The Honora ble Wil liam W Schwar zer, Senior United States District J udg e for the Northe rn * District of California, sitting by desig nation. NO T R EC OM M EN DE D F OR F UL L- TEX T P UB LIC AT ION File Na me: 08a0351n.06 Filed: June 18, 2008 No. 06-6060 UN ITED STA TES C OU RT OF AP P EA LS F OR THE SI XT H C IR CU IT
I N RE: KENTUCY PROCESS I NG COMPANY Debtor . DLX, I NC
. Appellee,
v. F OXTRO T PR OPE RTI ES, L L C, Appellan t. ) ) ) ) ) ) ) ) ) ) ) ON AP P EA L FROM THE U NI TED STATES DI STRI CT COURT FOR THE EASTERN DI STRI CT OF KE NTUCKY
O P I N I O N

BEFORE: MOORE and CLAY, Circ uit Jud ges; SCHWARZ ER, District Judge
. * WILLIAM W SCHWARZER, District Judge. This is an appea l from a judg ment of the district court af

firming a judg ment of the ba nkruptcy court. We have jurisdiction of an a ppeal f rom a fina l order of

the bankr uptcy court unde r 28 U.S.C. §158(d)(1)
. I. BACKG ROUND T h e c o n t r o v e r s y

ar i s e s o u t o f

a s e r i e s o f s o m e w h a tc o n v o l u t e d

r e a l e s t a t e t r an s a c t i o n s . InT h e p re -l aw ref use pile trac t is a larg e pond, located on seve ral pa rce ls of land, that was 1 former ly used in the proc essing of coa l f or separ ating coal ( which floated) fr om rock a nd impurities (which sa nk). When Kentuc ky ’s environmenta l la ws and re g ulations prohibited draining the pond, it was an environmenta l liability
. Wit h the enac tment of what DL X descr ibes as “ne w alter native fue l regulations,” howeve r, appa rently sometime after

1994, its use ag ain became profitable. B r. of Pl.- Appellee , 15-16. 2 19 93 , the S outh- Ea st C oa l Co mpa ny (“ Sou th- Ea st” ), the n in

Cha pte r 1 1 b ank

ru ptc y pr oc e e din g s, sold its real pro p erty

in Estill County , Kentucky , to the plaintiff, DLX, I nc. I t is undisput ed that among the prope rties South-East intended to sell to DL X, and that DL X intended to purc hase, w as the so-ca lled Pre-L aw Ref use Pile Trac t (“RPT”), the bone of c ontention in this litigation. South- 1 Ea st d e liv e re d a

de e d to DLX co nv e y ing its re a l pro pe rt ie s to DL X, bu t the de e d in a dv e rt e ntl y did not include portions of the RPT. I n 1994, DL

X le a s ed the pr operties it had pur chase d from South-East to Kentuc ky Processing C o mp an y (“ Ol d KP C ”) , a K en tu ck y gen er al p ar t n er s h i p . T h e p ro p er t y l ea s edwa s o u t l i n edi no ra n ge
on an e xhibi t a tta c he d to the le a se and did no t inc lud e a ll o f t

he RPT . Pa

ra g ra ph24 of the le a se contained a

n option to purcha se proper ties identified by highlig hting in y ellow on an attache d Asset Reg ister. The pr operties hig hlighted in y ellow included the e ntire RPT. I n a de e d date d A ugus t 4, 19 94 , D L X c on ve y e d r e a l pr op e rt y loc a te d in

Es til l Co un ty

to O ld KPC. DL X delivered a deed to the properties containing the s ame description of t he prope rties as used in th e 1 9 9 3 d e e d f

r o m So u th

- E a s t to D L X
. T h is A u g u s t 4 , 1 9 9 4 d e e d th e r e f o r e o mitted the
same portions of the RPT that had been omitted f rom the 1993 deed. The Aug ust 4, 1994 deed w as later supe rsede d by

a dee d of correc tion, dated Octobe r 18, 1994, which only corr ecte d the name of the g rante e. Ne ither the August nor the Octobe r dee d included the entire RPT. On August 17, 1994,
near ly two wee ks afte r t he delivery of t he August 4 deed, Old KPC sent DL X a “ Notice of Election3

of Option to Purchase ” all of the opt ioned properties under the lease
. Aside from the August 4, 1994 deed a nd the Octobe r 18, 1994 dee d of cor rec tion, no other dee ds were delivere d or re quested. I n 1998, Old KPC was succe eded by a Ke ntucky

corpor ation, also ca lled the Kentuc ky Processing Company (“N ew KPC ”), and New KPC filed for Chapter 11 ba

nkruptcy relief . I n 2001, when DL X lear

ned that the RPT would be offe red for sale at auction in N ew KPC’s b an kruptcy proce eding s, it undertook a surve y and lea rned f or the fir st time that the descr iption in its 1993 deed from South-East did not include all of the RPT. B eca use the 1994 deeds to O ld K PC contained the same prope rty descr iptions as the 1993 deed, those dee ds also did not include all of the RPT. At the
a uc tio n, the bid de rs we re a dv ise d o f t he dis pu te and that only pr op e rt y a c tua lly ow ne d by

Ne w K PC was be ing sold. De fenda

nt Fox Trot P roper

ties, L L C (“F ox Trot”) succe ssfully bid on New K PC’s proper ty
. DLX the n fil e d this a dv e rs ary a c tio n a g a ins t F ox Tr ot t o r e so lve a dis pu te ov e r t

he ow ne rs hip of the RPT. DL X soug ht r efor mation of the 1994 deeds to show that the e ntire RPT was excluded fr om t he c on ve y anc e and

to r e se rv e a

ri g ht o f w a

y g ivi ngit ac c e ss to the RPT ; it c on te nd e d tha t it reta ined title to the RPT because DL X and Old KPC had not intended to include the RPT in the 1994 conveyance . Fox Trot also soug ht refor mation, contending that the par ties had intended to include the RPT in the 1994 deeds and that it had title to the R PT by virtue of its purchase of Ne w KPC’s assets. The bankruptc y court, on November 27, 2002, enter ed an ag ree d order deter mining that the 1993 deed f

rom South-East to DL X er roneously excluded p o rt i o n s of the RPT due to a mutual mistake of the parties. The c ourt authorized the re cordingof a de ed of c orre ction so that the 1993 deed w ould include all of the RPT, thus confirming DL X’s ti tle to the entire RPT. The bankruptcy court’s or d er i d en tified the ce ntral issue in the proc eedingto be whethe r the tra nsfer of DLX’s4

proper ty under the 1994 deeds inc luded the RPT. F oll ow ing a tr ia l, the ba

nk ru ptc y c ourt he ld t hat th e e vid e nc e su

pp or tin g F ox Tr ot’ s c la im that DL X i n t ended to tra nsfer and Old KPC intended to purcha se the RPT was not clea r and convincing
. The court further found t hat the evide nce e stablished that throug h mutual mist ake by DLX a nd Ol d KPC, p art s o f t

he RPT we re ina dv e rt e ntl y c on ve y e d to Ol d KPC in the 19 94 de e ds ; it found that DL X was there fore entitled to have the deeds r efor med to exclude the entire RPT and to reser ve for DL X a r ight of

way to acc ess the RPT. The district cour

t affir med. II. AN AL YSI S We reviewthe bankruptcy court’s findings of fac t for cle ar e rror , Kennedy v. Mustaine (

In re Kennedy

) , 249 F.3d 576, 579 (6th Cir 2001) , and its c onclusions of law de novo. W esBanco B ank Barnesville v

. Rafoth (

In re Bak er &Getty Fin. Se rvs Inc .) , 106 F.3d 1255, 1259 ( 6th Cir. 1997). The nub of the dispute is over whether the 1994 deeds from DL X to Old KPC included the entire RPT. Fox Trot on this appeal adva nces two c ontentions. First, it argues that the ba nkruptcy
c ou rt e rr e d

w h e ni to r d e r e d

t h e d e e d s f

r o m D L X t o O l d

K P C r e f o r m e d t o e xc l u d e t h e R P T i ni ts
e nti re ty fr om t he pr op e rt y c on ve y e d by DLX t o O ld K PC. T his argume nt i s d ir e c te d at D L X’ s c la im for r efor mation of the dee ds. Second, F ox Trot ar g ues that Old KPC’s written no tice that it was exercising the option refle cted its intent to purchase the RPT. This ar gu m en t i s directe d at Fox Trot’s cla im for re formation of the deeds to include the RPT.

A. DL X’ s C lai m for Re for m at ion : t he F indin g o f a M ut ual M ist ake Re ga r ding th e P ar ti e s’ I n te n t t o E x cl u d e t h e R PT is no t C le ar ly E r r one ous5

Fox Trot argues that DLX fa i l ed to show that there was a mutual mist ake r eg ardingthe contents of the 1994 deeds, and that the bankruptcy court erre d in finding that the parties intende d to exclude the RPT from the convey ance . The bankruptc y court he ld that Fox Trot’s evidence that DLX i nte nd e d to tr ans fe r t he RPT and

Ol d KPC in te nd e d to purc ha se it w a s “no t of su c h q ua nti ty and quality

to rise to the level of being clea r and convincing .” J oint Appendix 39 (May 14, 2005, Mem. Orde r, at 26). The court found that the RPT wa s not within the orang e boundar y on the map descr ibing the property to be acquired by Old KPC, that it was not permitted and ha d not been use d for se vera l y ear s, and that there was no e vidence that Old KPC intended to per mit and use the RPT. I ndeed, the RPT was considere d a liability and ther e wa s no evidenc e that Old KPC v i ew ed i t as having value. The se finding s are not challeng ed by Fox Tro t an d are not clea rly err oneous. And there is no evidenc e sug g esting that DL X intended to transfe r the RPT to Old KPC. Thus, t he cour t
rea sonably

conclude d that the inclusion of portions of the RPT in the 1994 deed s wa s a mutual mistake war

ranting ref

ormation of those de eds. Se e, e .g ., Kar ric k v . W e lls , 307 S.W. 2d 92 9 ( Ky

Ct. App. 1957) (dee d containing err oneous description of prope rty conveyed wa s ref

ormed to conf

orm to int e nti on of pa

rt ie s at time of

tr ans a c tio n) ; Chr iss ma n v .F or d , 237 S.W . 22 (Ky . Ct. App. 1922) (dee d that incorre ctly

descr ibed prope rty

convey ed wa s ref

ormed to conf

orm to intention of pa

rties at time of transa ction). B. F ox Tr ot ’s Cl aim for Re for m at ion : t he F indin g o f a La c k of C le ar and C onv inc ing Evid ence of a Mutual M istake Regar din g the P artie s’ Intent to Includ e the RP T is n ot Cl e ar ly E r r one ous F ox Tr ot f

ur the r a rgue s th a t th e No tic e of

El e c tio n s pe c if

ic a lly pr ov ide d th a t O ld K

PC intended to purc hase the proper ty highlig hted in y ellow on the Asset Register attache d to the lease , w h ic h in c lu d e d

th e e n ti r e RP T , a n d

th a t t h e b an kr u p tc y c o u rt e r r e d w h e nit f o u n d th e p arties6

intended to exclude the RPT fr om the conveyance . The Notice of Elec tion, however , was not g iven until A u g u s t 1 7 , n e ar ly tw o w e e k s a f te r th e d e li v e r

y o f th e A u g u s t 4 d e e d
. T h e b an kr u p tc y court found that at the time the notice was g iven, Old KPC and it s attorney s wer e aware that most of the proper ty highlig hted in y ellow had been transfe rre d to others. Moreove r, Old KPC never demande d
a de e d to the RPT . F ina lly , a s no te d a bo ve , oth e r e vid e nc e su

pp or ts t he c on c lus ion

that O ld K

PC did not intend to acquire the RPT. Thus the court’s findingthat the par ties did not int end to conve y the RPT in t

he 19 94 de e ds wa s n ot c le arl y e rr on e ou s. W e t h e r e f o r e a f f i r m t h e b an kr

u p t c y c o urt ’ s j u d g m e n t g r an t i n g t h e r e l i e f r e qu e s t e d

b y D LX and deny ing r elief to F ox Trot. III . C ON CL USI ON F or the fo re g oin g re a so ns , th e jud g me nt i s AF F IR M ED
.