Kocur v. Split Vein Coal Co. (In re Split Vein Coal Co.), CASE NO. 1:03-bk-02974MDF

IN RE: SPLIT VEIN COAL COMPANY, INC., Debtor

VICTOR J. KOCUR, JR., Movant/Applicant

v.SPLIT VEIN COAL COMPANY, INC., Objectant

v.ELWOOD SWANK, Intervenor

CASE NO. 1:03-bk-02974MDF

UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

Date: May 9, 2013

CHAPTER 11

OPINION

Before me is the Objection of Split Vein Coal Company, Inc. ("Debtor") to the Motion for Payment of Administrative Claim ("Application") filed by Victor J. Kocur, Jr. ("Kocur") in Debtor's Chapter 11 case. The Application requests compensation and expenses totaling $103,218.82. For the reasons that follow, the Application will be approved in the reduced amount of $84,758.82.

I. Procedural History

Debtor is a Pennsylvania corporation located in Northumberland County. Elwood Swank ("Swank") is Debtor's sole shareholder and president. Prior to the filing of its bankruptcy petition, Debtor's business activities included the recovery, reprocessing, and sale of coal refuse ("culm") recovered from lands leased for this purpose. Debtor's Chapter 11 petition was filed on May 19, 2003.

For several months in 2005 and a few weeks in 2008 and 2009, Kocur provided services to Debtor in various ways related to a fire that had burned within a culm bank (hereinafter, the Excelsior Bank) owned by Debtor near the town of Excelsior, Pennsylvania. The services provided by Kocur will be detailed in the Factual Findings, below. Debtor's culm was ultimately removed from the Excelsior Bank and sold by a third party, Gilberton Coal Company ("Gilberton"). Alleging that Gilberton had unlawfully converted its property, Debtor filed a complaint to recover the sale proceeds and was awarded the sum of $639,685 on December 11, 2009. Once the funds were received from Gilberton, Debtor's counsel made distribution to its creditors under the confirmed plan. Debtor's counsel sent the balance of the funds, approximately $207,000, to Swank.

On December 21, 2012, Kocur filed the Application now before me seeking payment from Debtor's bankruptcy estate for the services he rendered pertaining to the fire.¹ In the Application, Kocur requests compensation of $73,770 for 1229 hours worked and reimbursement of expenses totaling $29,448.82. On January 14, 2013, Debtor filed an Answer asserting various arguments for denying the Application. On January 23, 2013, Swank filed a motion to intervene in the matter, which was granted on February 5, 2013.²

A hearing on Kocur's Application was held on February 27, 2013. All three parties have filed briefs, and the matter is ready for decision.³

II. Factual Findings

Kocur is a truck driver and heavy equipment operator who has been involved in the coal mining business since 1976. He is Swank's stepson. For certain periods between 1985 and 2003, he worked as a contract trucker for Debtor. In 1988 and 1989, he worked for Debtor as an employee. At the time of trial, his primary business activity was hauling coal and fly ash into and out of plants generating electricity.

In December 2005, a fire was discovered in the Excelsior Bank, and Debtor was ordered by the Pennsylvania Department of Environmental Protection ("DEP") to extinguish it. Swank worked to fight the fire himself, but was not successful. In June 2006, Kocur's mother, who at the time was married to Swank, asked him if he would assist in the fire fighting effort. After consulting with DEP officials, Kocur agreed to assist his stepfather.

On July 3, 2006, Swank and Kocur executed an agreement in which Swank purported to sell to Kocur the "refuse material from [Debtor's] breaker dumped at the Excelsior job" for a price of 25 cents a ton to be paid on a removal basis. Under the terms of the agreement, Kocur would pay Swank a royalty based on the amount of culm removed. Neither party sought court approval for the sale of Debtor's assets. Based on the recommendation of Debtor's counsel, Swank and Kocur rescinded the agreement on July 30, 2006. However, Kocur proceeded withplans to fight the fire. After consulting with DEP officials, Kocur determined that the best way to extinguish the fire was to remove the fuel source - the culm. The affected bank was overgrown with trees and vegetation, so he began to fight the fire by bulldozing a road into the site. Using heavy equipment,⁴ he then excavated a "clay base" where burning material could be moved and doused with water. He purchased a water cannon at a cost of $8640 for this purpose. Once the clay base was established, he began digging out and moving the burning culm so that it could be saturated with water. He also moved non-burning culm to prevent it from catching fire. Between July and December 2006, Kocur spent at least 945 hours on the Excelsior Bank engaged in fighting the fire. Thomas Flannery ("Flannery"), DEP Mining and Explosives Inspector, testified that Kocur's work helped extinguish the fire and prevent additional culm from burning. Flannery further testified that Kocur's work prevented DEP from imposing fines against Debtor for failure to comply with its Order to extinguish the fire.

Kocur incurred expenses totaling $29,448.82 fighting the fire, including expenditures for the water cannon, lubricants and diesel fuel for the heavy equipment, and wages of $11.00 per hour paid to Jamie Derr ("Derr"), a heavy equipment operator. In December 2006, DEP ordered Kocur to cease his work on the Excelsior Bank because of the dispute over the ownership of the culm between Gilberton and Debtor.

At Swank's request, between December 10, 2006 and January 18, 2007 Kocur spent approximately 224 hours at or near the Excelsior Bank counting truckloads of culm that Gilberton was removing from the Excelsior Bank. Kocur's calculations of the amount of culmremoved were not used when damages were awarded to Debtor and against Gilberton. The Court's findings were based on the testimony and records regarding the amounts of culm that had been deposited by Debtor, not the amounts that had been removed by Gilberton.

Between December 9, 2008 and January 8, 2009, Kocur assisted Swank in preparing for the litigation between Debtor and Gilberton. Kocur also testified as a fact witness in the trial of that matter.

III. Discussion

Section 503(b)(1)(A) of the Bankruptcy Code defines administrative expenses and provides a nonexclusive list of allowable expenses. Administrative expenses include "the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case." 11 U.S.C. § 503(b)(1)(A). In the matter before me, Kocur claims he preserved assets of the estate by saving saleable culm from burning, by preventing DEP from imposing fines against Debtor, and by assisting in the litigation against Gilberton. There is no dispute among the parties that the Gilberton litigation was Debtor's sole asset of any appreciable value and that it ultimately provided Debtor with the funds necessary to consummate its Chapter 11 Plan.

Within the Third Circuit, to constitute an administrative claim under § 503(b)(1)(A), "the debt must arise from a transaction with the debtor-in-possession and the consideration supporting the claimant's right to payment must be beneficial to the debtor-in-possession in the operation of the business." In re O'Brien Environmental Energy, Inc., 181 F.3d 527, 532 (3d Cir. 1999) (citations, brackets and original ellipses omitted). "A party seeking payment of costs and fees as an administrative expense must . . . carry the heavy burden of demonstrating that the costs andfees for which it seeks payment provided an actual benefit to the estate and that such costs and expenses were necessary to preserve the value of the estate assets." Id.

In the matter before me, there is no dispute that the services for which Kocur requests compensation and reimbursement arise from transactions with Debtor. Objectants, however, dispute Kocur's claim that his services preserved assets and provided a quantifiable benefit to the estate. Kocur's claim may be divided into two categories of services - those provided in fighting the fire and those provided in connection with the Gilberton litigation. Kocur's claims for reimbursement of expenses may be similarly categorized. Additionally, Kocur requests an award of counsel fees in the amount of $7500. I will address each category separately.

A. Firefighting services and expenses

Neither Debtor nor Swank dispute that Kocur spent 945 hours over the course of six months moving culm on the Excelsior Bank. They do not dispute that these efforts prevented an asset of the estate from being destroyed. They argue, however, that Kocur is not entitled to a § 503 claim because he is unable to meet his burden of proof to quantify the precise amount of culm saved. While it is correct that Kocur is unable to state the precise amount of culm preserved by his efforts, Kocur is not required to prove this fact to successfully state a claim. Objectants fail to acknowledge that Kocur moved and extinguished the fire in culm that was already ignited, thereby preventing the fire from spreading to the entire Excelsior Bank. It would be impossible for Kocur to prove how much more culm would have ignited had he not moved the burning material. By moving and extinguishing "hot spots," Kocur saved adjacent culm, even if he did not ultimately move the adjacent material. In short, the record demonstrates that Kocur's work saved an incalculable amount of estate property. It is plausible that his workmay have preserved all 507,116 tons of culm for the estate.⁵ Thus, his efforts benefitted the estate and the only issue is the proper calculation of his reasonable compensation.

1. Quantum meruit recovery of compensation calculated at an hourly rate

Kocur had begun fighting the Excelsior Bank fire when the "sales agreement" with Swank was rescinded. Therefore, there was no agreement about the amount of compensation Kocur would receive for his efforts. Kocur's request...