When is it Too Late to Reopen a Bankruptcy for Distributing Newly Discovered Assets — Never?!

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A 1928 Adjudication of Bankruptcy

By: Donald L. Swanson

Eighty nine years ago (on November 7, 1928), the U.S. District Court for the Western District of South Carolina issues this ruling (see photo above):

“Yellow Poplar Lumber Company, a Corporation, . . . is hereby declared and adjudged a bankrupt.”

The Yellow Poplar bankruptcy has been administered, concluded and closed since 1931. Yet it’s back in court. Here’s why: parties are fighting over rights to natural gas reserves, and there are lots of dollars at stake.

The legal problem

There are two Bankruptcy Trustee deeds:

–On September 21, 1929, Yellow Poplar’s Bankruptcy Trustee, Gallie Friend, signs and delivers a deed of real property to W.M. Ritter Lumber Company, Grantee;

–On October 16, 1930, the same Bankruptcy Trustee in the same case signs and delivers a second deed of real property to G.C. Jackson, Grantee;

There is, it turns out, a legal description confusion in the two Trustee deeds. The successor to W.M. Ritter (Grantee under the first deed) is now contending that real property described in the second deed (to C.G. Jackson, Grantee) was, actually, included in the real property description in the first deed (to W.M. Ritter, Grantee).

–First Trustee’s Deed

The legal description in the first Trustee’s deed to W.M. Ritter, Grantee, is for:

“All of the following tracts, pieces or parcels of land situate on the watersheds of Lovisa River and Dismal Creek and their tributaries in Buchanan County, Virginia, more particularly designated and described as follows, to-wit: . . . [four parcels are described].”

Then the deed adds this explanation:

“It being the intention to embrace herein and convey hereby all of the tracts, pieces or parcels of land, or interests in land owned by Yellow Poplar Lumber Company on the watersheds of Levisa River and Dismal Creek and their tributaries in said Buchanan County, Virginia, whether herein above described or referred to, or not.”

–Second Trustee’s Deed

The legal description in the second Trustee’s deed to C.G. Jackson, Grantee, is for:

“All that certain tract or parcel of land, situate, lying and being in Buchanan County, Virginia, on the waters of Big Paw Paw Creek of Russell Fork River, containing one thousand (1,000) acres, more or less.”

–The 21st Century Argument

Plum Creek Timberlands, L.P., is the successor to W.M. Ritter (Grantee under the first Trustee’s deed). Plum Creek is now contending that all property described in the second Trustee’s deed:

–is “located in the watershed of the Levisa River and its tributaries in Buchanan County, Virginia,” and, therefore,
–was previously “conveyed to W.M. Ritter by the Gallie Friend [Trustee] Deed.”

Accordingly, Plum Creek wants the 21st Century courts to declare that the second Trustee’s deed to C.G. Jackson, Grantee:

–describes real property that “is situate in the Levisa River watershed” and “was previously conveyed by the Gallie Friend [Trustee] Deed to W.M. Ritter,” and
–“is, therefore, null, void and of no effect.”

The Procedural Path

The 21st Century litigation over these 1928 – 1931 events has followed this convoluted procedural path:

–On April 3, 2013, Plum Creek Timberlands, L.P., files a lawsuit in the Circuit Court of Buchanan County, Virginia, to establish and enforce its claims.
–One of the named defendants then removes the case from state court to the U.S. Bankruptcy Court for the Western District of Virginia.
–The U.S. District Court for the Western District of Virginia, then, withdraws the case from the Bankruptcy Court.
–Various parties defendant file cross claims and counterclaims in the U.S. District Court to confirm their interests in the property.
–Plum Creek moves to remand the case back to state court for lack of subject-matter jurisdiction in the U.S. District Court and to dismiss the cross claims and counterclaims, but these motions are denied.
–Meanwhile, the U.S. District Court for the District of South Carolina reopens the Yellow Poplar bankruptcy case and transfers the bankruptcy case, in its entirety, to the U.S. District Court for the Western District of Virginia.
–The case was scheduled for a jury trial in late January 2017.

A Settlement and Further Proceedings

An “Opinion and Order” of the U.S. District Court for the Western District of Virginia, entered on June 28, 2017 (Doc. 46 in Case No. 13-07026) provides the following information:

–On January 25, 2017, a few days before trial, the parties “reached a settlement of the ownership claims.”
–After notifications to interest persons, by publication and otherwise, the Court approves the settlement on May 12, 2017.
–The settlement “determined the shares of ownership of the gas interests in question.”
–The settlement also provides that the bankruptcy estate of Yellow Poplar “will receive approximately $2 million of gas royalties now being held in escrow by the Virginia Gas and Oil Board” and “is likely to receive ongoing royalty payments.”

Accordingly, the U.S. District Court refers the case and its $2 million plus royalties settlement funds back to the U.S. Bankruptcy Court for Western Virginia because, “[i]t is apparent that the bankruptcy court is in the best position to administer Yellow Poplar’s bankruptcy estate.”

The U.S. Bankruptcy Court for Western Virginia opens a new proceeding for Yellow Polar Lumber Company, Inc., on June 28, 2017.

Some Lessons

So . . . what can we learn from all of this? Here are a few lessons:

–Real estate transactions require great care – even when the transfers are free and clear of interests;

–When wealth is newly found, everyone wants a piece, and long-dormant claims come out of the woodwork; and

–It’s never too late to find previously-unknown assets for distribution to creditors of a closed bankruptcy.

**  If you find this article of value, please feel free to share.  If you’d like to discuss, let me know.

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