Fluharty v. Peoples Bank, NA

IN THE UNITED STATES DISTRICT COURT FOR

THE SOUTHERN DISTRICT OF WEST VIRGINIA

HUNTINGTON DIVISION

THOMAS H. FLUHARTY,

Trustee of the Chapter 11 Bankruptcy Estates of

Dennis Ray Johnson, II (No. 3:16-BK-30227);

DJWV2, LLC (No. 3:16-BK-30062);

Southern Marine Services, LLC (No. 3:16-BK-30063);

Southern Marine Terminal, LLC (No. 3:17-BK-30064);

Redbud Dock, LLC (No. 3:16-BK-30398);

Green Coal, LLC (No. 3:16-BK-30399);

Appalachian Mining & Reclamation, LLC (No. 3:16-BK-30400)

Producer’s Land, LLC (3:16-BK-30401);

Producer’s Coal, Inc. (3:16-BK-30402);

Joint Venture Development, LLC (No. 3:16-BK-30403),

Plaintiffs,

v. CIVIL ACTION NO. 3:17-4220

PEOPLES BANK, NA,

PEOPLES INSURANCE AGENCY, LLC,

GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, and

ZACHARY B. BURKONS,

Defendants.

ORDER GRANTING DEFENDANT BURKONS’S MOTION TO DISMISS

Pending before the Court, in addition to a variety of other motions, is Defendant Zachary

B. Burkons’s (“Receiver Burkons”) Motion to Dismiss (ECF No. 16). In that motion, Receiver

Burkons argues that Plaintiff’s claims against him should be dismissed. Plaintiff, acting as trustee

for a group of business debtors (“Coal Group”), alleges claims against Receiver Burkons under

three causes of action: (1) violation of the Racketeer Influenced and Corrupt Organizations Act

(“RICO”); (2) common law fraud; and (3) physical assault. Compl., ECF No. 1, at ⁋⁋ 122-85.

Receiver Burkons contends that three sufficient and independent lines of legal reasoning require

this Court to dismiss the claims against him. Receiver Burkons’s three arguments are as follows:

(1) dismissal is appropriate because he is a court-appointed receiver, and this Court lacks

jurisdiction to hear a collateral attack on the actions taken as a receiver; (2) dismissal is appropriate

because he is entitled to immunity for the actions taken within his capacity as a court-appointed

receiver; and (3) dismissal is appropriate because Plaintiff’s Complaint fails to state a claim against

Receiver Burkons. Burkons Mot. to Dismiss, ECF No. 16, at 1-2. Because the Court agrees with

Receiver Burkons’s first argument, the Court GRANTS his Motion to Dismiss (ECF No. 16).

Further, because this Court lacks jurisdiction to hear the claims against Receiver Burkons, the

Court will not address his remaining theories for dismissal.

As way of background, Receiver Burkons became embroiled in the circumstances

underlying this action through a court order. The Coal Group defaulted on loans held by Peoples

Bank, N.A. (“Peoples Bank”). Compl., at ⁋⁋ 62-67. Peoples Bank initiated a lawsuit against the

Coal Group, among other entities, in the Circuit Court of Cabell County, West Virginia, requesting

judgment on the money due under the loans. Id. at ⁋ 79. Peoples Bank also asked the Circuit Court

to appoint a receiver to handle the matters of the Coal Group. Id. Granting the request of Peoples

Bank, the Circuit Court initially appointed Mr. David G. Zatezalo as the receiver. Id. at ⁋⁋ 92-95.

However, shortly after his appointment, Mr. Zatezalo requested that the state court relieve him of

his receivership appointment. Id. at ⁋ 97. The Circuit Court then appointed Receiver Burkons as

the replacement receiver in the matter, “in order to continue operation within the receivership. . . .

” Ex. C to Burkons Mot. to Dismiss, ECF No. 16-3, at 3.1

1 When considering a motion to dismiss based upon a court’s lack of subject matter

jurisdiction, a court may consider, and take judicial notice of, information that lies outside the

pleadings. See Goldfarb v. Mayor of City Council of Balt., 791 F.3d 500, 506 (4th Cir. 2015).

Plaintiff predominately premises his claims against Receiver Burkons upon two instances.

The first, Plaintiff claims that Receiver Burkons traveled to Kentucky where he allegedly

“physically assaulted [Dennis Ray] Johnson[, II], causing severe physical and emotional injuries.”

Compl., at ⁋ 104. Plaintiff claims Receiver Burkons assaulted Johnson in an effort to “repossess”

equipment that supposedly served as collateral for the defaulted loans held by Peoples Bank. As

such, Plaintiff asserts that Receiver Burkons committed this alleged physical assault “ostensibly

under color of ‘receivership.’” Id.

Second, Plaintiff focuses upon Receiver Burkons’s filing of Involuntary Chapter 11

Bankruptcy Petitions against some of the Coal Group entities. Id. at ⁋ 105. Plaintiff contends that

these petitions were filed fraudulently. Id. at ⁋ 176. In support of that contention, Plaintiff asserts

that Receiver Burkons never actually had authority to act as a receiver because he failed to post

the appropriate bond, a requirement under West Virginia law. See e.g. id. at ⁋ 103, 134-37.

In light of Plaintiff’s allegations, the Court cannot adjudicate Plaintiff’s claims. The actions

alleged by Plaintiff were taken in furtherance of the receiver duties imposed upon Receiver

Burkons by the Cabell County circuit judge. Therefore, this Court is deprived of subject matter

jurisdiction to hear the claims against Receiver Burkons.

A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction can follow two

tracks.2 Under the first track, a party asserts a “factual attack,” claiming that the jurisdictional

2 The Court must note that Receiver Burkons filed his motion under Rule 12(b)(6). See

Burkons Mot. to Dismiss. However, his first argument, which relies upon the Barton doctrine, goes

to the lack of this Court’s subject matter jurisdiction. See McDaniel v. Blust, 668 F.3d 153, 156-

57 (4th Cir. 2012) (“The Supreme Court established in Barton that before another court may obtain

subject-matter jurisdiction over a suit filed against a receiver for acts committed in his official

capacity, the plaintiff must obtain leave of the court that appointed the receiver.”). Motions to

dismiss premised upon a court’s lack of subject matter jurisdiction are brought under Rule

12(b)(1). See Fed. R. Civ. P. 12(b)(1). Because the Court has a continuing obligation to dismiss

those matters for which it lacks subject matter jurisdiction, Receiver Burkons’s failure to bring his

allegations made in the complaint are inaccurate. See Kerns v. United States, 585 F.3d 187, 192

(4th Cir. 2009) (describing this type of jurisdictional challenge). Under the second track, referred

to as a “facial attack,” a party asserts that the jurisdictional facts contained within the complaint,

taken as true, fail to support a court’s subject matter jurisdiction over the action. Id.; see Thigpen

v. United States, 800 F.2d 393, 401 n.15 (4th Cir. 1986) (referring to an attack that claims that “the

allegations of the complaint are facially insufficient to sustain the court’s jurisdiction”). When

considering a “facial attack,” a court affords the plaintiff “the same procedural protection as he[or

she] would receive under a Rule 12(b)(6) consideration.” Kerns, 585 F.3d at 192 (internal

quotation marks and citation omitted). Receiver Burkons has asserted a facial attack, thus the Court

will proceed under the Rule 12(b)(6) procedural framework.

To overcome a motion to dismiss under Federal Rule 12(b)(6), a complaint must state a

plausible claim. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 546 (2007). This standard requires a

plaintiff to set forth the “grounds” for an “entitle[ment] to relief” that is more than mere “labels

and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at

555 (internal quotations and citations omitted). A complaint must contain “sufficient factual

matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (internal quotations and citation omitted). Facial plausibility exists when

a claim contains “factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id. (citation omitted).

Further, the Court accepts the factual allegations in the complaint as true. Those

allegations, however, “must be enough to raise a right to relief above the speculative level . . . . ”

Twombly, 550 U.S. at 555 (citations omitted). If the allegations in the complaint, assuming their

motion to dismiss under both 12(b)(1) and 12(b)(6), is of no consequence.

truth, do “not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at

the point of minimum expenditure of time and money by the parties and the court.” Id. at 558

(internal quotations and citations omitted). “Although for the purposes of a motion to dismiss we

must take all of the factual allegations in the complaint as true, we are not bound to accept as true

a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (internal quotations and

citation omitted).

Receiver Burkons’s primary argument for dismissal rests upon the Supreme Court’s 1881

decision in Barton v. Barbour, 104 U.S. 126 (1881). In that case, the Court announced the aptly

titled “Barton doctrine.” Under the doctrine, if a plaintiff wishes to sue a court-appointed receiver

for the actions taken while serving in that capacity, the plaintiff must acquire leave from the court

that appointed the receiver. McDaniel, 668 F.3d at 156-57 (explaining the doctrine). If the plaintiff

fails to obtain leave from the appointing-court, then the secondary court in which the plaintiff has

brought the relevant claims lacks subject matter jurisdiction over those claims. See id.

Critical to the determination of the Barton doctrine’s applicability, the Court must

determine whether the acts at the heart of Plaintiff’s claims against Receiver Burkons were taken

within his official capacity. Id. In doing so, the Fourth Circuit instructs courts to consider “the

nature of the function that the [receiver] was performing during commission of the actions for

which liability is sought.” Id. at 157 (citing Heavrin v. Schilling (In re Triple S Rests., Inc.), 519

F.3d 575, 578 (6th Cir. 2008)). Further, courts presume that acts were taken as part of the court-

appointed duties “unless Plaintiff initially alleges at the outset facts demonstrating otherwise.” Id.

(internal quotation marks omitted) (quoting Lowenbraun v. Canary (In re Lowenbraun), 453 F.3d

314, 322 (6th Cir. 2006)).

Although aged in its origin, the Barton doctrine has continued vitality due to the important

interests it protects.3 Courts have a strong interest in protecting from unjustified personal liability,

those court-appointed individuals who have agreed to serve as an arm of the appointing-court. See

id. (internal quotation marks omitted) (quoting Lebovits v. Scheffel (In re Lehal Realty Assocs.),

101 F.3d 272, 276 (2d. Cir. 1996)). Without such a shielding principle, the task of receivership

would “become a more irksome duty,” making it more difficult to tap competent individuals to

serve in the role. Id. (internal quotation marks omitted) (quoting In re Linton, 136 F.3d 544, 545

(7th Cir. 1998)).

The Court finds that the Barton doctrine applies to Plaintiff’s claims against Receiver

Burkons, and thus the Court lacks subject matter jurisdiction to hear them. On the face of Plaintiff’s

Complaint, Plaintiff alleges that Receiver Burkons acted “under the color of ‘receivership,’” and

that Receiver Burkons claimed that he was authorized to act due to his receivership appointment.

Compl., ⁋⁋ 104-05. Upon these allegations by Plaintiff, combined with the general presumption

that actions by a receiver are done in the official capacity, the Court must conclude that Receiver

Burkons acted within the context of his court-appointed duties.

3 Despite the Barton doctrine’s age and relevance, its exact parameters are not terribly well

defined, and the case law development in this circuit is relatively sparse. See Lismore Vill.

Homeonwers’ Ass’n, Inc. v. Eastwood Constr., LLC, No. 6:14-CV-2185-BHH, 2016 WL 3385081,

at *6-7 (D.S.C. June 20, 2016) (providing the relative lack of clarity regarding the doctrine’s reach,

and analyzing McDaniel, the sole case from the Fourth Circuit cited by the court when discussing

the Barton doctrine); see also Gordon v. Nick, 162 F.3d 1155, at *2 (4th Cir. Sept. 2, 1998) (unpub.

table decision) (dispensing with the Barton issue concisely, providing a two paragraph discussion);

James Freeman Brown Co. v. Harris, 139 F. 105, 109 (4th Cir. 1905) (finding the Barton

requirement met and reversing a lower court’s order dismissing the matter); Posin v. Sheehan, No.

5:11CV96, 2011 WL 3022305, at *2, *4 (N.D.W. Va. July 22, 2011) (citing predominately out-

of-circuit opinions, except for the preceding district court decision in McDaniel v. Blust, No.

1:09CV507, 2010 WL 144352 (M.D.N.C. Jan. 8, 2010)).

Pushing back upon the applicability of the Barton doctrine, Plaintiff argues that Receiver

Burkons never fulfilled the statutory requirements necessary to serve as a court-appointed receiver.

Plaintiff claims that no acts of Receiver Burkons can qualify as acts taken “in his official capacity”

because Receiver Burkons was never bestowed with official duties due to his failure to meet the

statutory preconditions of service. Pl.’s, ECF No. 19, at 2-4. Plaintiff correctly notes the statutory

requirements for becoming a court-appointed receiver under West Virginia law. Id. at 3 (quoting

W. Va. Code § 53-6-1). However, if Plaintiff had concerns over Receiver Burkons’s satisfaction

of the statutory duties, he should have addressed those issues with the state court that appointed

Receiver Burkons. See Ledbetter v. Farmers Bank & Tr. Co., 142 F.2d 147, 151 (4th Cir. 1944)

(commenting upon a plaintiff’s failure to object before the appointing-court to either the

appointment of the receiver, or the bond amount). Further, Plaintiff’s contention potentially

implicates the sufficiency and correctness of the state court judge’s order appointing Receiver

Burkons. The Barton doctrine was implemented to forbid such an invasive collateral attack upon

a state court appointment. Simply, this is not the court before which Plaintiff should complain

about Receiver Burkons’s appointment. As such, the Court must dismiss the claims against

Receiver Burkons.

Plaintiff also argues that the filing of bankruptcy by the Coal Group “oust[ed] the

receivership of control of the corpus of the bankrupt [sic].” Pl.’s Resp., at 5. Because of that,

Plaintiff asserts that this Court “has jurisdiction over this matter.” Id. at 8. Despite the potential

veracity of Plaintiff’s jurisdictional comments, Plaintiff has missed the point. The appointing-court

serves as the “gatekeeper” for matters regarding an appointed receiver. See McDaniel, 668 F.3d at

157-58. This practical limitation upon the reviewing power of other courts, not only allows the

appointing-court to review the alleged wrongdoings of its appointed agent, but also provides

information relevant to “its future appointments.” Jd. That this Court may have jurisdiction over

the pending bankruptcies of the Coal Group does not alter the gatekeeping functions of the Circuit

Court of Cabell County, which vested authority in Receiver Burkons to act as an arm of that court.

Therefore, consistent the Barton doctrine, and the interests it protects, Plaintiff needed to seek the

permission of the state court prior to appearing before this Court with complaints about Receiver

Burkons.

In sum, this Court lacks subject matter jurisdiction over the claims brought against

Receiver Burkons. Although Receiver Burkons’s acts were potentially wrongful, wrongfulness

alone does not eviscerate the Barton doctrine. See McDaniel, 668 F.3d at 157. Indeed, if that were

the case, the doctrine would be rendered threadbare. Plaintiff, if he insisted upon bringing claims

against Receiver Burkons, needed to obtain leave from the correct court. Although that permission

“ordinarily should be granted,” the permission is not this Court’s to grant. See id. at 156 n.1

(quoting Anderson v. United States, 520 F.3d 1027, 1029 (Sth Cir. 1975)).

The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any

unrepresented parties.

ENTER: April 24, 2018

FZ , O L)] iL

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ROBERT C. CHAMBERS

UNITED STATES DISTRICT JUDGE

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