Mine Management Inc v. Wolfe ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: MOUNTAIN LAUREL RESOURCES
COMPANY, A CORPORATION,
Debtor.
MINE MANAGEMENT, INCORPORATED;
LEWIS R. LAW,
Plaintiffs-Appellants,
v.
ROY V. WOLFE, III,
Trustee - Appellee,
FEDERAL INSURANCE COMPANY;
FIREMAN'S FUND INSURANCE COMPANY;
AMERICAN EMPIRE SURPLUS LINES
INSURANCE COMPANY; CONTINENTAL
No. 99-1876
INSURANCE COMPANY; TWIN CITY FIRE
INSURANCE COMPANY; FIRST STATE
INSURANCE COMPANY; CAMDEN FIRE
INSURANCE ASSOCIATION; DIVISIONOF
ENVIRONMENTAL PROTECTIONOFTHE
WEST VIRGINIA DEPARTMENTOF
COMMERCE, LABORAND
ENVIRONMENTAL RESOURCES; TOWNOF
FAYETTEVILLE; CSX CORPORATION;
CSX MINERALS, INCORPORATED, CSX
TRANSPORTATION, INCORPORATED;
TRANSCONTINENTAL INSURANCE
COMPANY; FIDELITYAND CASUALTY
COMPANYOF NEW YORK; BUCKEYE
UNION INSURANCE COMPANY,
Parties in Interest-Appellees.
Appeal from the United States District Court
for the Southern District of West Virginia, at Beckley.
Robert C. Chambers, District Judge.
(CA-99-180-5, BK-93-50398,
AP-96-125)
Argued: January 27, 2000
Decided: April 3, 2000
Before NIEMEYER, Circuit Judge,
HAMILTON, Senior Circuit Judge, and
Frederic N. SMALKIN, United States District Judge
for the District of Maryland, sitting by designation.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Charles Edward Hurt, LEWIS LAW AND MINE MAN-
AGEMENT, INC., Charleston, West Virginia, for Appellants. Ste-
phen L. Thompson, BARTH, THOMPSON & GEORGE, Charleston,
West Virginia, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Mine Management, Inc. (MMI) and Lewis Law (Law) appeal from
the district court's dismissal of their appeal as equitably moot from
2
a bankruptcy court order. In this appeal, MMI and Law assert that the
bankruptcy court lacked jurisdiction and authority to issue its order
and that the district court erred in its finding of equitable mootness.
For the reasons stated below, we hold that the bankruptcy court had
jurisdiction and authority to issue its order and that the district court
did not err in dismissing the case as equitably moot.
I
This appeal arises from a complex fifteen-year history of litigation
concerning the environmental cleanup of a 241-acre site in Fayette
County, West Virginia. Throughout the 1900s, the site, known as
"Summerlee," was used for the dumping of refuse (by-products from
coal processing). Prior to 1980, the site was owned by the New River
Company (New River), whose name was later changed to Mountain
Laurel Resources Company (Mountain Laurel).1 New River was
owned by Western Pocahontas Company, which was later purchased
by the CSX Corporation and its subsidiaries (collectively the CSX
entities). The dumping of refuse at Summerlee resulted in a refuse
pile that was approximately 100 feet of "gob" spread over a substan-
tial area of the site. (J.A. 179). Because of the nature of the refuse,
as water percolated through the pile of gob, the water accumulated
contaminants known as acid mine drainage (AMD).
In 1977, Law formed MMI to engage in various coal-related busi-
ness activities.2 As part of its activities, Mountain Laurel leased some
surface rights at Summerlee to MMI and Law who, in turn, assigned
those rights to Princess Cindy Mining Company for the purpose of
processing the gob, removing pond fines to blend with coal, and sell-
ing the coal refuse. In 1978, the State of West Virginia (the State)
required Mountain Laurel to install a treatment plant to treat and miti-
gate the AMD.
On April 1, 1980, Mountain Laurel sold a portion of the surface
rights of Summerlee to MMI. The sale included the preparation plant,
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1 Because New River and Mountain Laurel are essentially the same
company and represent the same interests, where appropriate this opinion
refers to them collectively as Mountain Laurel.
2 Law is the sole shareholder of MMI.
3
a series of ponds, the gob pile, and a water treatment system.3 At the
time MMI purchased the site, the water treatment system was subject
to a National Pollution Discharge Elimination System (NPDES) per-
mit obtained by New River.4 Despite repeated notice, however, nei-
ther MMI nor Law ever applied for an NPDES permit authorizing
discharges into Wolf and Arbuckle Creeks. Due to MMI and Law's
failure to operate the water treatment system effectively, AMD was
discharged from the collection pond into Wolf Creek, or from the sec-
ond settling pond into Arbuckle Creek, on at least sixteen occasions
between March 1987 and November 15, 1991. MMI and Law were
indicted, tried before a jury, and convicted of violating the Clean
Water Act, 33 U.S.C.A. § 1319(c)(2). Law was sentenced to two
years in prison and MMI and Law were fined $80,000 each; both con-
victions were upheld on appeal by this court in United States v. Law,
979 F.2d 977 (4th Cir. 1992).
From 1984 to 1993, the State and the Town of Fayetteville, West
Virginia (the Town) filed a series of civil suits in the Circuit Court
of Fayette County (the state circuit court) against Mountain Laurel,
the CSX entities, MMI, and Law seeking: (1) injunctive relief to com-
pel abatement of water contamination caused by the gob pile and (2)
damages arising from remedying the pollution.5 In response to these
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3 In the deed conveyed to MMI, a provision provided that MMI
assumed "any and all liability, present and future, . . . for all environmen-
tal and safety matters, including but not limited to, air pollution [and]
water pollution . . . arising out of the ownership or use of the property
conveyed, which includes all possible future claims that may be asserted
by . . . [State and Federal agencies]." (J.A. 12-13).
4 The water treatment system was designed to reduce the AMD content
of drainage from the gob pile. The system was comprised of a collection
pond near Wolf Creek, a pump, and piping that channeled the collected
water over a ridge and through a hopper, which dispensed soda ash bri-
quettes to raise the pH of the water. Iron and manganese then precipi-
tated out as the water flowed through two settling ponds before its
discharge into Arbuckle Creek.
5 The State's claim for damages was premised on its incurring
$2,100,000 in costs to remediate the site by lessening the percolation of
water through the gob pile and eliminating four ponds contaminated with
AMD that discharged into Wolf Creek. In addition, the State and the
Town sought prospective relief for the continuing costs of remediation.
4
suits, MMI and Law filed and served third-party complaints seeking
indemnification from Mountain Laurel and the CSX entities. In addi-
tion to the indemnification claims, MMI and Law asserted claims of
fraud against Mountain Laurel and the CSX entities for fraudulently
conveying the Summerlee site which resulted in MMI incurring
extensive liability and Law being imprisoned.6 In 1995, the state cir-
cuit court entered a judgment in favor of the State against MMI and
Law as to their liability. The State, however, did not pursue a dam-
ages determination because of the settlement discussions in this case.
In 1993, Mountain Laurel filed a Chapter 11 petition for bank-
ruptcy protection.7 At the time of the bankruptcy filing, Mountain
Laurel was still a defendant in the state court litigation between the
State, the Town, the CSX entities, MMI, and Law. Based on the state
court litigation, the State, the Town, MMI, and Law filed proofs of
claim against Mountain Laurel asserting rights to its bankruptcy
estate. In response to those claims against the estate, the Trustee, in
administering the bankruptcy estate, initiated an adversary proceeding
seeking a declaration of rights, under certain insurance policies, as to
Mountain Laurel's coverage and its right to recover its defense costs
in defending against the state court litigation. In the complaint, the
Trustee alleged that: (1) the bankruptcy court had jurisdiction under
28 U.S.C.A. §§ 157, 1334; and (2) the matter was a core proceeding
under 28 U.S.C.A. § 157(b)(2)(A)-(B), (E), (O).
The State and the Town, together with MMI and Law, jointly
moved to intervene in the adversary proceeding as plaintiffs against
the insurers; the bankruptcy court granted that motion. As plaintiffs,
the Trustee, the State, the Town, MMI, and Law sought to have the
bankruptcy court determine the insurers' liability and each party's
rights to the proceeds, if any, from the insurance policies. The insur-
ers denied coverage based upon a variety of reasons.
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6 MMI and Law claim that Mountain Laurel made false statements and
engaged in other fraudulent conduct in order to prevent MMI and Law
from discovering the pollution problems at Summerlee. MMI and Law's
claims against the CSX entities are premised on the theory that the CSX
entities are the alter ego of Mountain Laurel
7 The bankruptcy was later converted to a Chapter 7 proceeding.
5
Over the course of several months, the Trustee engaged in lengthy
and complex negotiations in an effort to resolve the various disputes
among the parties. Because of the inter-relationship between the
adversary proceeding, the bankruptcy claims, and the state court liti-
gation, it was necessary to involve numerous parties not parties to the
bankruptcy proceeding. Although not involved in the bankruptcy case
or in the adversary proceeding but involved as defendants in the state
court litigation, the CSX entities voluntarily participated in the settle-
ment discussions. Other parties, such as citizens groups of riparian
landowners along Wolf Creek and representatives of the National
Park Service and the Federal Office of Surface Mining were not
actual parties to any of the court proceedings or to the settlement
itself, but nevertheless participated in the settlement negotiations.
Despite invitations by the Trustee and admonitions by the bankruptcy
court to participate in settlement negotiations, MMI and Law refused
to participate. After several months, the Trustee was able to fashion
a proposed settlement and compromise that was acceptable to all par-
ties except MMI and Law. MMI and Law refused to sign the settle-
ment agreement.
Under the terms of the proposed settlement, the insurers and the
CSX entities were required to pay to the Environmental Claim Fund
of the estate the total sum of $850,000. Of this amount the estate
would retain $100,000 for reimbursement of the fees and costs it
expended in the state court litigation. These funds were also to be
available for payment of other claims and administrative expenses of
the estate. The remaining balance of $750,000 would be paid by the
estate to the State and the Town in full satisfaction of their environ-
mental claims against the estate, Law, MMI, and the CSX entities.
In return for receiving distributions from the estate, the State and
the Town agreed to release MMI and Law from liability for the
State's costs in remediating Summerlee and the Town's claim for
damages to its water supply. In return for the insurers' payment of
funds to the estate, the State, the Town, Mountain Laurel/the Trustee,
MMI, and Law were to release the insurers from liability. Similarly,
in return for the CSX entities' contribution to the estate, the CSX enti-
ties and Mountain Laurel were to be released "from any and all duties,
liabilities, responsibilities, or obligations of every kind and nature,
known or unknown, past, present and future related to the Summerlee
6
Site under or arising out of Mountain Laurel's and the CSX Entities'
interest or alleged interest in or arising out of the [insurance] Poli-
cies." (J.A. 201). Finally, the benefit the settlement agreement was to
provide to MMI and Law was relief from the judgment already
entered by the state circuit court in favor of the State for the costs of
remediating Summerlee. In addition, MMI and Law would be
released from similar claims of the Town and the indemnity claims
of the estate, as well as indemnity, contribution, and subrogation
claims of the insurers and the CSX entities who might be called upon
to satisfy the claims of the estate and then look to MMI and Law.
To ensure that no one interfered with the settlement agreement, the
bankruptcy court issued a permanent injunction prohibiting "any per-
son from attempting to pursue any of the claims released by the terms
of the Settlement Agreement or from interfering, in any respect, with
the implementation of the terms of the Settlement Agreement." (J.A.
187). The injunction, therefore, enjoined MMI and Law from pursu-
ing the state court litigation against Mountain Laurel and the CSX
entities.
The parties participating in the settlement agreement moved the
bankruptcy court to approve the settlement but MMI and Law
objected. On January 28, 1999, the bankruptcy court conducted an
evidentiary hearing on the motion and, on February 10, 1999, the
bankruptcy court issued an order (the settlement order) approving the
settlement agreement.
In response to MMI and Law's objections, the bankruptcy court
concluded that "the settlement provides for a distribution to MMI and
Law upon their Claim which exceeds that which they could be
expected to receive from the Trustee from the assets of the estate
upon a final distribution." (J.A. 185). With respect to MMI and Law's
fraud claims against Mountain Laurel, the bankruptcy court deter-
mined that those claims were still viable but that MMI and Law
would have to assert them against the estate in bankruptcy court if,
at a later time, it was determined that there were funds available for
distribution to general unsecured creditors.8
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8 The bankruptcy court's order does not make reference to the status of
MMI and Law's fraud claim against the CSX entities. However, the
7
On February 12, 1999, MMI and Law filed a notice of appeal from
the bankruptcy court's order. In response to MMI and Law's notice
of appeal, on March 4, 1999, the State and the Town filed a motion
to dismiss the appeal on the grounds of legal and equitable mootness.
The State and the Town's motion to dismiss was originally filed with
the United States Bankruptcy Court for the Southern District of West
Virginia, but was forwarded later to the United States District Court
for the Southern District of West Virginia on March 5, 1999.
On May 17, 1999, the district court held a hearing on the State and
the Town's motion to dismiss the appeal on the grounds of legal and
equitable mootness. On June 7, 1999, the district court issued an order
granting the State and the Town's motion to dismiss, finding that
MMI and Law's appeal to the district court was equitably moot. The
district court concluded that reversing the settlement agreement and
order on appeal would "be manifestly unjust to both the parties and
the citizens who waited so long for the pollution in Wolfe [sic] Creek
to be rectified." (J.A. 289). The district court focused on MMI and
Law's failure to apply for a stay of the bankruptcy court's proceed-
ings, which in turn permitted the bankruptcy court to allow distribu-
tion of the funds by the Trustee. In addition, the district court
concluded that if it reversed the portion of the settlement agreement
releasing the CSX entities from any claims MMI and Law had against
them, such a decision "undoubtedly would affect the substantial rights
of the CSX entities by subjecting them to additional litigation," and
that doing so would likely result in "unraveling the entire settlement
agreement." (J.A. 288).
Finally, the district court looked to the public interest in abating the
water pollution. The district court noted that, although the State had
performed some land remediation of Summerlee, the settlement pro-
ceeds were needed to conduct water remediation. It further noted that
the riparian landowners along Wolf Creek, and the citizens' drinking
water from Wolf Creek, had already endured fifteen years of litigation
waiting for a resolution. Based on this public interest, the CSX enti-
_________________________________________________________________
court's interpretation of the settlement agreement as not affecting the via-
bility of MMI and Law's fraud claims against Mountain Laurel appears
to indicate that MMI and Law's fraud claims against the CSX entities
may still be viable in the bankruptcy court.
8
ties and the insurers' payment of the funds to the Trustee, the Trust-
ee's disbursement of those funds to the State and the Town, and
issuance of the various releases, the district court concluded that the
appeal was equitably moot.
On June 17, 1999, MMI and Law noticed a timely appeal.
II
This court is presented with two issues: (1) whether the bankruptcy
court had jurisdiction and authority to enjoin, by way of enforcement
of the settlement agreement, MMI and Law from proceeding with
their suit against Mountain Laurel and the CSX entities in state court;
and (2) whether review of the merits of the settlement agreement is
now equitably moot because the agreement has been consummated.
We address these issues in turn.
A
MMI and Law argue that the bankruptcy court lacked jurisdiction
and authority to enjoin their state court litigation against the CSX
entities because: (1) the Trustee's adversary proceeding against the
insurers was a non-core proceeding in which the bankruptcy court
could only propose findings of fact and conclusions of law; and (2)
the injunction effectively discharges MMI and Law's claims against
a nondebtor third-party, i.e., the CSX entities. We disagree.
The United States district courts possess original jurisdiction over
"all civil proceedings arising under title 11, or arising in or related to
cases under title 11." 28 U.S.C.A. § 1334(b) (West 1994). "Each dis-
trict court may provide that any or all cases under title 11 and any or
all proceedings arising under title 11 or arising in or related to a case
under title 11 shall be referred to the bankruptcy judges for the dis-
trict." Id. § 157(a);9 see United States v. Wilson, 974 F.2d 514, 516
(4th Cir. 1992). Once jurisdiction is established under § 1334 and a
case has been referred to the bankruptcy court under § 157(a), the
_________________________________________________________________
9 The United States' bankruptcy laws are codified in Title 11 of the
United States Code. See 11 U.S.C.A. §§ 101-1330 (1994).
9
bankruptcy courts are granted authority to "hear and determine all
cases under title 11 and all core proceedings arising under title 11, or
arising in a case under title 11." 28 U.S.C.A.§ 157(b)(1) (emphasis
added); see Wilson, 974 F.2d at 516. With respect to non-core pro-
ceedings that are related to a case under Title 11, however, bank-
ruptcy courts are limited to hearing the proceeding and submitting
proposed findings of fact and conclusions of law to the district court
for entry of a final order or judgment unless the parties consent other-
wise. See 28 U.S.C.A. § 157(c)(1). In granting relief in cases properly
before it, the bankruptcy court is authorized to"issue any order, pro-
cess, or judgment that is necessary or appropriate to carry out the pro-
visions" of Title 11. 11 U.S.C.A. § 105(a) (West 1993).
The proceeding at issue in this appeal is the Trustee's claim against
Mountain Laurel's insurers for the Trustee's fees and costs in defend-
ing the estate against the claims resulting from the pollution problems
at Summerlee. The State, the Town, MMI, and Law intervened in the
Trustee's proceeding against the insurers as plaintiffs asserting, inter
alia: (1) that their claims were so related to the claim raised by the
Trustee that they form part of the same case or controversy; (2) that
intervention was necessary to secure their ability to protect their
respective interests; and (3) that the Trustee's claim was situated such
that, disposition of it absent allowing intervention, would have
impaired or impeded the State, the Town, MMI, and Law's ability to
protect their interests. The State, the Town, MMI, and Law sought to
have the bankruptcy court afford them relief by making the proceeds
of the policies available to satisfy their claims against Mountain Lau-
rel, which were the same claims these parties asserted against Moun-
tain Laurel in the state court litigation. It follows that the issues of
what amount the insurers owed, which claimants were entitled to a
portion of any proceeds awarded to the estate of Mountain Laurel, and
the merits of the state court litigation were squarely before the bank-
ruptcy court. Accordingly, the Trustee's claim against Mountain Lau-
rel's insurers is, at a minimum, related to a Title 11 case, and
therefore, jurisdiction was proper. See 28 U.S.C.A. § 1334(a); 1 Col-
lier on Bankruptcy ¶¶ 3.01[4][c][ii]-[iv], at 3-23 to 3-29 (Matthew
Bender 1999).
With respect to the bankruptcy court's authority to hear and deter-
mine the Trustee's claims against Mountain Laurel's insurers, even if
10
we accepted MMI and Law's argument that this proceeding was a
non-core proceeding, it is clear that MMI and Law consented to the
bankruptcy court's authority to determine the issues raised by the var-
ious claimants. See Canal Corp. v. Finnman (In re Johnson), 960 F.2d
396, 403 (4th Cir. 1992) ("Under § 157(c)(2) a bankruptcy court may
enter appropriate orders and judgments in non-core related matters
where such matters are referred by the district court and it has the
consent of all the parties." (footnote omitted)). By intervening in the
Trustee's adversary proceeding against the insurers, MMI and Law,
in effect, requested the bankruptcy court to determine the validity of
their claims and their rights to indemnification from Mountain Laurel
on the State's and the Town's claims against MMI and Law for reme-
dying the pollution. See In re Johnson, 960 F.2d at 403 (holding that
a party impliedly consents to entry of judgment by the bankruptcy
court in a non-core proceeding where the party fails to object to the
bankruptcy court's treatment of the proceeding as core); see also M.A.
Baheth & Co. v. Schott (In re M.A. Baheth Constr. Co.), 118 F.3d
1082, 1084 (5th Cir. 1997) ("Furthermore, by failing to object to the
bankruptcy court's assumption of core jurisdiction, Baheth impliedly
consented to the court's entry of final judgment."). A determination
of the validity of MMI and Law's indemnification claims necessarily
requires the bankruptcy court to evaluate the merits of all the parties'
claims. Thus, the bankruptcy court had little choice but to exercise its
authority over the entire state court litigation, including MMI and
Law's alter ego claim against the CSX entities.
MMI and Law also argue that the bankruptcy court lacked the
authority under 11 U.S.C.A. § 105(a) to enjoin their suit against the
CSX entities because the CSX entities are nondebtor third-parties.
The bankruptcy court, however, has authority to"``enjoin parties other
than the bankrupt' from commencing or continuing litigation." A.H.
Robins Co. v. Piccinin (In re A.H. Robins Co.), 788 F.2d 994, 1002
(4th Cir. 1986). A.H. Robins makes clear that a bankruptcy court has
the authority under § 105(a) to enjoin suits against a third-party where
the third-party could seek indemnification from the estate or where a
judgment against the third-party may raise issues of collateral estop-
pel with respect to suits against the estate. See id. at 1005, 1008. In
this case, both of these circumstances are present, and the bankruptcy
court had authority to enjoin MMI and Law's claims against the par-
ties to the settlement agreement.
11
B
Having determined that the bankruptcy court (1) had jurisdiction
under 28 U.S.C.A. § 1334 over the Trustee's adversary proceeding
against the insurers, (2) had the authority under 28 U.S.C.A. § 157 to
determine the issues raised in the proceeding, and (3) had the author-
ity under 11 U.S.C.A. § 105(a) to issue an injunction against alleged
third-party nondebtors, we turn to the issue of whether MMI and
Law's challenge to the merits of the bankruptcy court's settlement
order is equitably moot. Upon review of the briefs and the record, and
after consideration of oral arguments, we conclude that the district
court correctly held that MMI and Law's appeal from the bankruptcy
court's settlement order was equitably moot for the reasons stated in
its opinion. See Law v. Wolfe (In re Mountain Laurel Resources Co.),
Civ. A. No. 5:99-0180 (D. W. Va. June 9, 1999).
III
For the reasons stated above, the judgment of the district court is
affirmed.
AFFIRMED
12