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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY SOUTHERN DIVISION PIKEVILLE TAFT A. MCKINSTRY, Plaintiff, v. HAROLD E. SERGENT, et al., Defendants. ) ) ) ) ) ) ) ) )

Civil No. 10-110-ART

MEMORANDUM OPINION & ORDER

*** *** *** *** The plaintiff trustee's trust is designed specifically to wind up the extinct debtor's affairs in the aftermath of its bankruptcy, including its causes of action. In fact, some of the causes of action here were specifically assigned to the trust to pursue on behalf of the debtor's unsecured creditors. And all of the causes of action seek to redress conduct that purportedly led to the debtor's bankruptcy or occurred in the context of the bankruptcy. These claims therefore "relate to" the underlying bankruptcy case, and so the Court has the jurisdiction necessary to refer this case to the bankruptcy court. BACKGROUND Harold Sergent was the founder of both the Black Diamond coal company and Global Energy Holdings. R. 1, Attach. 1 ("Complaint") at 7, 11. Some time in 2006, he caused the former to enter a Consulting and Sales Agreement with the latter. Under that agreement, Black Diamond agreed to pay Global Energy $.25 per ton of coal Black Diamond mined or sold, with a minimum monthly payment of $30,000. Id. at 11. And in May of that same year, Sergent purportedly led Black Diamond to enter a Royalty Agreement with one of its lenders, under

which the lender would receive a $.13 royalty for every ton of coal mined or sold. Id. at 12. Sergent himself would receive $.04 of that per-ton royalty. Id. Succumbing to the consequent incentive to produce or sell a lot of coal, Sergent then allegedly committed to sell more coal than Black Diamond could possibly produce--leading to Black Diamond's financial troubles. Id. The lender, CIT, insisted that Black Diamond retain Alvarez & Marsal North America, LLC, as a financial advisor. Id. at 14. But the company's financial condition continued to worsen, and CIT joined others to file involuntary Chapter 11 petitions against Black Diamond. Id. at 14. At the urging of CIT, the bankruptcy court then appointed two A&M representatives, Ira Genser and Larry Tate, as the company's Chief Restructuring Officer and Chief Financial Officer. Id. at 14-15. In furtherance of their duties, the appointees secured the bankruptcy court's permission to reject the Sales Agreement and Royalty Agreement, prompting Sergent to file a proof of claim for damages suffered as a result--entering a new role as a Black Diamond creditor. R. 44 at 9. The Trustee nevertheless claims that the A&M defendants mismanaged Black Diamond and oversaw its eventual financial destruction. See Complaint at 15-24. The unsecured creditors pursued claims against Harold Sergent and the A&M defendants. To permit confirmation of a bankruptcy plan, the unsecured creditors and the A&M defendants entered a settlement agreement, and the claims against the A&M defendants were to be assigned to an Unsecured Creditors Trust. R. 26, Attach. 1 at 4. The bankruptcy plan incorporated this agreement, R. 26, Attach. 2 at 137, further transferred all the unsecured creditors' other "rights, title and interest in the Contributed Assets" to the trust--including potential claims against

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Sergent, see R. 44 at 10; R. 26, Attach. 2 at 76, and purported to "retain such jurisdiction over [the case] . . . as is legally permissible," R. 26, Attach. 2 at 152. The plaintiff filed a complaint in state court lodging several claims against the A&M defendants and Harold Sergent relating to their management of the Black Diamond business. The A&M defendants removed the entire "action" to this Court, R. 1, and Harold Sergent joined, R. 55. The plaintiffs filed a motion to remand or abstain. R. 26. The defendants ask the Court to either deny the motion or refer it to the bankruptcy court. DISCUSSION The Court's initial inclination was to resolve this motion to remand rather than refer it to the bankruptcy court. But a closer look reveals difficult issues which the bankruptcy court's familiarity with the case may help resolve: For example, consider the plaintiff's non-

jurisdictional argument that the Court must abstain under 28 U.S.C.

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