Mon View Mining Co. v. Pa. Dep't of Revenue (In re Mon View Mining Co.)

• Decision Date: 28 September 2012
• Docket Number: Adversary No. 12–02068–JAD.,Bankruptcy No. 05–50219–JAD.
• Citation: 479 B.R. 670
• Parties: In re MON VIEW MINING COMPANY, Debtor. Mon View Mining Company, Plaintiff, v. Pennsylvania Department of Revenue, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

479 B.R. 670

In re MON VIEW MINING COMPANY, Debtor.Mon View Mining Company, Plaintiff,

v.Pennsylvania Department of Revenue, Defendant.

Bankruptcy No. 05–50219–JAD.

Adversary No. 12–02068–JAD.

United States Bankruptcy Court, W.D. Pennsylvania.

Sept. 28, 2012.

Donald R. Calaiaro, Calaiaro & Corbett, P.C., Pittsburgh, PA, for Plaintiff.

Christos A. Katsaounis, Office of Chief Counsel, Comm. of PA, Department of Revenue, Harrisburg, PA, for Defendant.

MEMORANDUM OPINION

JEFFERY A. DELLER, Bankruptcy Judge.

The matter before the Court is a Motion for Judgment on the Pleadings filed by the Defendant, the Pennsylvania Department of Revenue (the “Department”), pursuant to a Complaint to Determine Tax Liability filed by the Plaintiff, Mon View Mining Company (the “Debtor”). The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. The matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (B). Venue is proper under 28 U.S.C. § 1409(a). For the reasons set forth below, the Motion for Judgment on the Pleadings is denied.

I.

The lead bankruptcy case under which this adversary action arises, Case No. 05–50219–JAD (the “Lead Bankruptcy Case”), was commenced by the filing of a voluntary petition under Chapter 11 of the United States Bankruptcy Code on November 22, 2005. A declaration signed by John W. Hatch, the President of the Debtor, was attached to the petition, declaring under penalty of perjury that the information contained in the schedules (the “Bankruptcy Schedules”) was true and correct. ( SeeCase No. 05–50219–JAD, Doc. # 17).¹ The Debtor's Schedule A—Real Property includes “land from Washington County” valued at $22,000,000, and its Schedule B—Personal Property includes “coal fines 500,000 tons (est)” valued at $1,100,000, “coal inventory (approx. 20 tons)” valued at $480, and “spare parts” valued at $500,000. ( See Id.).

On January 3, 2012, the official Committee of Unsecured Creditors filed its Second Amended Chapter 11 Plan (the “Plan”) and Second Amended Disclosure Statement (the “Disclosure Statement”). ( See Docs. # 1308, # 1310). This Court entered an Order Confirming the Chapter 11 Plan of the Official Committee of Unsecured Creditors (the “Order Confirming the Plan”) on April 25, 2012. ( See Doc. # 1348).²

A.

While in bankruptcy, the Debtor began efforts to effectuate a sale of its property and mineral rights located in Washington County, Pennsylvania. On May 14, 2008, after a sale hearing was held on May 9, 2008, this Court entered an Order Authorizing Public Sale Auction of Real and Personal Property (the “Order Authorizing Sale”) on May 16, 2008 ( See Doc. # 556), which confirmed “on the recommendation of the Movant (Debtor's counsel)” the sale of all the Debtor's real and personal property to CRG Energy, Inc. (“CRG”) for a sales price of $25,000,000. The sale (the “2008 Sale”) was subject to a secured promissory note (the “Note”) requiring $1,000,000 payable at the closing and $2,000,000 payable 90 and 180 days from the date of closing, and the balance of $20,000,000 payable over ten years in equal monthly installments. ( See Id.) An asset purchase agreement (the “Asset Purchase Agreement”) was filed the same day. ( See Doc. # 557). On or about July 30, 2008, CRG assigned its right to its affiliate, Coal Financing, LLC (“Coal”). ( See Doc. # 806).

As a result of the 2008 Sale, on August 4, 2008, two deeds (one for the surface tracts and one for the coal tracts) were recorded in Washington County. State and local realty transfer taxes totaling $219,621.95 were paid upon their recording. ( SeeCase No. 12–02068–JAD, Doc. # 32, Exhibit 1). State and local realty transfer taxes were not paid on the $25,000,000 sales price, but rather on $10,791,170, the total computed value ³ of the two tracts. Coal's counsel determined the realty transfer tax liability using an allocation (the “Purchase Price Allocation”) contained in Article 2.10 of the Asset Purchase Agreement, which refers to Schedule 2.11. ( See Doc. # 557). Schedule 2.11 allocated the $25,000,000 sales price as follows: $10,791,170 to real estate, including $5,141,190 to surface real estate and $5,649,980 to coal/minerals real estate; and $14,208,830 to personal property, including $7,500,000 to machinery, equipment and miscellaneous, and $6,708,830 to gob piles and coal fines. ( SeeCase No. 12–02068, Doc. # 32, Exhibit 9, unnumbered p. 5).

Subsequently, Coal and CRG defaulted on the payment obligations under the Asset Purchase Agreement and Note ( See Doc. # 506; Case No. 08–02557–JAD, Doc. # 1), prompting the Debtor to file a Complaint in Confession of Judgment against Coal and CRG in Adversary Case No. 08–02557 ( See Case No. 08–02557–JAD, Doc. # 1). This Court entered a judgment against Coal and CRG for $25,300,000 on November 25, 2008 ( See Case No. 08–02557–JAD, Doc. # 3), which the Debtor later entered against Coal and CRG in District Court at Case No. 09–00134 ( See Case No. 09–00134–DWA, Doc. # 1). The Debtor filed a Motion to Schedule Execution Sale, which the District Court granted on June 8, 2009. ( See Case No. 09–00134–DWA, Docs. # 4, # 6). Pursuant to these actions, a U.S. Marshall executed a deed conveying the property back to the Debtor.

The Debtor filed a Motion to Sell Real Property on December 8, 2009, which this Court granted on May 10, 2010. ( See Docs. # 984, # 1134). The District Court issued an Order Approving Sale on June 17, 2010 ( See Doc. # 1177), and the assets were then sold to A.T. Massey Coal Company, Inc. (“Massey”) and Canestrale Environmental Control Corporation (“Canestrale”).

On June 3, 2009, the Department filed an administrative claim in the Lead Bankruptcy Case.⁴ The basis for the claim is allegedly outstanding realty transfer taxes using the $22,000,000 property value set forth in Debtor's Schedule A. The Department subsequently amended the claim on October 14, 2011 and May 18, 2012 to both update the realty transfer tax liability and include estimated Pennsylvania corporation tax liabilities for Debtor's unfiled corporation tax returns. ( SeeCase No. 12–02068, Doc. # 32, Exhibit 7). ⁵

B.

On February 12, 2012, the Debtor filed a Complaint to Determine Tax Liabilityagainst the Department and the United States seeking relief under 11 U.S.C. §§ 105 and 505, thereby initiating this adversary proceeding (the “Adversary Case”). In the Complaint, the Debtor, claiming that CRG and Coal knowingly misrepresented that they had funds available to consummate the 2008 Sale, averred that the sale to CRG and its affiliate was fraudulent and sought to eliminate any transfer tax obligations. ( SeeCase No. 12–02068–JAD, Doc. # 1).⁶

The Department filed a Motion to Dismiss based on several grounds ( See Doc. # 5), as did the United States ( See Doc. # 8). Subsequently, the Debtor, through responsive pleadings and at a hearing on April 24, 2012, began modifying its prayer for relief.⁷ As such, this Court granted the Motion to Dismiss without prejudice on April 24, 2012 and ordered the Debtor to file an amended complaint within 21 days. ( See Doc. # 20).

The Debtor filed an Amended Complaint to Determine Tax Liability on May 15, 2012, seeking “to eliminate any additional transfer tax obligation of the sale to CRG and to object to the administrative claim of the [Department] for real estate transfer taxes.” ( See Doc. # 24, ¶ 25). The Debtor asserts that “[t]he real estate taxes paid at closing (based on a Realty Transfer Tax Statement of Value for Real Estate of $10,791,170) represented the fair market value of the real estate in the transaction” and that “no additional transfer taxes ... are due.” ( See Id. at ¶¶ 19, 23).

The Department filed a Motion for Judgment on the Pleadings on June 27, 2012, alleging in its Memorandum that the Debtor does not have a cause of action against the Department upon which relief may be granted, that the Debtor is judicially estopped from arguing that the value of the property is $10,791,170, and that the Debtor is collaterally estopped from re-alleging the fraud arguments it made in its initial Complaint. ( See Doc. # 35, pp. 20, 48–49).

The Debtor filed a Response to the Motion for Judgment on the Pleadings on July 23, 2012, averring that material facts are in dispute, specifically in regards to the value of the property. ( See Doc. # 43). The Debtor believes approximately $13,000,000 of the sales price was paid in exchange for personal property and requests that realty transfer taxes be paid only on the value of the transferred real estate. ( Id.) The Department filed a Response to the Response on July 27, 2012 ( See Doc. # 44), and a hearing was held on July 31, 2012. The matter is now ripe for discussion.

II.

After pleadings are closed, but early enough not to delay trial, a party may move for judgment on the pleadings. See Fed.R.Civ.P. 12(c) (applicable in bankruptcyproceedings through Fed. R. Bankr.P. 7012(b)). A Rule 12(c) motion is governed by the same standard as a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. Turbe v. Gov't of the Virgin Islands, 938 F.2d 427, 428 (3d Cir.1991). “The test for reviewing a motion to dismiss for failure to state a claim is whether under a reasonable reading of the pleadings the plaintiff may be entitled to relief.” Simon v. Cebrick, 53 F.3d 17, 19 (3d Cir.1995). “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

A motion for judgment on the pleadings will not be granted “unless the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law.” Jablonski v. Pan American World Airways, Inc., 863 F.2d 289, 290 (3d Cir.1988), quoting Society Hill Civic Association v. Harris, 632 F.2d 1045, 1054 (3d Cir.1980). In...