Rushton v. Standard Industries, Inc. (In re C.W. Mining Co.)

488 B.R. 715, 2013 WL 888677, 2013 U.S. Dist. LEXIS 32539
CourtDistrict Court, D. Utah
DecidedMarch 8, 2013
DocketBankruptcy No. 08-20105; No. 2:10-CV-271 TS
StatusPublished
Cited by3 cases

This text of 488 B.R. 715 (Rushton v. Standard Industries, Inc. (In re C.W. Mining Co.)) is published on Counsel Stack Legal Research, covering District Court, D. Utah primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rushton v. Standard Industries, Inc. (In re C.W. Mining Co.), 488 B.R. 715, 2013 WL 888677, 2013 U.S. Dist. LEXIS 32539 (D. Utah 2013).

Opinion

MEMORANDUM DECISION AND ORDER ON COMBINED APPEAL

TED STEWART, District Judge.

This matter is before the Court on Standard Industries, Inc. (“Standard”), ABM, Inc. (“ABM”), Fidelity Funding Company (“Fidelity Funding”), Security Funding, Inc. (“Security Funding”), and World Enterprises’s (‘World”) (collectively referred to as “Appellants”) Appeal from Bankruptcy Adversary Proceeding No. 09-2047 in Bankruptcy Case No. 08-20105. Due to the similarity of facts and issues involved, two separate appeals to this Court by these parties were consolidated into this action.1 The Court has considered the briefs and evidence submitted by the parties and, for the reasons provided more fully below, will affirm in part and reverse in part the bankruptcy court’s decision.

I. BACKGROUND

At issue in this appeal is $2,797,246.79 held in an account (the “UEI Receivable”) by Utah American Energy, Inc. (“UEI”). UEI makes no claim to the amount being held in the UEI Receivable. Rather, because competing claims were made on the funds by other parties, UEI held back payment and interpleaded the UEI Receivable into the bankruptcy court. The parties to this appeal claim an interest in the UEI Receivable.

This appeal arises out of the involuntary bankruptcy proceedings of C.W. Mining Company (“CWM”). Prior to entering bankruptcy, CWM was in the business of mining coal. CWM’s primary asset was the Bear Canyon mine, an underground coal mine located in Emery County, Utah. The Bear Canyon mine is located on property owned by C.O.P. Coal Development Company (“COP”). CWM began operating the Bear Canyon mine in 1982 or 1983. In March of 1997, COP and CWM entered into a coal mining agreement that granted CWM the express right to mine the Bear Canyon mine.

On January 8, 2008, an involuntary Chapter 11 bankruptcy petition was filed [718]*718against CWM in the Bankruptcy Court for the District of Utah. An order for relief was entered on September 26, 2008, and on November 13, 2008, CWM’s Chapter 11 bankruptcy proceeding was converted to a Chapter 7 liquidation proceeding. On November 19, 2008, Kenneth A. Rushton (the “Trustee”) was appointed as trustee of CWM.

The Trustee initiated the underlying adversary proceeding on February 9, 2009. In that proceeding, the Trustee filed a motion for partial summary judgment seeking a determination of the parties’ rights to the proceeds of the UEI Receivable. A creditor of CWM, Aquila Inc., joined in the Trustee’s motion. On August 24, 2010, the bankruptcy court entered its initial Memorandum Decision Granting in Part and Denying in Part Trustee’s Motion for Partial Summary Judgment as to UEI Receivable and Avoidance of Liens.2 The Trustee and Standard both sought revisions of the bankruptcy court’s decision. On December 8, 2010, the bankruptcy court entered its Amended Memorandum Decision Granting in Part and Denying in Part Trustee’s Motion for Partial Summary Judgment as to UEI Receivable and Avoidance of Liens (the “Amended Memorandum Decision”).3

Pursuant to the Amended Memorandum Decision, the bankruptcy court found for the Trustee on the majority of his claims in the underlying adversary proceeding. The bankruptcy court found that Standard possessed only a security interest in the UEI Receivable and that the Appellants failed to properly perfect any security interest they may have had in the UEI Receivable. Pursuant to these findings, on July 2, 2010, the bankruptcy court entered a final order instructing the court clerk to pay the UEI Receivable proceeds to the Trustee.

Appellants assert that the bankruptcy court committed reversible error in reaching the legal conclusions that form the basis of its Amended Memorandum Decision and subsequent order.

A. AGREEMENTS

Throughout the time period that CWM operated the Bear Canyon mine, Standard acted as CWM’s coal broker. During the majority of that time, Standard and CWM operated under a verbal agreement. However, CWM and Standard did enter into at least two written agreements. Standard objects to the bankruptcy court’s interpretation and application of those agreements.

The first agreement at issue is titled the “Advance Payment Agreement.” The Advance Payment Agreement has entered into by Standard and CWM and has an effective date of March 27, 2001. The preamble to the Advance Payment Agreement discusses the existing brokerage relationship between the parties and CWM’s need for financing to pay its operating expenses and implement a new mining method.4 The preamble also provides that “Standard is willing to make advance payments to CWM against future coal production, In [sic] order to enable CWM to remain in operation until CWM commences longwall mining.”5

Paragraph three of the Advance Payment Agreement provides that “Standard may from time to time make advance payments to or on behalf of CWM for the purchase of coal not yet mined.”6 The [719]*719same paragraph farther clarifies that “Standard’s payments to CWM are advance payments for purchase of coal not yet mined, for which Standard shall have full legal and equitable title to the coal as it is mined by CWM, and shall not be construed as a mere loan to CWM.”7

Paragraphs four and five provide for the accrual of interest and fees on amounts advanced by Standard. Paragraphs nine and eleven grant Standard ultimate discretion in the acceptance and application of payments from CWM.8 In this same vein, paragraph eight provides that “CWM shall pay Standard all amounts due under [the Advance Payment Agreement] either in cash from the proceeds of coal sales, or in coal as a commodity, at Standard’s option.” 9 As an added protection, paragraph thirteen provides Standard

a security interest in all of CWM’s personal property (both tangible and intangible) without limitation, wherever located, whether or not in CWM’s possession, custody or control, and whether or not vested or contingent, liquidated or unliq-uidated, now owned or hereafter acquired, and all profits and proceeds from the appreciation, sale, use, or disposition of CWM’s property.10

The remainder of the Advance Payment Agreement contains boilerplate language and discusses the parties’ rights and rec-ourses in the event of a default, ability to amend the agreement, and the duration of the agreement.

The second agreement at issue is titled the “Coal Sales Agency Agreement” (“Agency Agreement”). The Agency Agreement has an effective date of March 5, 2007 and appoints Standard as CWM’s exclusive sales agent for coal produced from the Bear Canyon mine. The Agency Agreement indicates in its preamble that CWM and Standard wish to appoint Standard as CWM’s “agent for the exclusive sale of coal mined by [CWM].”11 Paragraph two provides that:

[Standard] shall be [CWM]’s sole and exclusive agent and representative for all purposes of this Agreement, including the sale of all coal mined by [CWM], which shall be made available to [CWM]’s customers exclusively through [Standard], [CWM] shall direct to [Standard] all inquiries from any customer, potential customer, or third party regarding the purchase and sale of coal.12

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Bluebook (online)
488 B.R. 715, 2013 WL 888677, 2013 U.S. Dist. LEXIS 32539, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rushton-v-standard-industries-inc-in-re-cw-mining-co-utd-2013.