Davis v. W. Va. State Tax Dep't (In re Patriot Coal Corp.)
| Decision Date | 11 August 2021 |
| Docket Number | Adversary No. 17-4021-659,Case No. 12-51502-659 |
| Citation | 631 B.R. 648 |
| Parties | IN RE: PATRIOT COAL CORPORATION, Debtor. Eugene Davis, solely in his capacity as Liquidating Trustee for the PCC Liquidating Trust, Plaintiff, v. West Virginia State Tax Department, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Missouri |
Office of the United States Trustee, Thomas F. Eagleton U.S. Courthouse, 111 South 10th Street, Suite 6.353, St. Louis, MO 63102.
Robert E. Eggmann, Carmody MacDonald P.C., 120 South Central Avenue, Suite 1800, Clayton, MO 63105.
Jeffrey R. Baron, Bailey & Glasser, 34 N. Gore Avenue, Suite 102, Webster Groves, MO 63119.
Kristin Boggs, Bailey & Glasser, LLP, 209 Capitol Street, Charleston, WV 25301.
Eugene Davis solely in his capacity as Liquidating Trustee for the PCC, c/o Robert E. Eggmann, Carmody MacDonald P.C., 120 S. Central Avenue, Suite 1800, Clayton, MO 63105.
Michael Finnegan LeFevour, Kirkland & Ellis LLP, 300 North LaSalle, Chicago, IL 60654.
Kevin W. Barrett, Bailey & Glasser LLP, 209 Capitol Street, Charleston, WV 25301.
Maggie B. Burrus, Bailey & Glasser, LLP, 209 Capitol Street, Charleston, WV 25301.
KATHY A. SURRATT-STATES, Chief United States Bankruptcy Judge The matter before the Court is West Virginia State Tax Department's Motion for Summary Judgment, West Virginia State Tax Department's Memorandum in Support of Motion for Summary Judgment, West Virginia State Tax Department's Statement of Uncontroverted Material Facts, Plaintiff Eugene Davis' [sic] Motion for Summary Judgment, Memorandum of Law in Support of Plaintiff Eugene Davis' [sic] Motion for Summary Judgment, West Virginia State Tax Department's Response to Plaintiff's Statement of Material Facts, West Virginia State Tax Department's Objection to Plaintiff's Motion for Summary Judgment, Plaintiff Eugene Davis' [sic] Response in Opposition to Defendant West Virginia State Tax Department's Motion for Summary Judgment, Plaintiff's Response to the West Virginia State Tax Department's Statement of Material Facts, West Virginia State Tax Department's Reply in Support of its Motion for Summary Judgment, Plaintiff's Reply in Support of Motion for Summary Judgment and West Virginia State Tax Department's Surreply in Further Opposition to Plaintiff's Motion for Summary Judgment. Upon consideration of the record as a whole, the Court makes the following FINDINGS OF FACT:
On July 9, 2012, Patriot Coal Corporation and a number of its affiliates (hereinafter "Debtors") filed Voluntary Petitions for relief under Chapter 11 of the Bankruptcy Code (hereinafter "First Bankruptcy Cases") in the United States Bankruptcy Court for the Southern District of New York (hereinafter "New York Bankruptcy Court"). On December 19, 2012, the First Bankruptcy Cases were transferred to the United States Bankruptcy Court for the Eastern District of Missouri following the New York Bankruptcy Court's Memorandum Decision entered on November 27, 2012, which instructed that the cases would be transferred. This Court confirmed Debtors' Joint Plan of Reorganization (hereinafter "First Plan of Reorganization") in the First Bankruptcy Cases on December 18, 2013. On May 12, 2015, Debtors filed Voluntary Petitions for relief under Chapter 11 of the Bankruptcy Code again (hereinafter "Second Bankruptcy Cases") in the United States Bankruptcy Court for the Eastern District of Virginia (hereinafter "Virginia Bankruptcy Court"). The plan of reorganization in the Second Bankruptcy Cases (hereinafter "Second Plan of Reorganization") was confirmed on October 9, 2015. On October 26, 2016, according to the Second Plan of Reorganization, the liquidating trust assets vested in Eugene Davis, the duly appointed Liquidating Trustee (hereinafter "Plaintiff") for the Patriot Coal Corporation Liquidating Trust (hereinafter "Liquidating Trust").
On May 12, 2016, Plaintiff filed an adversary proceeding against the West Virginia State Tax Department (hereinafter "Defendant") in the Virginia Bankruptcy Court (hereinafter "Virginia Adversary"). Plaintiff alleged in the Virginia Adversary that Defendant owed the Liquidating Trust $5,325,826.83 in tax refunds and interest. Defendant filed West Virginia State Tax Department's Motion to Dismiss in the Virginia Adversary (hereinafter "First Motion to Dismiss") based on two grounds: (1) the Virginia Bankruptcy Court lacked jurisdiction to adjudicate the dispute due to sovereign immunity and (2) the Virginia Bankruptcy Court should abstain from hearing the dispute pursuant to 28 U.S.C. § 1334(c)(1). A hearing was held in the Virginia Bankruptcy Court on Defendant's First Motion to Dismiss. On November 22, 2016, the Virginia Bankruptcy Court entered its Memorandum Opinion granting Defendant's First Motion to Dismiss.
On February 8, 2017, Plaintiff filed, in this Court, Complaint for Turnover of Tax Refunds Owed to Patriot Coal Corporation, Panther LLC, Coyote Coal Company and Catenary Coal Company (hereinafter "Complaint") alleging that Defendant owes the Liquidating Trust at least $5,325,826.83. Defendant filed West Virginia State Tax Department's Motion to Dismiss (hereinafter "Second Motion to Dismiss") and argued that Plaintiff was attempting to re-litigate the same turnover action that was dismissed by the Virginia Bankruptcy Court, that the Virginia Bankruptcy Court dismissed the Virginia Adversary for failure to state a claim under Section 542 of the Bankruptcy Code and the ruling was final and binding. Plaintiff argued in response that the Virginia Bankruptcy Court granted Defendant's First Motion to Dismiss because the Virginia Bankruptcy Court lacked jurisdiction to adjudicate the claim on the basis of sovereign immunity, the dismissal was granted without prejudice and the decision of the Virginia Bankruptcy Court was not intended to preclude subsequent litigation in this Court. This Court entered its Order denying Defendant's Second Motion to Dismiss on May 29, 2018.
On June 28, 2018, Defendant filed West Virginia State Tax Department's Motion to Dismiss for Subject-Matter Jurisdiction (hereinafter "Third Motion to Dismiss") in which Defendant argued that the Court lacks subject matter jurisdiction and that the Complaint should be dismissed for violating sovereign immunity. Plaintiff filed Trustee's Response in Opposition to the West Virginia State Tax Department's Motion to Dismiss for Lack of Subject Matter Jurisdiction and argued that the Court does have subject matter jurisdiction over the tax refund claims and that the Complaint does not violate Defendant's sovereign immunity. This Court entered its Order denying Defendant's Third Motion to Dismiss on June 25, 2019.
On December 20, 2019, Defendant filed the West Virginia State Tax Department's Motion for Summary Judgment arguing Plaintiff cannot maintain a Section 542 turnover action against Defendant because none of the purported refund claims are liquidated or undisputed under state law; that most of Plaintiff's purported refund claims are time-barred under West Virginia law; and to the extent Plaintiff could establish that a liquidated and undisputed right to any refund amount exists on the disputed facts in this case, Defendant has the right to offset any amount against the $10,000,000.00 Debtors still owes Defendant under the parties claim settlement as expressly preserved in the confirmation orders from Patriot's prior Chapter 11 cases (hereinafter "Claim Settlement"). On December 20, 2019, Defendant filed West Virginia State Tax Department's Memorandum in Support of Defendant's Motion for Summary Judgment. Additionally, on December 20, 2019, Defendant filed West Virginia State Tax Department's Statement of Uncontroverted Material Facts. Defendant further argues that Plaintiff failed to file a timely refund request or failed to timely challenge Defendant's decision denying their tax refund request.
On December 20, 2019, Plaintiff filed Plaintiff Eugene Davis' [sic] Motion for Summary Judgment arguing Defendant owes the Liquidating Trustee $6,000,000.00 in tax refunds due to Debtors. Plaintiff asserts the terms of the Claim Settlement prohibit Defendant from offsetting any amounts that may be due under the Claim Settlement against the refunds due and owing to Plaintiff. On December 20, 2019, Plaintiff also filed Memorandum of Law in Support of Plaintiff Eugene Davis' [sic] Motion for Summary Judgment where Plaintiff argues the right to obtain four outstanding refund claims from Defendant for the following Patriot entities:
| Refund Year | Patriot Entity | Original Refund | Refund Plus Interest |
| 2011 | Catenary Coal Company | $1,219,083.50 | $1,510,851.98 |
| 2012 | Coyote Coal Company | $750,070.04 | $1,175,512.82 |
| 2012 | Panther LLC | $1,755,463.52 | $2,681,867.31 |
| 2013 | Patriot Coal Corporation | $459,939.00 | $645,502.33 |
| Total | $4,184,556.06 | $6,013,734.44 |
Plaintiff argues the tax refunds owed to Catenary Coal Company, Panther LLC, and Coyote Coal Company originate from severance taxes. The tax refund owed to Patriot Coal Corporation originates from a franchise tax. Plaintiff emphasizes the only issue relevant to the Patriot Coal Corporation refund is Defendant's ability to offset it. Defendant requires coal companies to pay tax on the coal they "sever" from the ground and sell. Coal severance taxes are imposed upon coal producers in the State of West Virginia. Under the West Virginia Tax Procedure and Administration Act, the applicable severance tax rate depends on the width of the seam of coal mined (hereinafter "severance tax rate"). The thinner the seam, the lower the severance tax rate. Although the default severance tax rate is 5%, coal companies may pay a reduced severance tax rate of 1% or 2% if the seam is thinner (hereinafter "thin seam tax rate"). Each month, a coal company estimates its monthly severance tax liability and pays Defendant that amount. Every calendar year, a coal company files eleven monthly estimates and an annual return. Defendant's geologists are responsible for reviewing and approving...
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