Bankruptcy Proposal Would Dodge Mine Cleanup Laws


Blackjewel submitted an amended plan to strike the use a reclamation trust after multiple objections were raised against the Chapter 11 plan. Judge Benjamin Kahn denied Jeff Hoops, the former Blackjewel CEO, his petition to change the bankruptcy proceeding to a Chapter 11 liquidation plan to one that was more structured. However, he did not rule upon the Chapter 11 plan because of the last-minute changes.

Blackjewel declared in a Dec.23 filing that it would like to abandon all its unsold coal permits. It is unclear what permits remain unsold and which are untransferred. Judge Kahn will address the questions of permit abandonment as well as the general Bankruptcy Headquarters logo plan in the January 15 court appearance.

It’s been nearly a year now since Blackjewel, LLC, along with its affiliates, Revelation Energy, declared bankrupt. The case that rattled Central Appalachian’s unstable coal industry is now at an important juncture.

The future court decisions will have an enormous impact on thousands upon thousands of acres worth of mine lands and nearby communities as well the lives of former employees. This outcome will also affect coal executives, financiers as well federal agencies.

Ned Pillersdorf is an Eastern Kentucky lawyer. “Everybody’s trying to get a piece,” he says. Pillersdorf is one of the 600 Wyoming miners laid off by the coal companies when they closed their doors suddenly on July 1.

Thursday marked the deadline to file objections regarding Blackjewel’s Chapter 11 plan. Appalachian Voices is the publisher of The Appalachian Voice. A coalition of environmental and community organizations filed one objection. Many other stakeholders objected to the proposal, including the Kentucky Energy and Environment Cabinet and U.S. Internal Revenue Service.

It’s more than just creditors and others trying to ensure the company fulfills its obligations. Pillersdorf describes Blackjewel’s current representation as “legal warfare” and a direct attack on Jeff Hoops, the former CEO.

Hoops and his family filed a motion asking the court change the bankruptcy from a Chapter 11 plan to a Chapter 7 one. Hoops and the attorneys claimed that Blackjewel has “lacking operating assets, permanent adverse net cash flow, continuing financial loss” and there was no reason not to continue the Chapter 11 proceeding and incur the excessive and unnecessary administrative expenses.

According to the filing, Blackjewel has $150,000 in unsold cash and owes $15 million in claims for healthcare, $12 million in pension obligations, $26 million in unpaid professional fee and almost $12 million in health care costs. The bankruptcy expenses are $80 million. Unknown amounts of unpaid taxes, permit violation penalties, and reclamation liability, which is likely to be in the thousands, are also included.

Blackjewel and his current representatives have filed a lawsuit Dec.10 seeking to recover the “fraudulent transactions” of Hoops, and his affiliates. They say that Blackjewel’s assets were taken from him by Hoops prior to his filing for bankruptcy on July 19, 2019. The bankruptcy was therefore illegitimate.

Pillersdorf concurs. He said, “We don’t think they were in the red” “We simply believe that this was the right way to reduce debt. This debt is also compensation for my clients and Blackjewel’s environmental obligations.”

Pillersdorf claims that the main question is “How much money could the people in control of Blackjewel today get from Hoops, his companies?”

The answers will determine whether or not workers who have been abandoned are paid for their medical bills. It will also help to decide whether or not millions of dollars is spent on cleanup and whether or otherwise landowners that leased their land to coal companies are responsible for water pollution and unstable slopes.

On Dec. 17, Judge Benjamin Kahn of the Federal Bankruptcy Court will hear the objections to Blackjewel’s Chapter 11 Plan and Hoops’ motion that the bankruptcy be converted to Chapter 7. Blackjewel will need to have a vote by Dec. 23 on whether the Chapter 11 plan is able to be renegotiated.

An Alarming Reclamation Proposal

Blackjewel’s Chapter 11 proposal is particularly contentious because it proposes to create a new system for mine reclamation that seems to bypass existing laws.

Blackjewel, its affiliates, had 296 mining permits throughout Kentucky, Virginia West Virginia and Wyoming. These permits allow for surface coal mining as well as coal processing plants and infrastructure. Permits also require that the sites be reclaimed to comply with federal standards. It is unknown how much this reclamation will cost, but it is expected to run into the hundreds of billions. This estimate is based in part on a January 2020 Kentucky study, which showed that reclamation costs of just 20% of the mines owned by the company would exceed the bond amounts by around $38 million.

Blackjewel has not sold 45 permits and 187 permit sales have taken place but are yet to be transferred. Blackjewel filed for bankruptcy in December 2017. Some of these permits were subject to new and persistent environmental violations. As the number and severity of environmental violations increases, so does the danger of serious damage such as landslides.

Blackjewel filed a Chapter 11 bankruptcy filing. He proposed setting up a Reclamation Trust in order to deal with the 45 permits and any others not transferred. In court filings and formal objections, the U.S. Internal Revenue Service and federal creditors have all criticized Blackjewel’s proposal for a Reclamation Trust.

The citizens and environmental groups voiced concern that the Reclamation Trust will be underfunded and prevented by other avenues of funding reclamation projects in their Dec. 10-opposal. The proposal may also allow the Reclamation Fund to bypass existing environmental laws.

“The way [Blackjewel] it is structured now, they’re putting all responsibility for reclamation into Reclamation Trust. The trust is going be funded only through the bond amounts that go into the trust,” Mary Cromer (an attorney and deputydirector of Appalachian citizens’ Law Center), one of the parties in the objection.

The Reclamation Trust would, in effect, place a limit on how much money can be spent on reclamation. A federal surface mining law provides that when a company finds themselves in Blackjewel’s shoes and is unable or unwilling to reclaim the mine sites, the company can forfeit its reclamation bond and the state mining authority can use the bond for cleanup.

Some states have access to a pool bonds, which are funds that multiple companies pay into. They allow additional money to be available if the permit bond issued is insufficient for reclamation costs. According to Mark Olalde’s June investigation, Kentucky’s pool bond currently holds $50 million. This is despite serious concerns about Central Appalachia’s future solvency. These funds could be used to help pay reclamation costs of Blackjewel mining, but it would make it less possible to spend on the next round of permits.

Federal law also allows states the right to demand assets from corporate officers to cover company’s mine cleanup liability. The Reclamation Trust would stop that option.

Cromer says that “Because the [permits] were being put into the Reclamation Trust,” it looks like there will be no money available from the bond fund. The state won’t be able either to pursue Jeff Hoops, or any other executive officer who helped get the company in this position.”

She continued, “We’re also worried about the language in that plan.” “It seems that it will not only ensure there’s going be this trust that will lack funding, but also that the permits for environmental protection will be extinguished.”

Reclamation Trust, Chapter 11, seems to imply that reclamation work will be performed without the Clean Water Act and Surface Mining Control and Reclamation Act permits. This appears to stop regulators from applying those environmental laws.

What are the remaining permits?

The exact number of permits included in the Reclamation Trust remains a mystery. Some permits could have serious pollution problems, which would likely make it expensive to remediate.

In September, a federal judge directed that all permits transferred from Blackjewel property owners be completed by Oct. 31. Six weeks later, 187 permits still remain in limbo.

Kopper Glo Mining acquired several permits in Kentucky & Virginia and completed all permit transfer before the deadline. Eagle Specialty Materials had 21 permit transfers completed, but there are 45 more that are still in review. Black Mountain Resources, LLC, and other smaller companies have not been able complete their permit transfer due to difficulties in obtaining bonds. As a result, fewer bonding agencies are willing to insure coal miners.

Eagle Specialty Materials is holding a subset four permits, but they are not all on the same timeline as the rest because of legal issues. This includes two permits locally known as Greenwood that are located in McCreary county, Kentucky. The site has a serious acid mine drainage problem. It is equipped to continuously pump water through a closed-loop system. This ensures that no polluted waters leave the site.

Blackjewel filed for Chapter 7 bankruptcy. After this, the operator turned off all the pumps. This caused polluted waters to flow into Daniel Boone National Forest. Joanne Golden Hill (volunteers) and Teri Blacknton (advocates) noticed the situation. After the advocates brought it to their attention, the state of Kentucky issued cessation order. While the pumps are back on, maintenance and remediation remain.

Greenwood is a particularly sensitive site for environmental and community groups. An ex-owner of Eagle Specialty Materials stated that the company was worried about possible violations to the Clean Water Act, if Eagle Specialty Materials had acquired the permits. They also said they were reviewing their options as to what to do regarding that site. The company claimed they had employed two highly qualified hydrology experts to inspect the site. However, neither could come up with any remediation plans. Greenwood is one possible site to be placed in the Reclamation Trust. It has not transferred the permit and it would be extremely expensive to fix the ongoing water pollution for an indefinite duration.

Joanne Golden Hill & Teri Blanton check the water quality in Copperas Fork at Daniel Boone National Forest, in 2019. Acid mine drainage was occurring from the Greenwood Permit, one of many in limbo following the Blackjewel bankruptcy. Joanne Hill

The citizens and environmental groups express concern about how the Reclamation Trust proposal could impact the permits that could potentially be included and communities downstream. Blackjewel’s plan has the potential to have profound consequences, especially if other coal companies and their nationals are in an unstable state.

Peter Morgan is senior attorney with Sierra Club. One of the groups opposing the Chapter 11 plan is the Sierra Club. He fears that if Blackjewel goes ahead with the Reclamation Trust approach, it will be “a model that has been followed in many other mine operator bankruptcies.”

Morgan points out that Congress had the primary motivation to pass the federal mining law in 1977. It was to create a process for dealing with abandoned permits. He states that “that system makes the state regulator responsible” and suggests that there should be a financial bond they can use for payment.

“We’re very worried about any approach like Blackjewel proposes that would try to circumvent that system. While we are most concerned about Blackjewel’s bankruptcy, we also worry about the precedent set by this bankruptcy for all the future bankruptcies.

Judge Kahn might allow Blackjewel to proceed with the Chapter 11 plan, but stop the creation or a Reclamation Trust. Instead, he would allow the remaining permits to be abandoned and allow the mine reclamation system to continue. Morgan notes that there is no viable option for advocates of mine rehabilitation at this point in bankruptcy.

“We believe the best thing is for all of these permits to be cancelled, for the state regulatorys to assume responsibility, and for them to foreclose upon any bonding they have and use that money for reclamation.” he said.

Judge Kahn would accept the Chapter 7 request from Hoops. The reclamation outcome would be the same — Blackjewel will essentially give up its unsold permits and the state will pursue cleanup with forfeited bond. If that happens, then the Chapter 7 framework will be applied to the Chapter 7 framework. This would allow the state to pursue cleanup with forfeited bonds.

Workers Strive for Restitution

The only obligation at stake is not environmental. Blackjewel, its affiliates and approximately 1,700 former workers were suddenly laid off after the bankruptcy filings of July 1, 2019. Ned Pillersdorf and other attorneys representing miners announced a $17.3million settlement for a class-action lawsuit. The suit was filed under Worker Adjustment and Retraining Notification Act. This law requires employers and workers to provide advance notice of closures and mass layoffs.

Pillersdorf and his colleagues are still seeking compensation for two month’s worth of health insurance claims arising from the summer of 2019, when companies dropped employees’ coverage.

Pillersdorf explains that people assume they have insurance, but then suddenly find out they don’t.

The outcome of the class-action settlement is uncertain. It all depends on the status of ongoing medical bill negotiations. If the judge initially agrees to the settlement, there would be an open session where people would be able to complain or opt out. But, the judge could still reject it.

In October 2019, the workers who were ex-workers won a huge victory. They received back pay totaling $5.5 million for work done between June 10, 2019 & July 1, 2019, when bankruptcy filing. After the sudden bankruptcy declaration, the companies recovered the money from workers’ bank accounts, but some were left in the black.

It was only possible because of extraordinary circumstances. Blackjewel workers blocked train tracks for almost 2 months to prevent them from transporting and selling the coal they had mined. Pillersdorf’s group was able to use more leverage to collect the back wages of the miners by getting the U.S. Department of Labor involved.

“We got these guys fully paid,” he said, noting that “the bankruptcy law is stacked against wage workers.”

Pillersdorf shares that most of them had lost jobs. “I am certain that 40% of these people had previously found jobs in other mines. This number is sure to have fallen since. It has been a humanitarian disaster. Letcher, Harlan, or Leslie counties in Kentucky are all affected — they are the three poorest counties in the United States. This could not have happened to a worse spot.”

Now, it is up to the Blackjewel owners to recoup the money they have spent from Hoops or his other companies whether these miners will receive more compensation.

Pillersdorf claims that Hoops “shamefully manipulated the systems.” He spent money on himself and it all seemed that it would end up in the pocket of his family and his wallet.”

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