Mountain State Carbon, LLC v. Central West Virginia Energy Company et al
Filing
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MEMORANDUM OPINION AND ORDER denying 7 Motion to Transfer Case as MOOT; ***SEALED***; denying 10 Motion to Seal as MOOT; granting 12 Motion to Remand; denying 15 Motion as MOOT and denying 16 Motion to Expedite as MOOT. Signed by Chief Judge John Preston Bailey on 6/26/12. (cc)(c to Brooke County Cir Court, counsel Stanley, Doerfler)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
WHEELING
MOUNTAIN STATE CARBON, LLC,
Plaintiff,
v.
Civil Action No. 5:12-CV-87
(BAILEY)
CENTRAL WEST VIRGINIA ENERGY COMPANY,
MASSEY ENERGY COMPANY,
n/k/a Alpha Appalachia Holdings, Inc.,
MASSEY COAL SALES COMPANY, INC.,
n/k/a Appalachia Coal Sales Company, Inc.,
Defendants.
MEMORANDUM OPINION AND ORDER
REMANDING MATTER TO THE CIRCUIT COURT OF BROOKE COUNTY
Pending before the Court is the plaintiff’s Motion to Remand [Doc. 12], filed June 15,
2012. The defendants responded on June 22, 2012 [Doc. 21], and the plaintiff replied on
June 25, 2012 [Doc. 24]. Having reviewed the record and considered the arguments of the
parties, this Court concludes that the plaintiff’s motion should be GRANTED.
BACKGROUND
I.
Factual Allegations
In 1993, Wheeling Pittsburgh Steel Corporation (“Wheeling Pitt”) entered into a ten-
year coal supply agreement (the “Coal Supply Agreement”) with defendant Central West
Virginia Energy Company (“Central Energy”). Pursuant to the Coal Supply Agreement,
Central Energy agreed to supply, and Wheeling Pitt agreed to purchase from Central
Energy, one hundred percent of the metallurgical coal requirements of its Follansbee, West
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Virginia, plant. In 2002, an amendment to the Coal Supply Agreement extended the term
of the contract seven years and specified that each contract year ran from November 1st
to October 31st. In 2005, plaintiff Mountain State Carbon, LLC (“Mountain State”) was
formed as a joint venture between Wheeling Pitt and SNA Carbon, LLC, to own and
operate the Follansbee plant under the Coal Supply Agreement.
Prior to the commencement of each contract year, Mountain State is required to
advise Central Energy of its annual coal requirements for the upcoming contract year.
Central Energy is then required to deliver, and Mountain State is required to accept, not
less then 95% and not more than 105% of the identified annual requirements, deliverable
during that contract year. Mountain State has the right to allocate its annual requirements
for delivery across the four quarters of the contract year. However, at least 90 days before
an upcoming quarter, Mountain State must give Central Energy written notice of the
amount of annual requirements to be delivered during that quarter. If Mountain State fails
to give proper notice, then the parties operate from the quantity of coal delivered during the
preceding quarter. Central Energy is required to deliver, and Mountain State is required
to accept, not less than 90% and not more than 110% of the nominated quantity of coal,
such coal deliverable during that quarter. Though not contractually required, Central
Energy obtained its coal from Massey Energy Company, n/k/a Alpha Appalachia Holdings,
Inc., through Massey Coal Sales Company, Inc., n/k/a Appalachia Coal Sales Company,
Inc. (collectively “Massey”).
During the first half of 2008, demand for steel (and thus metallurgical coal) rose
significantly, pushing market prices well beyond the price agreed to in the Coal Supply
Agreement. According to Mountain State, Massey consequently directed Central Energy
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to reduce its Mountain State deliveries so that Massey could sell and ship more coal to
other customers at higher prices.
In August 2008, the demand for steel dropped dramatically. At that time, Wheeling
Pitt was acquired by Severstal North America, Inc. (“Severstal U.S.”), the United States
domestic arm of OAO Severstal (“Severstal Russia”), and renamed Severstal Wheeling,
Inc (“Severstal Wheeling”). Though due on August 3, 2008, Mountain State failed to
provide Central Energy with 90 days notice of the quantity of coal it required for the quarter
to commence on November 1, 2008. Instead, by letter dated October 28, 2008, Mountain
State advised Central Energy that it required 1,128,000 tons of coal for the upcoming
contract year and only 228,000 tons for the first quarter. By letter dated January 30, 2009,
Mountain State advised Central Energy that it wished to reduce the nominated quantity it
was obligated to accept during the second quarter. In the same letter, Mountain State
advised that it would require delivery of 195,000 tons during the third quarter. By letter
dated April 30, 2009, Mountain State advised that it was nominating zero tons for the fourth
quarter. Mountain State failed to accept not less than 95% of its annual requirements for
the contract year of 2009. According to Central Energy, Mountain State acted by and
through Severstal Wheeling and at the direction of the other Severstal entities.
II.
Procedural History
On August 27, 2008, Mountain State sued Central Energy for breach of the Coal
Supply Agreement in the Circuit Court of Brooke County, West Virginia. A month later,
Mountain State joined Massey with a claim of tortious interference with contractual
relations. After four years of discovery, trial is currently scheduled to commence on July
30, 2012.
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In the meantime, on April 29, 2009, Central Energy filed a declaratory judgment
action against Mountain State and Severstal Wheeling in the United States District Court
for the Southern District of West Virginia seeking a number of declaratory judgments,
including that the Coal Supply Agreement required Mountain State to accept not less than
95% of the 1,128,000 tons of coal that it nominated for delivery in the contract year of 2009.
In June 2009, Central Energy joined SNA Carbon, Severstal U.S., and Severstal Russia,
and added claims for breach of contract and tortious misconduct. In July 2009, Mountain
State and Severstal Wheeling moved to dismiss for lack of subject matter jurisdiction,
particularly asserting a lack of diversity between Central Energy and Severstal Wheeling.
In March 2010, the Southern District court agreed that there was no diversity between
Central Energy, a West Virginia corporation, and Severstal Wheeling, a Delaware
corporation with its principal place of business in Wheeling. Central Energy appealed and
on April 13, 2011, the United States Court of Appeals for the Fourth Circuit reversed,
finding that Severstal Wheeling had its principal place of business in Dearborn, Michigan,
and thus that the Southern District court had diversity jurisdiction. Cent. W.Va. Energy Co.
v. Mt. State Carbon, LLC, 636 F.3d 101 (4th Cir. 2011). Severstal U.S. subsequently sold
Severstal Wheeling to RG Steel Wheeling, LLC (“RG Steel”).
On May 31, 2012, RG Steel filed a Chapter 11 reorganization petition in the United
States Bankruptcy Court for the District of Delaware. As a result, Central Energy and
Massey removed the Brooke County action to this Court on June 13, 2012, pursuant to 28
U.S.C. §§ 1452(a) and 1334(b), asserting that this matter is a civil proceeding related to RG
Steel’s bankruptcy case [Doc.1].
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On April 4, 2012, Mountain State filed the instant Motion to Remand [Doc. 12]
requesting that this Court abstain from hearing its case and remand this matter back to the
Circuit Court of Brooke County. Mountain State offers three bases for abstention. First,
Mountain State argues that abstention is mandated by 28 U.S.C. § 1334(c)(2). Second,
Mountain State asserts that abstention is permitted by 28 U.S.C. § 1334(c)(1). Third,
Mountain State contends that abstention is equitable pursuant to 28 U.S.C. § 1452(b).
DISCUSSION
I.
Applicable Standards
A.
Removal of Civil Proceedings“Related To” Bankruptcy Cases
Title 28 U.S.C. § 1452(a) states, “A party may remove any claim or cause of action
in a civil action . . . to the district court for the district where such civil action is pending, if
such district court has jurisdiction of such claim or cause of action under section 1334 of
this title.” Title 28 U.S.C. § 1334(b) provides, “Notwithstanding any Act of Congress that
confers exclusive jurisdiction on a court of courts other than the district courts, the district
courts shall have original but not exclusive jurisdiction of all civil proceedings . . . related
to cases under title 11.”
B.
Abstention from Civil Proceedings “Related To” Bankruptcy Cases
1.
Mandatory Abstention
Title 28 U.S.C. § 1334(c)(2) provides in whole as follows:
Upon timely motion of a party in a proceeding based upon a State law claim
or State law cause of action, related to a case under title 11 but not arising
under title 11 or arising in a case under title 11, with respect to which an
action could not have been commenced in a court of the United States
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absent jurisdiction under this section, the district court shall abstain from
hearing such proceeding if an action is commenced, and can be timely
adjudicated, in a State forum of appropriate jurisdiction.
2.
Permissive Abstention
Title 28 U.S.C. § 1334(c)(1) states as relevant here:
[N]othing in this section prevents a district court in the interest of justice, or
in the interest of comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising under title 11 or
arising in or related to a case under title 11.
3.
Equitable Abstention
Title 28 U.S.C. § 1452(b) provides in pertinent part:
The court to which such claim or cause of action is removed may remand
such claim or cause of action on any equitable ground.
II.
Analysis
A.
“Related To” Civil Proceeding
In their Notice of Removal [Doc.1], the defendants assert jurisdiction under 28
U.S.C. § 1334, arguing that this civil proceeding relates to RG Steel’s bankruptcy case
currently pending in the District of Delaware. As explained below, this Court agrees with
the defendants’ assertion of jurisdiction.
“The Fourth Circuit has adopted the test set forth in Pacor, Inc. v. Higgins, 743
F.2d 984 (3d Cir. 1984), for determining whether a civil proceeding ‘relates to’ a bankruptcy
case. See Owens-Illinois, Inc. v. Rapid American Corp. (In re Celotex Corp.), 124 F.3d
619, 625 (4th Cir. 1997).”
Blanton v. IMN Fin. Corp., 260 B.R. 257, 261 (M.D.N.C.
2001). The Pacor Court articulated that test as follows:
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Whether a civil proceeding is related to bankruptcy is [determined by]
whether the outcome of that proceeding could conceivably have any effect
on the estate being administered in bankruptcy. Thus, the proceeding need
not necessarily be against the debtor or against the debtor’s property. An
action is related to bankruptcy if the outcome could alter the debtor’s rights,
liabilities, options, or freedom (either positively or negatively) and which in
any way impacts upon the handling and administration of the bankruptcy
estate.
Pacor, 743 F.2d at 944 (emphasis in original) (citations omitted). “The Fourth Circuit has
construed the Pacor test broadly, stating that the test ‘does not require certain or likely
alteration of the debtor’s rights, liabilities, options, or freedom of action, nor does it require
certain or likely impact upon the handling and administration of the bankruptcy estate. The
possibility of such alteration or impact is sufficient to confer jurisdiction.” Blanton, 260 B.R.
at 261-262 (quoting In re Celotex Corp., 124 F.3d at 626).
Here, there can be no question that the outcome of this case could conceivably have
an effect on RG Steel’s bankruptcy estate, which is being administered in the District of
Delaware. Specifically, due to RG Steel’s 50% ownership of Mountain State, any recovery
in this action could conceivably increase the size of RG Steel’s bankruptcy estate for the
benefit of his creditors. As such, this civil proceeding is “related to” RG Steel’s bankruptcy
case. Thus, this Court has non-exclusive original jurisdiction to hear this matter pursuant
to § 1334(b).
B.
Motion to Remand
In its Motion to Remand, Mountain State argues that this Court should nevertheless
abstain from hearing this matter, citing three alternative doctrines of abstention: (1)
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mandatory abstention, (2) permissive abstention, and (3) equitable abstention. The Court
considers the applicability of each doctrine below.
1.
Mandatory Abstention
“[M]andatory abstention is appropriate under § 1334(c)(2) when the following
requirements are met: (1) a timely motion is made; (2) the proceeding is based on a state
law claim or a state law cause of action; (3) the proceeding is related to a case under Title
11; (4) the proceeding does not arise under Title 11; (5) the action could not have been
commenced in a federal court absent jurisdiction under 28 U.S.C. § 1334; and (6) an action
is commenced, and can be timely adjudicated, in a state forum of appropriate jurisdiction.”
Blanton, 260 B.R. at 263.
Concerning the fifth element, Mountain State asserts that it and Central Energy are
“companies organized and located in West Virginia” and thus that this lawsuit “could not
have been pursued in federal court based on diversity jurisdiction.” ([Doc. 13] at 13). This
Court disagrees.
The analysis of the Severstal Wheeling-component of Mountain State’s citizenship
begins and ends with the Fourth Circuit’s decision in Cent. W.Va Energy Co. v. Mt. State
Carbon, LLC, 636 F.3d 101 (4th Cir. 2011). “For purposes of diversity jurisdiction, the
citizenship of a limited liability company (such as Mountain State) is determined by the
citizenship of all of its members (such as Severstal Wheeling).” Id. at 103 (citation
omitted). “Further, a corporation (such as Severstal Wheeling) ‘shall be deemed to be a
citizen of any State by which it has been incorporated and of the State where it has its
principal place of business . . ..” Id. (quoting 28 U.S.C. § 1332(c)(1)). Applying Hertz
Corp. v. Friend, — U.S. — , 130 S.Ct. 1181 (2010), the Fourth Circuit concluded that the
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principal place of business for Severstal Wheeling was Dearborn, Michigan.
SNA Carbon, Mountain State’s only other member, is also diverse from Central
Energy, a West Virginia corporation with its principal place of business in West Virginia.
SNA Carbon’s sole member is Severstal U.S., which was incorporated in Delaware and has
its principal place of business in Dearborn, Michigan.
Therefore, when commenced, this case featured two completely diverse parties:
Mountain State (a citizen of Michigan and Delaware) versus Central Energy (a citizen of
West Virginia). See Blanton, 260 B.R. at 265 (“The availability of diversity jurisdiction at
the commencement of the case is enough to prevent application of the mandatory
abstention provision found in § 1334(c)(2).”) (emphasis added). Because diversity
jurisdiction was available to Mountain State at the commencement of this case, §
1334(c)(2) does not require this Court to abstain.
2.
Permissive Abstention / Equitable Remand
“In analyzing whether permissive abstention is appropriate a court should consider
the following factors:
(1) the court’s duty to resolve matters properly before it; (2) the
predominance of state law issues and non-debtor parties; (3) the economical
use of judicial resources; (4) the effect of remand on the administration of the
bankruptcy estate; (5) the relatedness or remoteness of the action to the
bankruptcy case; (6) whether the case involves questions of state law better
addressed by the state court; (7) comity considerations; (8) any prejudice to
the involuntarily removed parties; (9) forum non conveniens; (10) the
possibility of inconsistent results; (11) any expertise of the court where the
action originated; and (12) the existence of a right to a jury trial.
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Cline v. Quicken Loans Inc., 2011 WL 2633085, *6 (N.D. W.Va. July 5, 2011) (quoting
Blanton, 260 B.R. at 265). “Courts have noted that the factors for judging the propriety of
permissive abstention are essentially identical to the factors articulated for determining the
propriety of remand under 28 U.S.C. § 1452(b).” Cline, 2011 WL 2633085, at *6 (quoting
Blanton, 260 B.R. at 265 n. 5).
Based on the above factors, this Court finds that remand is appropriate. Though a
number of factors weigh in favor of maintaining federal jurisdiction, the case for remand is
significantly more compelling. First, this action exclusively involves state law claims and
non-debtor parties. Second, this action bears only a remote connection to the bankruptcy
case of RG Steel. Third, and most importantly, the economical use of judicial resources
will be undeniably better served by remand to a state court that is equipped with nearly four
years of experience not only with the ins and outs of the parties’ contentions but also with
the evidence discovered and anticipated to be presented at trial in support of those
contentions, rather than remaining with a district court or being transferred to a bankruptcy
court that will be asked to start back at day one. Accordingly, this Court concludes that this
matter should be remanded pursuant to §§ 1334(c)(1) and 1452(b).
CONCLUSION
For the foregoing reasons, this Court hereby GRANTS the plaintiff’s Motion to
Remand [Doc. 12] and REMANDS the above-styled civil action to the Circuit Court of
Brooke County, West Virginia. All other pending motions filed since removal [Docs. 7, 9,
10, 12, 15, & 16] are hereby DENIED AS MOOT.
It is so ORDERED.
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The Clerk is directed to transmit copies of this Order to the counsel of record and
to the Circuit Court of Brooke County.
DATED: June 26, 2012.
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