Debra Pettry v. Patriot Coal Corp.

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 14-6005
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In re: Patriot Coal Corporation, also known as Eastern Coal Holding Company,
Inc., also known as Patriot Coal Corporation Midwest

lllllllllllllllllllllDebtor

------------------------------

Debra Pettry, Individually and as Executrix of the Estate of Denver Pettry;
Franklin Stump; Marsha Stump; Alfred Price; Willa Price; Robert Scarbro;
Theresa Scarbro; David Evans; Kathye Evans; Westley Fraley; Judy Fraley; Danny
Gunnoe; Carol Gunnoe; Kermit Morris; Kathy Morris; A Class of Others Similarly
Situated

lllllllllllllllllllllClaimants - Appellants

v.

Patriot Coal Corporation

lllllllllllllllllllllDebtor - Appellee
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Appeal from United States Bankruptcy Court
for the Eastern District of Missouri - St. Louis
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Submitted: May 12, 2014
Filed: June 5, 2014
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Before KRESSEL, SALADINO and SHODEEN, Bankruptcy Judges.
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SALADINO, Bankruptcy Judge.

This is an appeal by certain claimants (“Pettry Claimants”) arising from an
order of the bankruptcy court1 filed February 11, 2014, denying a motion for
reconsideration of a November 8, 2013, order sustaining the Debtor’s seventeenth
omnibus objection to claims. For the reasons that follow, we affirm.

Factual Background

On March 28, 2002, the Pettry Claimants filed a putative class action against
Eastern Associated Coal, LLC, f/k/a Eastern Associated Coal Corporation, and other
chemical manufacturers and coal plants in the Circuit Court of Boone County, West
Virginia. The suit was filed on behalf of coal plant workers and their spouses seeking
money damages and equitable relief after enduring harms from exposure to chemicals
used in the coal plants. The case was subsequently transferred to the Circuit Court of
Marshall County, West Virginia, because a similar case was pending in that county.
For reasons that are not entirely clear, the litigation progressed slowly over the next
ten years.

On July 9, 2012, Patriot Coal Corporation and numerous affiliated entities,
including Eastern Associated Coal, LLC filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York.2 Venue of the bankruptcy cases was

1
The Honorable Kathy A. Surratt-States, Chief Judge, United States
Bankruptcy Court for the Eastern District of Missouri.
2
The bankruptcy cases of Patriot Coal Corporation and its affiliated entities are
(continued...)

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subsequently transferred to the United States Bankruptcy Court for the Eastern
District of Missouri. Soon after the bankruptcy filing, the jointly administered
Debtors filed a notice in the West Virginia litigation, alerting the state court of the
pending bankruptcy cases. As a result of that notice, the West Virginia court issued
a notice of intent to proceed with the Pettry Claimants’ litigation “relative to all
parties and all causes of action, with the exception of any which may relate to
Defendant, Patriot Coal Corp. and its affiliated companies.” On December 14, 2012,
the Pettry Claimants timely filed proofs of claim in the Debtors’ bankruptcy cases
based on the West Virginia litigation.3

On January 11, 2013, the West Virginia court entered its “Order Granting
Defendants’ Motions for Summary Judgment and Dismissing All Remaining Claims
with Prejudice.” Pursuant to that order, the West Virginia court granted summary
judgment in favor of the defendants other than the Debtors and dismissed the Pettry
Claimants’ causes of action against the Debtors, with prejudice, as a “sanction for the
dilatory manner in which [the Pettry Claimant’s] claims were prosecuted.” The Pettry
Claimants sought reconsideration, which the state court denied. On May 22, 2013, the
Pettry Claimants filed a notice of appeal with the West Virginia Supreme Court of
Appeals.4

On September 20, 2013, Debtors filed an omnibus objection to the Pettry
Claimants’ proofs of claim asserting the preclusive effect of the West Virginia state
court judgment dismissing the litigation. The Pettry Claimants resisted the omnibus

2
(...continued)
being jointly administered under the Patriot Coal Corporation case.
3
Each of the Pettry Claimants filed two proofs of claim – one in the Patriot Coal
Corporation case (even though Patriot Coal Corporation was not a defendant in the
West Virginia litigation) and one in the Eastern Associated Coal, LLC case.
4
The disposition, if any, of that appeal is not in the record.

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objection for several reasons, including the primary argument they make in this
appeal – that the state court dismissal order was in violation of the automatic stay of
11 U.S.C. § 362(a) and is void. On November 8, 2013, after a hearing on the matter,
the bankruptcy court issued an order sustaining the Debtors’ omnibus objection.

The Pettry Claimants did not appeal the bankruptcy court’s order of November
8, 2013. Instead, on December 16, 2013, after the time for appeal had expired, the
Pettry Claimants filed a motion for reconsideration pursuant to 11 U.S.C. § 502(j) and
Rule 3008 stating that “the equities of the matters at issue warrant the court’s further
consideration.” The Pettry Claimants again argued that the state court action should
still exist because the state court’s dismissal order was void as a violation of the
automatic stay.

After a hearing on January 28, 2014, the bankruptcy court issued its order (filed
February 11, 2014) denying the motion for reconsideration. The court held that the
Pettry Claimants had not shown cause for reconsideration and that such a motion may
not be used as a substitute for a timely appeal. The Pettry Claimants then filed this
appeal. Accordingly, the order on appeal is the bankruptcy court’s February 11, 2014,
order denying the Pettry Claimants motion for reconsideration pursuant to § 502(j)
and Rule 3008, not the bankruptcy court’s November 8, 2013, order sustaining the
objection to claims, nor, of course, the state court’s order dismissing the litigation.

Standard of Review

Abuse of discretion is the appropriate standard to review a bankruptcy court’s
decision under 11 U.S.C. § 502(j). Halverson v. Estate of Cameron (In re Mathiason),
16 F.3d 234, 239 (8th Cir. 1994) (citing Colley v. Nat’l Bank of Texas (In re Colley),
814 F.2d 1008, 1010 (5th Cir. 1987) and Employment Sec. Div. v. W.F. Hurley, Inc.
(In re W.F. Hurley, Inc.), 612 F.2d 392 (8th Cir. 1980), cert. denied, 484 U.S. 898
(1987)). An abuse of discretion will only be found if the bankruptcy court fails to

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apply the proper legal standards or bases its judgment on clearly erroneous factual
findings. Barger v. Hayes County Non-Stock Co-op (In re Barger), 219 B.R. 238, 243
(B.A.P. 8th Cir. 1998).

Discussion

The Pettry Claimants sought reconsideration of the bankruptcy court’s
November 8, 2013, order under 11 U.S.C. § 502(j), which provides that “[a] claim
that has been allowed or disallowed may be reconsidered for cause. A reconsidered
claim may be allowed or disallowed according to the equities of the case.” See also
Fed. R. Bankr. P. 3008. However, while a bankruptcy court has the power to
reconsider the allowance or disallowance of a claim for cause by virtue of § 502(j)
and Bankruptcy Rule 3008, the court’s discretion should not encourage parties to
avoid the usual rules for finality of contested matters. Colley, 814 F.2d at 1010.

We interpret Rule 9024 to provide that, when a proof of
claim has in fact been litigated between parties to a
bankruptcy proceeding, the litigants must seek
reconsideration of the bankruptcy court’s determination
pursuant to the usual Rule 60 standards if they elect not to
pursue a timely appeal of the original order allowing or
disallowing the claim.

Id. See also W. F. Hurley, Inc., 612 F.2d at 396.

An order denying relief under Rule 60(b) is a final order that may be appealed.
Sanders v. Clemco Indus., 862 F.2d 161, 165 n.3 (8th Cir. 1988). However, “the
appeal of the denial of a Rule 60(b) motion does not raise the underlying judgment
for [the appellate court’s] consideration and review but only presents the merits of the
Rule 60(b) motion for [the appellate court’s] consideration.” Hunter v. Underwood,
362 F.3d 468, 475 (8th Cir. 2004) (citing Sanders, 862 F.2d at 169). Our review is

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limited to the bankruptcy court’s order denying the Debtor’s motion for
reconsideration. We review that order only for abuse of discretion. Sanders, 862 F.2d
at 165 n.3.

In their appellate briefs, the Pettry Claimants expend considerable efforts
attacking the merits of the West Virginia state court’s judgment on the theory that it
violated the automatic stay, which they seem to believe affects the validity
bankruptcy court’s order, apparently in an effort to support reconsideration under
Rule 60(b)(4) which provides for relief when the underlying judgment is void. In
2010, the United States Supreme Court discussed Rule 60(b)(4) as follows:

A void judgment is a legal nullity. . . . [A] void
judgment is one so affected by a fundamental infirmity that
the infirmity may be raised even after the judgment
becomes final. . . . The list of such infirmities is
exceedingly short; otherwise Rule 60(b)(4)’s exception to
finality would swallow the rule.
“A judgment is not void,” for example, “simply
because it is or may have been erroneous.” . . . Similarly, a
motion under Rule 60(b)(4) is not a substitute for a timely
appeal. . . . Instead, Rule 60(b)(4) applies only in the rare
instance where a judgment is premised either on a certain
type of jurisdictional error or on a violation of due process
that deprives a party of notice or the opportunity to be
heard.

United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270-71 (2010) (citations
omitted).

Here, the Pettry Claimants fail to identify a single infirmity that would cause
the bankruptcy court’s order of November 8, 2013 (which is the order they asked the
court to reconsider), to be void. It was entered only after notice and a hearing at
which the Pettry Claimants participated through counsel.

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 The Pettry Claimants repetitively argue that the West Virginia state court’s
judgment dismissing their class action claims was in violation of the automatic stay
and, therefore, void ab initio. See LaBarge v. Vierkant (In re Vierkant), 240 B.R. 317
(B.A.P. 8th Cir. 2009) (holding that under the circumstances of that case, an action
taken in violation of the automatic stay is void ab initio). However, this is not an
appeal of the West Virginia state court judgment. Regardless, even if the state court
judgment were void (a conclusion we are not willing to make), there is no similar
infirmity with regard to the bankruptcy court’s order of November 8, 2013, nor does
it excuse the Pettry Claimants’ failure to timely appeal that order. The purported
violation of the automatic stay by the entry of judgment in West Virginia was raised
and argued by the Pettry Claimants in response to the claim objection, and it was
specifically rejected by the bankruptcy court. Their remedy was to file a timely
appeal; not to seek reconsideration after the time for appeal had run. In re
Immenhausen Corp., 166 B.R. 449, 451 (Bankr. M.D. Fla. 1994) (stating “[i]t should
be stated at the outset that § 502(j) and the corresponding Bankruptcy Rule 9024 was
never designed to serve as a substitute for an appeal.”)

The Pettry Claimants’ motion for reconsideration does not raise any new issues
or any other grounds for reconsideration of the bankruptcy court’s order. It simply
restates the arguments that were specifically argued to and rejected by the bankruptcy
court. Accordingly, the bankruptcy court properly denied the motion. In re Costello,
136 B.R. 296, 299 (Bankr. M.D. Fla. 1992) (holding “[t]hus, if a Motion for
Reconsideration is nothing more than a rehash of the original Objection to Claim,
absent an allegation of fraud, newly-discovered evidence which is material, mistake,
or excusable neglect, the Motion cannot be considered favorably.”)

Conclusion

Because the bankruptcy court did not abuse its discretion in denying the motion
to reconsider, the bankruptcy court’s order filed February 11, 2014, is affirmed.
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