The Cadle Company II, Inc. v. Gasbusters Production I Limite

Filing

OPINION filed : the bankruptcy court's decision is AFFIRMED, decision not for publication pursuant to local rule 206. Helene N. White and Jane Branstetter Stranch, Circuit Judges; Avern Cohn (authoring), U.S. District Judge.

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 1

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0664n.06
FILED

No. 10-5060
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

THE CADLE COMPANY II, INC.,
Plaintiff-Appellant,
v.
GASBUSTERS PRODUCTION I LIMITED
PARTNERSHIP,
Defendant-Appellee.

)
)
)
)
)
)
)
)
)
)
)

Sep 09, 2011
LEONARD GREEN, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE WESTERN
DISTRICT OF KENTUCKY
OPINION

BEFORE: WHITE and STRANCH, Circuit Judges; COHN, District Judge.*
AVERN COHN, District Judge. This is an appeal of a bankruptcy court decision.
Appellant The Cadle Company II, Inc. (Cadle), the primary unsecured creditor in a bankruptcy estate
(estate), appeals a bankruptcy court’s decision that Appellee Gasbusters Production I Limited
Partnership (GPILP) has the ownership right to assert claims against the estate. GPILP’s claims are
based on agreements entered into between GPILP and estate debtor Clarence Lester Paul (Paul)
relating to the operation and management of 15 gas and oil wells (wells).
For the reasons that follow, the bankruptcy court’s decision will be affirmed.
I. BACKGROUND
The estate whose assets are now at issue was formed when, on February 6, 2004, Paul and
his wife Margaret S. Paul (Mr. and Mrs. Paul) filed a Chapter 7 bankruptcy petition. Two years after
*

The Honorable Avern Cohn, United States District Judge for the Eastern District of
Michigan, sitting by designation.

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 2

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
the bankruptcy petition was filed, GPILP filed a proof of claim against the estate in the amount of
$424,825.00, in order to recover from what GPILP asserts was a breach of contract by Paul for
failing to operate and properly manage gas wells. At the same time, GPILP moved for payment of
gas-sale proceeds in the amount of $25,659.33, which GPILP asserts it was entitled to because the
proceeds were earned during a period of time in which it had an ownership right – between
settlement of a separate claim against GPILP, described below, and Mr. and Mrs. Paul’s bankruptcy
petition. Cadle subsequently purchased most of the assets of and rights in the Paul estate.
Cadle filed an objection to GPILP’s proof of claim and motion for gas-sale proceeds with the
bankruptcy court.2 As to the proof of claim, Cadle contended that GPILP was not entitled to recover
from the estate because it did not have an ownership interest in the wells, primarily because of
claimed deficiencies in the well-transfer agreements. Cadle also argued that GPILP used an
arbitrary methodology when it calculated the proof-of-claim amount. Finally, Cadle maintained that
the amount needed to be further reduced to account for certain expenses and offset items owed by
GPILP to Paul.
The bankruptcy court held an evidentiary hearing to aid in its resolution of the parties’
motions. Following the hearing, Cadle’s objections were overruled and GPILP was awarded claims
against the estate and gas-sale proceeds, but for a reduced amount: $312,239.50 for the proof of
claim, and $20,861.15 in gas-sale proceeds. With regard to the proof-of-claim amount, the

2

The objection was made to an amended proof of claim, filed by GPILP in response to the
estate’s trustee objection that the original claim was unliquidated. The fact that the objection was
made to an amended proof of claim has no bearing on the present appeal.
-2-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 3

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
bankruptcy court rejected Cadle’s argument that the claim needed to be even further reduced because
of the various expense offsets, finding that Cadle failed to provide credible evidence concerning their
existence and amount.
On appeal, a district court affirmed the bankruptcy court’s decisions. Cadle appeals. We
review the bankruptcy court’s decision directly, rather than the district court order. Nuvell Credit
Corp. V. Westfall, 599 F.3d 498, 500 (6th Cir. 2010).
II. DISCUSSION
A. Proof of Claim
Cadle argues on several grounds as follows that the bankruptcy court erred in finding that
GPILP had an ownership interest to assert a proof of claim against the estate.
1. Judicial Admissions
First, Cadle says that the bankruptcy court erred during the evidentiary hearing when it
decided a motion in limine in favor of GPILP, which allowed statements made by Cadle in a prior
adversary proceeding to be treated as judicial admissions, rather than evidentiary admissions. The
statements involve allegations by Cadle that Paul concealed wrongful business activities using alterego entities,3 and the decision effectively prevented Cadle from arguing that GPILP’s proof of claim
against the estate was invalid on the ground that it should have been made against the alter-ego

3

Paul is now deceased. The alter-ego allegations involved Paul’s operation of several
businesses, including Bluegrass Drilling, Delstar Resources, Heritage Properties, The Viking Group,
Energy Managers, and others.
-3-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 4

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
entities and not Paul. We review a grant of a motion in limine for an abuse of discretion. United
States v. Humphrey, 608 F.3d 955, 957 (6th Cir. 2010).
It is well established in our circuit that “‘[p]leadings in a prior case may be used as
evidentiary admissions.’” Barnes v. Owens-Corning Fiberglas Corp., 201 F.3d 815, 829 (6th Cir.
2000) (quoting Williams v. Union Carbide Corp., 790 F.2d 552, 556 (6th Cir. 1986)).
Judicial admissions, on the other hand, are formal admissions in the pleadings of a present
action, “which have the effect of withdrawing a fact from issue and dispensing wholly with the need
for proof of the fact.” In re Fordson Eng’ Corp., 25 B.R. 506, 509 (Bankr. E.D. Mich. 1982).
“[U]nder federal law, stipulations and admissions in the pleadings are generally binding on the
parties and the Court.” Ferguson v. Neighborhood Hous. Servs., Inc., 780 F.2d 549, 551 (6th Cir.
1986) (citation and quotation marks omitted). “Not only are such admissions and stipulations
binding before the trial court, but they are binding on appeal as well.” Id. (citation omitted).
Further, admissions made during a deposition, absent exceptional circumstances, have been
held to be binding on the parties as a judicial admission and cannot be challenged in the trial court
or on appeal. Maynard v. Brewer, 787 F.2d 591(6th Cir. March 4, 1986) (table order) (holding that
a “blatant judicial admission by a plaintiff in his deposition that a jailer did not assault him, absent
exceptional circumstances . . . [was] binding on the parties”).
Here, in support of its motion in limine, GPILP provided the bankruptcy court with an
amended complaint from a prior adversary proceeding, which contained the statements that were
treated as judicial admissions. GPILP also provided deposition testimony from the present

-4-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 5

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
bankruptcy court proceeding, in which a Cadle representative confirmed the statements as true and
a Cadle attorney stipulated to their truth.
The bankruptcy court’s written decision granting the motion states:
On the motion filed by [GPILP] seeking an order deeming the allegations of fact,
including mixed statements of law and fact, in pleadings and papers filed by [Cadle]
in adversary no. 06-AP-3003 as judicial admissions of Cadle for purposes of this
bankruptcy case, and the Court being sufficiently advised, it is hereby ORDERED
that the motion is GRANTED. No evidence will be admitted at the upcoming
evidentiary hearing(s) for the purpose of contradicting the assertion that the
bankruptcy estate is liable for any lawful claim against the debtors individually or
d/b/a any Paul Family Entity (a) which claim existed on the date of filing of the
petition, (b) for which a proof of claim has been timely and properly filed in this case,
and (c) that the Court by subsequent order may deem to be allowed.
(Bankr. Ct. Doc. 630).
As stated, Cadle argues that the statements at issue should have been treated as evidentiary
admissions rather than judicial admissions, in order to allow Cadle to present additional evidence
in support of its defense that other entities and not Paul are liable to GPILP. In support, Cadle relies
on Dixie Sand & Gravel Corp. v. Holland, 255 F.2d 304 (6th Cir. 1958), in which this court held that
“[a]llegations in pleadings in other actions are admissible in evidence as admissions, but are not
conclusive, and should be considered in connection with any other evidence which may be offered
in explanation.” Id. at 310 (holding that an allegation from a prior state court case was not binding
on the appellant, even though it was contradictory to the appellant’s present contention).
In response, GPILP argues that the bankruptcy court’s decision to treat the statements as
judicial admissions was proper. In support, GPILP cites Cananwill, Inc. v. EMAR Group, Inc., 250
B.R. 533 (M.D.N.C. 1999), for the proposition that factual assertions made by parties in pleadings

-5-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 6

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
filed in related adversary proceedings, unless subsequently amended, are judicial admissions. Id. at
545. GPILP further argues that there is no error in the bankruptcy court’s decision because similar
statements – or statements confirming the truth of the prior statements – were made in papers and
depositions on the present bankruptcy court’s record. For example, GPILP points to Cadle’s
Responses to GPILP’s First Interrogatories to Cadle, (Bankr. Ct. Doc. 418, pp. 9-10), filed in the
present bankruptcy court action, in which Cadle states:
To the extent that the Paul Family Children’s “argument” rests on the hotly contested
assertion . . . that they, not the Debtors, are the actual owners of a series of real and
imagined corporate entities that the Debtors have treated as their alter egos for
decades, Cadle is fully prepared to “take the Pepsi® Challenge. . . .” The Objections
filed by the Paul Family Children and the Debtors reveal that both are concerned that
the Settlement Agreement will compromise the elaborate fraud that they have
perpetrated first through years of abuse of the corporate form and utilization of
fictional business entries . . ., which represents nothing more than an attempt to
shield the Debtors assets from creditors . . . . [I]t is understandable that anyone with
the Paul surname should take note of the storm clouds on the horizon because a
dust-up is coming over which business interests and other property are actually assets
of the Debtors’ Estate. . . . If these business entities actually belong in the Debtors’
Estate, as Cadle intends to prove. . . .
(Bankr. Ct. Doc. 312, pp. 5, 11-12, 14). GPILP also cites to Cadle’s Responses to GPILP’s First
Interrogatories to Cadle, also filed in this bankruptcy case, in which Cadle states:
Yes, Cadle has contended in this case or in related adversary proceedings that [Mr.
and Mrs. Paul] were individually liable for the obligations of or claims against
Bluegrass, Delstar, Heritage, and/or Energy Managers. For a full and complete
explanation of the factual basis for that contention, see the following pleadings and
filings in The Cadle Company II, Inc. v. Paul, et al., Case No. 06-3003.4
(Bankr. Ct. Doc. 497, pp 9-10).

4

The Cadle Company II, Inc. v. Paul, et al., Case No. 06-3003 is the related adversary
proceeding referred to in the parties’ arguments.
-6-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 7

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
Finally, GPILP cites to deposition testimony given during the present bankruptcy court
proceeding – and also attached to its motion in limine reply brief – in which a Cadle representative,
Pete Barta (Barta) – speaking on behalf of Cadle – was asked, “Cadle has contended in this case or
in related adversary proceedings that the debtors were individually liable for the obligations of or
claims against Bluegrass, Delstar, Heritage and/or Energy Managers. Is that still true?” (Bankr. Ct.
Doc. 623, Ex. 1, p. 24). After resolving objections to the form and Barta’s recollection of the issue,
Barta responded, “I believe the allegations are true . . . I believe today those allegations are true.”
(Id. at 26.).5
As an initial matter, GPILP’s argument that Cananwill, Inc., supra, resolves the issue is
unpersuasive, as it is not binding in this circuit. Similarly unpersuasive is GPILP’s argument that
the statements made in Cadle’s Responses to GPILP’s First Interrogatories to Cadle, (Bankr. Ct.
Doc. 418, pp. 9-10), and Cadle’s Response to an Objection to a Motion for Approval of Sale of
Estate Property, (Bankr. Ct. Doc. 312), defeat Cadle’s argument, as it is not clear from the record
whether the bankruptcy court relied on either document when it made its decision. In other words,
while it is true that both documents are part of the bankruptcy court’s record, we cannot discern
whether the bankruptcy court relied on these statements, or solely on the amended complaint from
the prior adversary proceeding.
Moreover, Cadle’s assertion that the bankruptcy court erred when it relied on the statements
from the prior adversary proceeding’s amended complaint in making its decision has merit.

5

In the same deposition, Cadle’s counsel stipulates to the belief that the allegations in the
prior adversary proceeding’s amended complaint were true. (Id. at 30).
-7-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 8

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
Particularly, precedence in this circuit dictates that if the bankruptcy court treated the statements as
judicial admissions based solely on pleadings from a prior action, this was an error. See e.g.,
Barnes, supra, at 829 (holding that “[p]leadings in a prior case may be used as evidentiary
admissions”).
However, in this case, the record demonstrates that the bankruptcy court relied not only on
the statements from the prior action, but also on Barta’s deposition testimony given during the
present bankruptcy court action. Thus, to the extent that the bankruptcy court erred in considering
statements made in the prior adversary action, the error was harmless.
Accordingly, because the bankruptcy court did not rely solely on the prior action’s pleadings
in making the decision, but at a minimum relied also on an admission by a Cadle representative
during a deposition in the bankruptcy proceeding before it, we cannot find that the bankruptcy court
abused its discretion. See Maynard, supra, *1.
2. GPILP’s Ownership Interest
Next, Cadle presents several additional arguments to support its position that the bankruptcy
court erred in finding that GPILP has a valid ownership interest in the wells.
a. Formation and Well Transfer Documents
First, Cadle argues that the GPILP formation documents and well-transfer agreements on
which GPILP relies to assert its ownership interest are deficient. Particularly, Cadle states that the
documents contain grammatical errors and name inconsistencies, which render them unenforceable
by GPILP because they were never corrected. In response, GPILP argues that the documents are
valid and enforceable under Kentucky law. Thus, despite any deficiencies, GPILP argues that it is
-8-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 9

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
the rightful transferee, which is sufficient to justify its proof of claim against the estate. As with
contracts, this Court reviews the district court’s construction of these documents as a matter of law
de novo. See e.g., Weimer v. Kurz-Dasch, Inc., 773 F.2d 669, 671 (6th Cir. 1985).
As stated by the bankruptcy court, because this is a real property issue, Kentucky law
governs. Under Kentucky law, when construing a deed or assignment, as with any other contract,
the court’s primary object is to discover the intent of the parties through a fair examination of the
document as a whole. Babb v. Dowdy, 17 S.W.2d 1014, 1016 (Ky. 1929). “In modern times form
has largely yielded to intention, and a deed is now held to consist of the names of the parties, the
consideration, a description of the subject granted, the quantity of the interest conveyed, and the
conditions, reservations or covenants, if any.” Id. Further, “[i]t has long been the rule in [Kentucky]
. . . to uphold deeds as other contracts, however informally they may be drawn, when the terms are
sufficient to express the intention of the parties.” Id. “[A]nd to this end a liberal construction is
given a deed inartificially and untechnically drawn; the construction to be given such a deed and the
intention of the parties to it is to be gathered from a fair consideration of the entire instrument.” Id.
Further, where there is ambiguity and/or mutual mistake, Kentucky law says that a court may
look beyond the four corners of the document in question to resolve the same. See, e.g., Ingram v.
Ingram, 283 S.W.2d 210, 212 (Ky. 1955) (parol evidence admissible to construe deed upon
allegation of mutual mistake); Senters v. Elkhorn & Jellico Coal Co., 145 S.W.2d 848, 850 (Ky.
1940) (parol evidence admissible to prove allegation of mutual mistake); Virginia Iron, Coal & Coke
Co. v. Combs, 177 S.W. 238, 238 (Ky. 1915) (parol evidence admissible where ambiguity in deed

-9-

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 10

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
is latent, not apparent from face of instrument); Day v. Asher, 132 S.W. 1035, 1036 (Ky. 1911)
(ambiguity in deed shown by extrinsic facts may be resolved by extrinsic evidence).
Cadle’s argument that the GPILP formation and well-transfer agreements are deficient
requires a brief description of the documents. With respect to the GPILP formation documents, they
consist of a Limited Partnership Agreement (Agreement) and a Certificate of Limited Partnership
(Certificate). The Agreement describes that William Polan (Polan) formed a Florida limited
partnership by the name of Gasbusters Production I for the stated purpose of “direct[ing] the Sales,
Drilling, Outfitting, Production of Natural Gas and acquiring the assets of Appalachian Natural Gas
. . . and certain oil and gas ownership interests of Quintana Coal Co. . . .” The Certificate describes
that 17 days after executing the Agreement Polan created an entity by the name of Gasbusters
Production I Limited Partnership. Both the Agreement and the Certificate name the initial general
partner of GPILP as Gasbusters, Inc., a Kentucky corporation, and the initial limited partner as KYGasbusters, Inc., a Kentucky corporation. Both documents list the location of the partnership’s
principal office as Palm Beach, Florida, and the business office in Paintsville, Kentucky. However,
the partnership name used in the documents varies – Gasbusters Production I compared to
Gasbusters Production I Limited Partnership. Further, the Agreement expressly provides that the
partnership’s business “may be conducted under any other name deemed necessary or desirable by
the General Partner.” Both the Agreement and the Certificate contain several grammatical and
typographical errors.
As for Polan’s involvement with the well properties, in April of 1994, Raymond R. Burgess
(Burgess) and Corbin J. Robertson and his family (collectively the Robertsons) – the original owners
- 10 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 11

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
of the property on which the wells are located – transferred their interests in the wells to Polan and
GPILP entities. The undisputed transfers were executed via five documents, as follows:
(1) Purchase and Sale Agreement: selling the 15 Burgess wells to Gasbusters Limited
Partnership for $307,000.00 (Bankr. Ct. Doc. 691-5);
(2) Assignment of Interest of Quitclaim and Sublease Surrender Agreement:
assigning all of the interest in the 15 Burgess wells to Gasbusters, Inc. for $10.00
(Bankr. Ct. Doc. 691-6);
(3) Assignment of Lease: assigning remaining interests in the wells from the
Robertsons to Gasbusters Limited Partnership I, acting through Gasbusters, Inc.
(Bankr. Ct. Doc. 691-7);
(4) Deed of Oil and Gas Rights: conveying oil and gas mineral rights from the 15
Burgess wells to GasBusters Partnership I, acting through Gasbusters, Inc., for
$200,000.00 (Bankr. Ct. Doc. 691-10);
(5) Deed: conveying oil and gas mineral rights from the 15 Burgess wells to
Gasbusters Partnership I, acting through Gasbusters, Inc., for $50,000.00.
(Bankr. Ct. Doc. 691-9).
As for Polan’s involvement with Paul, on February 13, 1996, Polan, in his capacity as
president of GPILP, and Paul entered into two agreements. In the first agreement, titled “Assignment
and Deed of Oil and Gas Rights,” Paul – through Delstar Resources – purchased an oil and gas
property from Polan and Gasbusters Limited Partnership I for $10.00. The second agreement was
an operating agreement entered into by Paul – this time doing business as Bluegrass Drilling – and
Polan individually and as the managing general partner for Gasbusters Limited Partnership I. Under
the second agreement, Paul was employed to manage 15 wells owned by Polan and Gasbusters
Limited Partnership I. As compensation for his services, Paul was to receive $1,500.00 per month

- 11 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 12

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
plus expenses to be deducted from gas-sale proceeds. At some point thereafter, Paul began operating
and managing the wells.
Based upon the above described formation documents and well-transfer agreements, the
bankruptcy court found it “abundantly clear that the Well Transfer Documents served to transfer
ownership of the wells in question to GPILP.” (See Bankr. Ct. Doc. 710, supra, at 10). Particularly,
the bankruptcy court held that overwhelming evidence, including the following, demonstrated that
GPILP had owned the wells since 1994:
(1) a name similar to “Gas[b]usters Production I Limited Partnership” is listed as
grantee on four of five well transfer documents;6

6

Cadle places much emphasis on the fact that one of the five well-transfer agreements, the
Assignment of Interest of Quitclaim and Sublease Surrender Agreement, assigns all interest in the
Burgess wells to “Gasbusters, Inc.” alone. Contrary to the other four agreements, this document does
not indicate that Gasbusters, Inc. is acting in an agency role for another “Gasbuster Partnership”
entity. Cadle argues that since the four other documents expressly reference Gasbusters, Inc. as
acting in an agency role, the parties must have intended to designate Gasbusters, Inc. as the sole
assignee on this particular agreement. Cadle argues that the agreement is unambiguous on its face
and that, faced with an unambiguous document, the bankruptcy court clearly erred in considering
evidence beyond “the four corners” of that document (such as the purpose of GPILP’s formation,
the amount of money involved in transferring the wells, etc.). See Hoheimer v. Hoheimer, 30
S.W.3d 176, 178 (Ky. 2000) (“Extrinsic evidence cannot be admitted to vary the terms of a written
instrument in the absence of an ambiguous deed.”). This argument is not altogether unpersuasive,
but it ignores the fact that “[c]ontract language . . . may be clear on its face and yet contain a latent
ambiguity.” State Farm Mut. Auto. Ins. Co. v. Slusher, 325 S.W.3d 318, 322 (Ky. 2010) (citation
omitted). “A latent ambiguity is one which does not appear upon the face of the words used, and it
is not known to exist until the words are brought in contact with the collateral facts.” Carroll v.
Cave Hill Cemetery Co., 189 S.W. 186, 190 (Ky. Ct. App. 1916) (quoted in Slusher). In this case,
the latent ambiguity is exposed when the Assignment of Interest of Quitclaim and Sublease
Surrender Agreement is “brought in contact” with the four other well-transfer documents, all of
which reference Gasbusters, Inc. as the agent of a Gasbuster Partnership entity. Arguably, the
bankruptcy court could have found the Assignment of Interest of Quitclaim and Sublease Surrender
Agreement unambiguous on its face; however, it was not clear error to hold otherwise.
- 12 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 13

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
(2) GPILP was formed expressly for the purpose of acquiring the wells;
(3) the well transfers, which totaled approximately $550,000.00 in consideration,
occurred shortly after new limited partners joined GPILP and contributed
approximately $700,000.00; . . .
(5) no party other than Cadle has ever come forward to challenge GPILP’s ownership
interest in the wells; and
(6) no evidence was submitted that GPILP transferred away its ownership interests
in the wells.
(Id. at 10-11).
We find the bankruptcy court’s analysis to be sound. That is, a fair consideration of the
instruments in their entirety demonstrate that GPILP was the intended transferee and transferor of
the wells, such that it had standing to assert a proof of claim against the estate. See Babb, supra
(“[A] liberal construction is given a deed inartificially and untechnically drawn; the construction to
be given such a deed and the intention of the parties to it is to be gathered from a fair consideration
of the entire instrument.”). As such, we affirm the bankruptcy court’s determination that GPILP had
an ownership interest to assert the claims against the estate.
b. Settlement Agreement
Cadle next argues that the bankruptcy court erred when it relied on a settlement agreement
from a separate lawsuit as further support that GPILP has an ownership interest in the wells. The
lawsuit was instituted by Burgess and his company Appalachian Natural Gas Corp. (ANG) against
Polan, Gasbuster, Inc. and GPLIP, claiming that GPILP had defaulted on the well-transfer
agreements described above. The parties ultimately reached a settlement in September of 1999. The
settlement agreement provided that Burgess and ANG would release all claims against GPILP in
- 13 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 14

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
exchange for “the sum of $35,000.00 in cash from escrow fund disbursed to [counsel for GPILP] by
the Lawrence Circuit Court Clerk” pursuant to the order and judgment.” Additionally, Burgess,
ANG, and Paul entered into a separate release and settlement agreement, in which Paul, on behalf
of himself and his assigns, also agreed to pay Burgess $35,000.00 in exchange for an agreement of
dismissal of the case with prejudice. The case was dismissed by an agreed order and judgment,
entered on December 21, 1999. The order and judgment provides in pertinent part:
6. Upon the oral Motion of [GPILP] for a Default Judgment on its Crossclaim against
William J.M. Pol[a]n and others, it is ORDERED AND ADJUDGED that all
persons, other than the Lessors under the Lease, Bluegrass Drilling Corporation and
Delta, who claim to have liens, encumbrances, mortgages or security interests in and
to the property of [GPILP], or claims of rights to payments from [GPILP], are VOID,
TERMINATED AND/OR EXTINGUISHED. . . .
10. All other claims, counterclaims and crossclaims asserted in this action should be
and hereby are, DISMISSED WITH PREJUDICE.
(Bankr. Ct. Doc. 685-1).
The bankruptcy court determined that the language in the settlement agreements and
subsequent dismissal order was persuasive insofar as it provided further evidence of GPILP’s
ownership interest as recognized by Paul and Burgess – the transferors – as well as the adjudicating
court. (Bankr. Ct. Doc. 710, p. 11 (finding that “the Lawrence Circuit Court Litigation shows that
the parties to th[e] litigation . . . considered GPILP the transferee of the property in question . . . and
[that] the Lawrence Circuit Court expressly found and actually adjudicated in favor of GPILP vis a
vis [] Polan and [GPILP] concerning the power to assert claims with regard to the property.”)).
The bankruptcy court properly considered all these documents in resolving the ambiguity
created by the use of various titles for DPILP. Kentucky law permits a court to look beyond the four
- 14 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 15

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
corners of a document in the case of ambiguity and/or mutual mistake. See Ingram, supra, at 212;
Senters, supra, at 850; Va. Iron, supra, at 238; Day, supra, at 1036. Accordingly, the bankruptcy
court did not err in determining that the settlement agreement supported its finding relating to
GPILP’s ownership interest.
3. Proof-of-Claim Amount
Cadle next argues that even if the Court determines that GPILP has an ownership interest,
the bankruptcy court further erred in its calculation of the proof-of-claim amount and in its
determination that further reductions to the claim amount were not warranted.
The bankruptcy court’s decision sets forth how it approached the task of calculating an
accurate amount:
Having determined that GPILP has the right and standing to assert its Proof
of Claim, the Court must consider the amount of GPILP’s claim, which derives from
the alleged production and sale of natural gas from the wells owned by GPILP.
The gas field at issue here contains a total of 18 natural gas wells connected
to two pipelines lines, each of which ends in a meter near a compressor where the gas
is compressed, measured and then enters into a large gas transmission line for sale
and distribution. Each well is surrounded by approximately 40 acres of land. The
northern pipeline (Meter No. 824440) contains eleven wells, and GPILP makes no
claim of ownership to one of those wells (Robertson No. 2). The southern pipeline
(Meter No. 830110) contains seven wells, and GPILP makes no claim to two of those
wells (Robertson Nos. 6 & 7). The parties produced extensive production records;
however, they are all referenced by meter not by well. Since each meter is at the end
of the pipeline, the challenge is ascertaining how much of the gas flowing through
the two meters originates from wells to which GPILP makes a claim and how much
comes from others (the “Non-GPILP Wells”).
(Bankr. Ct. Doc. 710, p. 12).

- 15 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 16

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
Using this methodology, the bankruptcy court next considered evidence produced by both
GPILP and Cadle, in the form of expert testimony and well production data, in order to determine
how much gas came from GPILP’s wells, which would then allow the court to determine how much
GPILP was owed. Id. at 12-15. After analyzing all of the evidence, the bankruptcy court adjusted
GPILP’s amended proof of claim down to $312,239.50. Id. at 15. Next, relating to Cadle’s
argument for additional reductions, the bankruptcy court found that further offsets to account for
amounts claimed to be owed to Paul by GPILP were not warranted because Cadle “failed to provide
any credible evidence concerning the existence and, more importantly, the amount of such ‘offsets.’”
Id. at 16.
Contrary to Cadle’s argument, the record demonstrates that the bankruptcy court thoroughly
analyzed the evidence produced by both GPILP and Cadle in arriving at its claim-amount decision.
Thus, reversal is not warranted on these grounds. Further, Cadle fails to provide authority for its
argument that the bankruptcy court erred in finding that the offset evidence was not credible. Indeed,
in its brief, Cadle “does not dispute the fact that some of the entries on its expense-documentation
exhibits do not represent proper offsets against [GPILP’s] claim.” (Appellant’s Brief, p. 67). Rather
than providing accurate offsets to the bankruptcy court, Cadle seemingly left it to the bankruptcy
court to compile accurate figures. (Id. at 67-68). Particularly, Cadle states that it “did not see any
need . . . to prepare a spreadsheet of these expenses in its Post-Trial Brief because of its belief that
the Bankruptcy Court would correctly resolve the standing issue and never reach the question of
offsets.” (Id.). In other words, without authority for the proposition, Cadle maintains that the

- 16 -

Case: 10-5060

Document: 006111067717

Filed: 09/09/2011

Page: 17

No. 10-5060, The Cadle Company II, Inc. v. Gasbusters Production I Limited Partnership
bankruptcy court should have on its own calculated the offset amounts that Cadle failed to provide
rather than finding that the amounts that Cadle provided were not credible.
Cadle’s argument lacks merit. The bankruptcy court was under no obligation to determine
any offsets that Paul may have been entitled to. Accordingly, based on the above, the bankruptcy
court did not err in determining GPILP’s claim amount.
B. Gas-Sale Proceeds
Finally, Cadle appeals the bankruptcy court’s order granting GPILP’s motion for $20,861.15
in gas-sale proceeds during the time between the previously described settlement and Mr. and Mrs.
Paul’s bankruptcy petition. Particularly, Cadle argues “[b]ecause of the substantial factual and legal
overlap” between GPILP’s amended proof of claim and its motion for payment of gas-sale proceeds,
“the reversible errors alleged above [] with respect to the former apply equally to the [b]ankruptcy
[c]ourt’s decision-making process as to the latter.” (Appellant’s Brief, p. 68).
From what the Court can glean, Cadle’s argument assumes a finding in its favor relating to
GPILP’s ownership interest in order to prevail. Fatal to this argument then is our agreement with
the bankruptcy court that GPILP has a sufficient ownership interest to assert its claim. Moreover,
Cadle fails to offer an alternate ground in support of its argument. Accordingly, the bankruptcy
court’s decision on this issue will be affirmed.

III. CONCLUSION
For the reasons stated above, the bankruptcy court’s decision is AFFIRMED.

- 17 -