In re Appalachian Fuels, LLC
| Decision Date | 19 April 2013 |
| Docket Number | No. 12-8026,12-8026 |
| Parties | In re: APPALACHIAN FUELS, LLC, et al., Debtors. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ELECTRONIC CITATION: 2013 FED App.0002P (6th Cir.)
File Name: 13b0002p.06
Appeal from the United States Bankruptcy Court
for the Eastern District of Kentucky
No. 09-10343; 09-10373
Before: HARRIS, HUMPHREY, and PRESTON, Bankruptcy Appellate Panel Judges.
ARGUED: Mark J. Rudolph, WEST VIRGINIA DEPARTMENT OF ENVIRONMENTAL PROTECTION, Charleston, West Virginia, for Appellant. T. Kent Barber, DELCOTTO LAW GROUP PLLC, Lexington, Kentucky, for Trustee Appellee. Donald R. Rose, MILLER, GRIFFIN & MARKS, PSC, Lexington, Kentucky, for Committee Appellee. ON BRIEF: Mark J. Rudolph, WEST VIRGINIA DEPARTMENT OF ENVIRONMENTAL PROTECTION, Charleston, West Virginia, for Appellant. T. Kent Barber, DELCOTTO LAW GROUP PLLC, Lexington, Kentucky, for Trustee Appellee. Donald R. Rose, MILLER, GRIFFIN & MARKS, PSC, Lexington, Kentucky, for Committee Appellee.
ARTHUR I. HARRIS, Bankruptcy Appellate Panel Judge. This appeal requires us to explore the complex intersection between environmental law and bankruptcy. At issue is whether the bankruptcy court abused its discretion when it denied an application for administrative expenses filed by the West Virginia Department of Environmental Protection (WVDEP) against two affiliated Chapter 11 debtors. The bankruptcy court denied WVDEP's administrative expense claims in theirentirety after addressing the threshold question of whether one or both of these affiliated debtors should be held jointly and severally liable for the reclamation obligations of a third affiliated debtor. For the reasons that follow, we AFFIRM in part and VACATE and REMAND in part for further proceedings consistent with this opinion.
Although WVDEP raises a number of issues on appeal, the only real issue before the Panel is whether the bankruptcy court abused its discretion when it denied the claims for administrative expenses of WVDEP filed against two affiliated Chapter 11 debtors.
The Bankruptcy Appellate Panel of the Sixth Circuit (Panel) has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted). An order denying an application for an administrative expense is a final order. UMW 1974 Plan & Trust v. Lexington Coal Co. (In re HNRC Dissolution Co.), 396 B.R. 461, 465 (B.A.P. 6th Cir. 2008).
An order denying an application for an administrative expense is reviewed for an abuse of discretion. Id. "An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard." Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288 (B.A.P. 6th Cir. 2008) (citation omitted). "The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Barlow v. M.J. Waterman & Assocs., Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 608 (6th Cir. 2000).
The debtors in these jointly administered Chapter 11 liquidation cases filed for bankruptcy relief in the Eastern District of Kentucky in June and July 2009. The debtors were various entities organized in Delaware, Kentucky, and West Virginia, who conducted coal mining operations in Illinois, Kentucky, and West Virginia.
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¦ ¦ ¦State of ¦
¦ ¦ ¦ ¦
¦Case Number ¦Debtor Name ¦Incorporation or ¦
¦ ¦ ¦ ¦
¦ ¦ ¦Organization ¦
+-------------+--------------------------------------------+------------------¦
¦09-10343 ¦Appalachian Fuels, LLC (AppFuels) ¦Kentucky ¦
+-------------+--------------------------------------------+------------------¦
¦09-10372 ¦Appalachian Holding Co., Inc. (Appalachian ¦Delaware ¦
¦ ¦Holding) ¦ ¦
+-------------+--------------------------------------------+------------------¦
¦09-10373 ¦Appalachian Premium Fuels, LLC ¦West Virginia ¦
¦ ¦(AppPremFuels) ¦ ¦
+-------------+--------------------------------------------+------------------¦
¦09-10374 ¦Appalachian Environmental, LLC (AppEnviron) ¦Kentucky ¦
+-------------+--------------------------------------------+------------------¦
¦09-10375 ¦Kanawha Development Corp. (KDC) ¦West Virginia ¦
+-------------+--------------------------------------------+------------------¦
¦09-10405 ¦Appalachian Coal Holdings, Inc. (Appalachian¦Kentucky ¦
¦ ¦Coal) ¦ ¦
+-------------+--------------------------------------------+------------------¦
¦09-10406 ¦Southern Eagle Energy, LLC (Southern Eagle) ¦West Virginia ¦
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(collectively, Debtors). (Reply to WVDEP's Resp. to Objections to Appl. For Administrative Expense, Exhibit 1 at 13, ECF No. 2151.) The Debtors' coal mining operations included deep mining and strip mining of coal, as well as operating coal prep plants and loading facilities.
Stephen Addington served as president for all seven Debtors. All of the Debtors were subsidiaries or second-tier subsidiaries of Appalachian Holding. AppFuels and Appalachian Coal were direct subsidiaries of Appalachian Holding. AppFuels had two relevant subsidiaries, AppPremFuels and AppEnviron, and Appalachian Coal had one, KDC. AppFuels and AppPremFuels were affiliates of KDC; neither AppFuels nor AppPremFuels was a parent of KDC, and neither had an ownership interest in KDC. (Id.)
The bankruptcy court entered orders authorizing the joint procedural administration of the Debtors' cases in July 2009. The orders provided, "This consolidation is for administrative and procedural purposes only and shall not be construed as substantive consolidation in any respect." (ECF Nos. 155 and 227.) WVDEP filed a motion for substantive consolidation of the cases in November 2011, but it withdrew that motion, and the cases were never substantively consolidated.
The administrative expense claims at issue in this appeal arise from environmental damage at the Alloy Mining Complex in Fayette County, West Virginia. The land and the coal thereunder were subject to two leasehold agreements: (1) a lease between the Kanawha-Gauley Coal & Coke Company, as lessor, and KDC, as lessee; and (2) a lease between Penn Virginia Operating Co., LLC, as lessor, and AppFuels, as lessee. The lessors terminated both leases prior to commencement of the Debtors' bankruptcy proceedings.
WVDEP issued mining permits and National Pollutant Discharge Elimination System permits (NPDES permits) to the Debtors and their affiliated entities for use in their mining operations at the Alloy Mining Complex. KDC held three mining permits for its West Virginia operations (KDC Mining permits). These permits listed KDC as the "applicant" and "permittee," but did not identify an "operator." (Exhibit B to Reply to Appl., ECF No. 2150-2.) AppFuels held the remainder of the mining permits at issue in this appeal (AppFuels Mining permits). (Blocklist Report at 1-4, ECF No. 2067-2.) None of the parties to this appeal indicated whether the AppFuels Mining permits listed or identified any of the other Debtors as an "applicant," "operator," or "permittee." WVDEP issued one NPDES permit to KDC (KDC NPDES permit) and nineteen NPDES permits to AppFuels (AppFuels NPDES permits) for operations at the Alloy Mining Complex. (Proof of Claim 501-1 Part 4 at 15 and Part 6 at 15.) These permits carried with them the obligation to monitor and reclaim water pollution caused by discharges of wastewater from the mining facilities and to file monthly discharge monitoring reports with WVDEP.
During the pendency of their cases, the Debtors liquidated the majority of their assets in a series of sales. One of these sales concerned the assets associated with the Alloy Mining Complex.The Debtors sought authority to sell certain mining equipment and mining permits to A.T. Massey Coal Company, specifically excluding the KDC Mining permits and associated environmental liabilities. The bankruptcy court entered an order approving the sale on September 28, 2009. Paragraph 20 of the sale order specifically provided that the Debtors were obligated to place $1,129,192 of the sale proceeds into an escrow account for the purpose of addressing the reclamation obligations associated with the KDC Mining permits. KDC did not receive any of the proceeds from this sale.
On March 21, 2011, WVDEP filed a general unsecured claim for $282,829. WVDEP filed the claim against the "Debtors, Jointly and Severally." (Proof of Claim 501-1.) Within the proof of claim, WVDEP stated that the $282,829 "finalizes the pre-petition civil...
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