Halle v. Banner Indus. of N.E., Inc.

• Decision Date: 19 December 2014
• Docket Number: NO. 2012-CA-001997-MR,2012-CA-001997-MR
• Citation: 453 S.W.3d 179
• Parties: Warren E. Halle; THC Kentucky Coal Venture I LLC; and West Virginia Coal Venture I LLC, Appellants v. Banner Industries of N.E., Inc.; Gary J. Richard; and Pikeville Energy Group, LLC, Appellees
• Court: Kentucky Court of Appeals

453 S.W.3d 179

Warren E. Halle; THC Kentucky Coal Venture I LLC; and West Virginia Coal Venture I LLC, Appellants

v.Banner Industries of N.E., Inc.; Gary J. Richard; and Pikeville Energy Group, LLC, Appellees

NO. 2012-CA-001997-MR

Court of Appeals of Kentucky.

RENDERED: DECEMBER 19, 2014; 10:00 A.M.

BRIEFS FOR APPELLANT: Michael J. Gartland, Billy R. Shelton, Lexington, Kentucky

BRIEF FOR APPELLEE: Joe F. Childers, Lexington, Kentucky

BEFORE: STUMBO, TAYLOR AND THOMPSON, JUDGES.

OPINION

THOMPSON, JUDGE:

This action was filed by the appellees, Banner Industries of N.E., Inc., Gary J. Richard, and Pikeville Energy Group, LLC (PEG) against the appellants, Warren E. Halle, THC Kentucky Coal Venture I, LLC (THC), and West Virginia Coal Venture I, LLC, (WVCI).¹ The initial complaint alleged: (1) fraud in the inducement and breach of contract; (2) tortious interference with business relations; (3) civil conspiracy; (4) breach of contract-third party beneficiaries; and (5) trade disparagement. The appellees filed an amended complaint in which they withdrew the breach of contract-third party beneficiaries and trade disparagement claims but added a count of abuse of process solely against THC. The appellants maintain the Pike Circuit Court erred when it denied their motion to dismiss all tort claims asserted against them based on absolute immunity under the judicial statements privilege. Alternatively, they argue no statements made in prior collateral bankruptcy proceedings and lawsuits may be used in support of the asserted tort claims.

The standard for granting a motion to dismiss pursuant to Kentucky Rules of Civil Procedure (CR)12.02, is well known:

The court should not grant the motion unless it appears the pleading party would not be entitled to relief under any set of facts which could be proved in support of his claim. In making this decision, the circuit court is not required to make any factual determination; rather, the question is purely a matter of law. Stated another way, the court must ask if the facts alleged in the complaint can be proved, would the plaintiff be entitled to relief?

James v. Wilson, 95 S.W.3d 875, 883–84 (Ky.App.2002) (internal quotations and footnotes omitted). Therefore, our discussion of the facts is necessarily based on those alleged in the appellees' complaint and amended complaint. As our standard of review requires, for purposes of considering the trial court's denial of the appellants' motion to dismiss, we assume the facts alleged by the appellees are true.

In April 2005, now defunct Alma Energy, LLC, was formed in the Commonwealth of Virginia with three members, including Nathan Williams. In 2005, it purchased a mineral lease on 496 acres in Pike County and opened the Right Fork Energy Mine # 1. In June 2006, Alma purchased an adjacent mineral lease known as Netley Branch. In the spring of 2006, Alma began looking for investors. Nathan William's father contacted Tony Gannacone III, to assist in finding an investor and, ultimately, Halle decided to invest in Alma.

In July 2006, Halle, who was the owner and chief executive officer of THC, and Alma organized Kentucky Coal Venture I, (KCVI) as a corporate instrument to facilitate their joint venture. THC controlled all KCVI's decisions in the mining and selling coal from leases previously acquired by Alma and Alma's interests in the Kentucky coal leases were transferred to KCVI. As part of this arrangement, the interests of the two remaining initial members of Alma were transferred to Williams. In August 2006, by agreement, Alma was given an exclusive contract to mine all coal from properties owned by THC in Pike County for twenty years and to sell the coal mined from three specified mines in Pike County, including Netley Branch.

Soon after the execution of the exclusive contract, Alma found an opportunity for Halle to purchase metallurgical coal reserves and a coal preparation facility (the Glen Alum facility), located in West Virginia. Halle formed WVCI for the purpose of purchasing the Glen Alum facility for $12 million. At this point, in addition to his interest in KCVI and THC, Hale also owned directly or indirectly WVCI. We refer to these entities collectively as Halle Entities.

In early 2007, Halle Entities accused Alma of defaulting on the 2006 agreements, which appellees contend was the beginning of Halle Entities' plan to force Alma out of any participation in Glen Alum, a more profitable venture than the Kentucky operations.

At this point, Alma's relationship with Halle and Halle Entities became strained. KCVI began withholding funds from Alma forcing Alma to commence two reorganization proceedings under Chapter 11 in the federal bankruptcy court. In addition, three adversary proceedings in the bankruptcy court were commenced, a civil action was filed by Halle Entities in the United States District Court for the District of Maryland and a civil action was filed by Alma in the Pike Circuit Court. The complaint alleges Halle had a history of structuring deals to “choke off his partners” and, after forcing them into bankruptcy, purchase the assets for minimal amounts.

In 2007, Halle, Halle Entities, and Alma were parties to a settlement agreement to resolve all claims and causes of action among the parties. Pursuant to the 2007 settlement agreement, Alma would resume mining operations and mining operations would be split along state lines giving appellants complete control over the Glen Alum facility and allowing Alma to operate the Kentucky mines. The agreement permitted Alma to suspend its mining activities and be idle for up to one year if the market price for coal fell below $60 per ton. In 2008, the 2007 agreement was approved by the bankruptcy court.

Alma attempted to restore the neglected Kentucky mines to productive operation and, with little or no working capital, sought outside investors. It is at this point, the appellees, Gary Richard, President of Banner, Banner, and PEG entered into Alma's business.

In reliance on the terms of the 2007 settlement agreement giving Alma the right to operate the Kentucky mines and sell the coal, Richard and PEG began providing financing to Alma. Richard used his personal money and money borrowed from Banner.

In the spring 2008, Alma and PEG representatives met with potential coal buyers and contracted with Appalachian Fuels. Because of Alma's debtor-in-possession status in its bankruptcy, an affiliated entity was to perform the actual mining and PEG would purchase the coal and resell it to third parties. Banner agreed to take out loans to finance PEG's equipment purchases for mining Alma coal. Loans from Banner to PEG and Richard, or to vendors for PEG's benefit, totaled $3.510 million.

By May, 2008, Alma was prepared to resume mining. When Alma filed a motion with the bankruptcy court to approve the interim mining agreement and allow commencement of mining operations, Halle Entities filed an objection raising numerous challenges to the proposed operation. The complaint alleges Halle Entities made various misrepresentations in its objection and at the hearing. It further alleges that after the hearing various threats were made by Halle Entities' representatives to Richard.

Despite the hostilities, PEG, Alma and Halle Entities attempted to negotiate a coal-purchase agreement. While negotiations were underway, Halle Entities filed a competing plan of reorganization in the Alma bankruptcy proceedings in an attempt to strip PEG of its contracts and transfer control over Alma to appellants.

Meanwhile, Consol Capital, LLC filed an unsecured creditors claim in the Alma bankruptcy proceeding. Gannacone was a managing member of Consol, which was an exclusive contractor to Halle Entities. The complaint alleges Gannacone wrongfully attempted to persuade the committee to support Halle Entities' reorganization plan. As a result, the opening of the Alma mines was delayed.

Eventually, Halle Entities withdrew their objection to the interim mining agreement involving PEG after being awarded exclusive rights to purchase all coal produced from Netley Branch pursuant to a coal purchase agreement dated June 30, 2008. The interim agreement was approved by the bankruptcy court. Over the next five months, Netley Branch mine generated substantial income.

Appellees further allege that in November 2008, WVCI and Halle Entities breached the 2007 settlement agreement and the 2008 coal purchase agreement when it abruptly cancelled the coal purchase agreement in an effort to drive Alma into liquidation. Although the 2007 settlement agreement permitted Alma to suspend mining operations for up to one year because of adverse market conditions, within two weeks after the cancellation, Halle Entities sought to have Alma's bankruptcy converted to a Chapter 7 liquidation.

The request was granted and Alma's case was converted to Chapter 7 liquidation on May 20, 2009, leaving PEG and Richard with no way to recover the $3.5 million they invested in Alma's operations. The Alma trustee sold Alma's equipment valued at $1.7 million to THC for $5,000 and the right to prosecute all of Alma's future claims were sold to THC for $500,000.

The complaint further alleges appellants met with D. Hayden Fischer, a member of PEG who signed a release of any claims PEG may have against appellants for breach of the 2008 coal purchase agreement. However, the release was not effective because Fischer had no authority to bind PEG.

In the summer of 2008, while Netley Branch was in operation, Richard solicited investors and contracted to receive $1,175,000. Appellees allege appellants interfered with those agreements and attempted to gain an advantage by wrongfully claiming damages against Richard and PEG for the amount of those investments.

These allegations of fact form the basis for appellees' claims. THC and WVCI filed motions to dismiss appellees' original complaint on all counts except for breach of contract arguing various defenses including that the claims...