Henley Mining, Inc. v. Parton

Filing 14

MEMORANDUM OPINION & ORDER: 1. Plaintiff's Motion to Amend the Court's Order [R. 11 ] is GRANTED; 2. The Court's Order [R. 10 ] invoking Burford abstention is VACATED; 3. This action is RESTORED to the active docket; and 4. The Court shall reconsider Defendant David E. Parton's Motion to Dismiss. [R. 7 ]. A subsequent order reaching the merits of that motion shall issue at a later date. Signed by Judge Gregory F. VanTatenhove on 03/05/2019.(KJA)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
LONDON

HENLY MINING, INC.,

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Plaintiffs,
V.
DAVID E. PARTON,
Defendant.

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Civil No: 6:17-cv-00092-GFVT

MEMORANDUM OPINION
&
ORDER

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Plaintiff Henley Mining, Inc., seeks reconsideration of this Court’s order invoking
Burford abstention in this matter. [R. 11.] Henley Mining asks that this Court amend its
previous Order, withdraw abstention, reaffirm the Court’s jurisdiction, order Defendant David E.
Parton to file his responsive pleading, and restore this action to the active docket. Id. In
considering the Motion to Dismiss [R. 7], abstention was raised initially by the Court and not by
the parties. Now, with the benefit of full briefing on the issue, and for the reasons stated below,
Plaintiff’s motion is GRANTED.
I
Defendant David Parton and his two brothers were equal owners and directors in three
corporations: Parton Bros. Contracting, Inc.; Bud Equipment, Inc.; and Pine Mtn. Security, Inc.
[R. 7-1 at 2.] On or around March 2015, David Parton and his brothers closed and consolidated
their businesses into Henley Mining, Inc. [R. 7-1 at 2.] The Parton brothers partially dissolved
certain corporations by distributing, “a substantial portion of the Corporations’ cash and
distribution in-kind of certain assets to Defendant and the Brothers.” Id. Mr. Parton strongly

disagreed with merging the corporations into Henley Mining and registered his dissenting vote at
a Special Shareholders Meeting in October 2016. Id. After the merger, the Corporations paid
Mr. Parton what they considered an accurate amount of money pursuant to the Dissenters’ Rights
Statute, but Mr. Parton challenged the amount owed to him. Id.
Henley Mining, Inc. filed a Complaint in diversity in this Court seeking a determination
of fair value pursuant to Kentucky’s Dissenters’ Rights Statutes. See Ky. Rev. Stat. Ann.
§271B.13-010. In May, 2017, Mr. Parton filed a motion to dismiss the case on the grounds that
this Court lacked subject matter jurisdiction. [R. 7.] After considering the motion, applicable
law, and the arguments of the parties, the Court elected to abstain from hearing the controversy,
invoking the doctrine of Burford abstention. [R. 10.] Now, Henley Mining has moved this
Court to reconsider its previous ruling, on the grounds that the Court made a clear error of law.
Id.
II
A
A motion to alter or amend a judgment under Rule 59(e) “may be granted if there was ‘(1)

a clear error of law; (2) newly discovered evidence; (3) an intervening change in controlling law;
or (4) a need to prevent manifest injustice.’” Culver v. CCL Label, Inc., 455 F. App’x 625, 631
(6th Cir. 2012) (quoting Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir. 2005)). The
purpose of Rule 59(e) is to allow the district court “to correct its own errors, sparing the parties
and appellate courts the burden of unnecessary appellate proceedings.” Howard v. United States,
533 F.3d 472, 475 (6th Cir. 2008) (internal quotation marks omitted). A Rule 59(e) motion,
however, “is not an opportunity to re-argue a case,” and “does not permit parties to reargue a
case.” Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998)

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(citing FDIC v. World Univ. Inc., 978 F.2d 10, 16 (1st Cir. 1992)). Motions to alter or amend a
judgment pursuant to Rule 59(e) “are extraordinary and sparingly granted.” Marshall v.
Johnson, 2007 WL 1175046, *2 (W.D. Ky. April 19, 2007). Whether to grant or deny a Rule
59(e) motion is within the discretion of the trial court. GenCorp., Inc. v. Am. Int'l Underwriters,
178 F.3d 804, 832 (6th Cir.1999); Spigelman v. Samuels, 2013 WL 1898268, at *2 (E.D. Ky.
May 7, 2013).
B
Abstention is likewise “extraordinary.” As this Court has noted before, based on
principals of federalism and comity, “[a]bstention is an extraordinary and narrow exception to
the duty of a District Court to adjudicate a controversy properly before it.” Caudill v. Eubanks
Farms, Inc., 301 F.3d 658, 660 (6th Cir. 2002) (internal quotations omitted) (quoting Colorado
River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976)). To abstain under
Burford, specifically, this Court must answer two questions in the affirmative. First, does “a
case present[] difficult questions of state law bearing on policy problems of substantial public
import whose importance transcends the result in the case then at bar” and second, would the
“exercise of federal review of the question in a case and in similar cases [] be disruptive of state
efforts to establish a coherent policy with respect to a matter of substantial public concern”?
Caudill v. Eubanks Farms, Inc., 301 F.3d 658, 660 (6th Cir. 2002) (internal quotations omitted).
But in addition to simply answering those questions, the Court must also “balance[] the
strong federal interest in having certain classes of cases . . . adjudicated in federal court” against
the interests of the State. Cleveland Hous. Renewal Project v. Deutsche Bank Trust Co., et al.,
621 F.3d 554, 562 (6th Cir. 2010) (quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728
(1996)). Diversity jurisdiction, in and of itself, represents a “strong” federal interest that must be

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weighed against a state’s interests. See id. at 564. “The state interests that may be deemed to
outweigh the federal interest must stem from the need to maintain uniformity in the treatment of
an essentially local problem, and the need to retain local control over difficult questions of state
law bearing on policy problems of substantial public import.” Id. (citing Quackenbush, 517 U.S.
at 728). Very rarely does the balance favor abstention. Id.
In its previous Order invoking Burford abstention, this Court relied heavily on Caudill v.
Eubanks Farms to the exclusion of other Sixth Circuit precedent. [See R. 10.] The Court
invoked Burford abstention sua sponte and without briefing, and the balancing test articulated in
Cleveland Housing was not before the Court. This, Henley Mining contends, amounts to a clear
error of law under Rule 59(e). Upon review of the pleadings and applicable law, and with the aid
of the briefing [R. 11; R. 12; R. 13] by the parties, this Court agrees that the teaching of the Sixth
Circuit cases counsels against abstention.
Previously, this Court answered only the two questions posed by Caudill before deciding
to abstain under Burford; namely does “[the] case present[] difficult questions of state law
bearing on policy problems of substantial public import whose importance transcends the result
in the case then at bar” and second, would the “exercise of federal review of the question in a
case and in similar cases [] be disruptive of state efforts to establish a coherent policy with
respect to a matter of substantial public concern”? Caudill v. Eubanks Farms, Inc., 301 F.3d
658, 660 (6th Cir. 2002) (internal quotations omitted). But having answered those questions in
the affirmative, the Court then failed to undergo the necessary balancing test outlined in later
case Cleveland Housing v. Deutsche Bank. See Cleveland Hous. Renewal Project v. Deutsche
Bank Trust Co., 621 F.3d 554 (6th Cir. 2010). The “clear error of law” asserted by Henley

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Mining is not that the Court weighed federal and state interests improperly, but that it failed to
weigh them at all.
Had the Court weighed those interests, this Court would have reached a different
conclusion, finding that the interests of the federal courts outweigh those of the state of
Kentucky. The federal interest at stake is an interest in adjudicating disputes brought before the
Court on the basis of diversity jurisdiction. The Sixth Circuit has held that this interest, by itself,
amounts to a strong federal interest that, when weighed against the relevant state interest, results
in a balance that only rarely favors abstention. See Cleveland Housing, 621 F.3d at 562. As
previously noted, “the state interests that may be deemed to outweigh the federal interests must
stem from the need to maintain uniformity in the treatment of an essentially local problem, and
the need to retain local control over difficult questions of state law bearing on policy problems of
substantial public import.” Id. at 564 (quoting Quackenbush, 517 U.S. at 728). It is far from
clear that Kentucky’s interest in determining fair market value in Dissenter’s Rights actions
meets that criteria.
In affirming the district court’s decision to abstain, the Sixth Circuit in Caudill placed
great weight on the fact that the subject of suit was a corporate dissolution. A corporation
“depends upon state law for its existence,” which “prevents [federal courts] from terminating the
life of the corporation.” Caudill, 301 F.3d at 664. But here, the Court is not asked to determine
whether a Kentucky corporation should be dissolved; Parton Bros. Contracting, Inc., Bud
Equipment, Inc., and Pine Mtn. Security, Inc. have already been dissolved. What is at issue now
is the fair market value of Defendant David E. Parton’s shares of those corporations just before
they were merged into Henley Mining. Even Caudill counsels federal courts “against abstaining
in corporate actions unless the very existence of a corporation—itself a creature of state law—is

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called into question.” Id. (emphasis added). This distinction was not considered by the Court in
its earlier decision to abstain.
In addition, for this Court to render a final judgement in this matter would not impede the
uniform application of Kentucky policy. The Kentucky Dissenters’ Rights statutes are intended
to “protect minority shareholders in a corporation from majority overreaching.” Shawnee
Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 552 (Ky. 2011). Said differently, Kentucky has a
policy of protecting the rights of minority shareholders who disagree with certain actions of the
majority. That policy is effectuated through the judicial mechanism contemplated in Kentucky
Revised Statute § 271B.13-300, which requires a court to assess the fair value of the dissenter’s
shares of the corporation. Ky. Rev. State. Ann. §271B.13-300(1) (“If demand for payment under
KRS 271B.13-280 remains unsettled, the corporation shall commence a proceeding within sixty
(60) days after receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest.”). As Henley Mining points out, the law that governs the fair
value determination in Kentucky is well settled. See Shawnee Telecom Resources, Inc. v. Brown,
354 S.W.3d 542 (Ky. 2011). In Shawnee Telecom, the Kentucky Supreme Court elucidated the
meaning of “fair value” as used in Subtitle 13 of Kentucky’s Business Corporation Act, and
explained how such a determination is to be made. See id. at 548. Mr. Parton posits no reason,
and the Court can think of none, why this Court would be unable to follow the law as explained
in Shawnee Telecom in the same manner as a Kentucky state court.
III
Relief under Rule 59(e) is extraordinary, but not more extraordinary than Burford
abstention—the “extraordinary and narrow exception to the duty of the District Court to
adjudicate a controversy properly before it.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706,

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728 (1996) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800,
813 (1976)). It was error for this Court not weigh the federal and state interests at stake as
required by Cleveland Housing. The interests of the state of Kentucky have now been
appropriately weighed, and are found wanting.
For the foregoing reasons, and being otherwise sufficiently advised, the Court hereby
ORDERS:
1.

Plaintiff’s Motion to Amend the Court’s Order [R. 11] is GRANTED;

2.

The Court’s Order [R. 10] invoking Burford abstention is VACATED;

3.

This action is RESTORED to the active docket; and

4.

The Court shall reconsider Defendant David E. Parton’s Motion to Dismiss. [R.

7.] A subsequent order reaching the merits of that motion shall issue at a later date.
This the 5th day of March, 2019.

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