would have
    jurisdiction under 
    28 U.S.C. § 1334
    .
    With this in mind, we must now turn to administrative claims and
    whether the trucker’s claims are administrative. “[T]he Bankruptcy Code defines
    administrative expenses incurred during the pendency of the bankruptcy and
    payable by the debtor as the ‘actual, necessary costs and expenses of preserving the
    estate.’” In re Eagle-Picher Indus., 
    447 F.3d 461
    , 464 (6th Cir. 2006); see also 
    11 U.S.C. § 503
    (b)(1). “[A] debt qualifies as an ‘actual, necessary’ administrative
    expense only if (1) it arose from a transaction with the bankruptcy estate and (2)
    directly and substantially benefitted the estate.” In re Sunarhauserman, Inc., 
    126 F.3d 811
    , 816 (6th Cir. 1997). Generally, a breach of contract claim falls within
    the category of administrative expenses if the contract maintained the estate.
    Eagle-Picher, 
    447 F.3d at
    464 (citing United Trucker Serv. v. Trailer Rental Co.,
    
    851 F.2d 159
    , 162-63 (6th Cir. 1998)).
    This is similar to the “conceivable effect” language used to determine
    if a matter is related to a bankruptcy proceeding. We are unsure if the circuit
    court’s use of the conceivable effect analysis is correct in the context of
    administrative claims. Nevertheless, it makes no difference to the outcome of the
    case sub judice. A claim has no conceivable effect on the bankruptcy estate when
    the proceeds of the claim would not be paid out from the bankruptcy estate. In re
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    Zale Corp., 
    62 F.3d at 759
    . This is not true here. The circuit court found the
    claims here conceivably influenced the bankruptcy proceedings because the
    bankruptcy estate substantially benefitted from the Appellants’ hauling coal for the
    additional time after Cambrian filed bankruptcy. We agree.
    The claims at issue would be paid directly out of the bankruptcy estate
    and Pristine would be liable for those claims because Pristine assumed liability of
    Cambrian’s post-bankruptcy liabilities. Because the debt would be settled out of
    the bankruptcy estate, the claims have a conceivable effect on the bankruptcy
    estate. Thus, the circuit court did not err when it decided the claims were related to
    Cambrian’s bankruptcy proceedings. On the other side of this coin, because the
    Appellants’ actions were for the benefit of the bankruptcy estate, namely to
    preserve Cambrian’s coal expeditions, the debt owed to them should be
    characterized as an administrative cost. The bankruptcy court established a
    deadline for filing claims and the Appellants did not make a filing for their
    administrative costs. Regardless of the path of analysis taken, the bankruptcy court
    has jurisdiction over the Appellants’ claims. Because the bankruptcy court
    retained jurisdiction over such claims and jurisdiction exists under 
    28 U.S.C. § 1334
    , we can give effect to the APA’s retention of jurisdiction clause here.
    Therefore, Appellants’ remedy would be available in bankruptcy court
    and not in state court. The Pike Circuit Court would not have jurisdiction to hear
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    the Appellants’ claims because 
    28 U.S.C. § 1334
     gives original jurisdiction to the
    federal bankruptcy courts. Accordingly, Kentucky courts do not have jurisdiction
    to hear the claims brought.
    For the reasons stated above, the Pike Circuit Court correctly
    determined it lacked subject matter jurisdiction to hear the Appellants’ claims. For
    the foregoing reasons, we affirm.
    ALL CONCUR.
    BRIEF FOR APPELLANTS:                     BRIEF FOR APPELLEE:
    Lawrence R. Webster                       Billy R. Shelton
    Pikeville, Kentucky                       Jordan W. Morgan
    Lexington, Kentucky
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