In re Lady H Coal Co., Inc.

• Citation: 199 BR 595
• Decision Date: 23 April 1996
• Docket Number: Misc. No. 2:96-MC-0033.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: In re: the LADY H COAL COMPANY, INC., Consolidated Sewell, Inc., Sewell Coal Company, Leivasy Mining Corporation, Eastwood Construction, Inc., Debtors in Possession.

199 B.R. 595 (1996)

In re: the LADY H COAL COMPANY, INC., Consolidated Sewell, Inc., Sewell Coal Company, Leivasy Mining Corporation, Eastwood Construction, Inc., Debtors in Possession.

Misc. No. 2:96-MC-0033.

United States District Court, S.D. West Virginia, Charleston Division.

April 23, 1996.

COPYRIGHT MATERIAL OMITTED

John A. Rollins, Charleston, WV, for Debtors.

Susan Cannon-Ryan, Charleston, WV, for UMWA 1992 Benefit Plan.

Steven Thompson, for Chicopee Coal.

Marilyn Baker, Washington, DC, for UMWA Health and Retirement Fund.

Christopher Clarke, Washington, DC, for UMWA Health and Retirement Fund.

Thomas Vanderford, Charleston, WV, for CIT.

Michael Ramada, for Genesis Equipment.

Arthur M. Standish, Charleston, WV, and Mike Funk, for United Coal.

Tom Gilpin, Ashland, MO, for Van-American Insurance, New Gauley Coal and Clarendon Insurance Co.

Richard Stephenson, Charleston, WV, for WV Workers' Compensation, Unemployment.

Jack Alsop, Webster Springs, WV, for Estate of Mr. Post.

William F. Dobbs, Jr., counsel for Westmoreland Coal, Caterpillar and Westvaco.

James McHugh, Charleston, WV, for Simmons-Rand.

Michael T. Chaney, Charleston, WV, for Ford Motor Credit.

Michael Niggemyer, and Randolph McGraw, for UMWA District 17.

Molly Kettler Wade, Charleston, WV, for UMWA Employees.

Robert Weinberger, Charleston, WV, Assistant U.S. Trustee.

William E. Hamb, Charleston, WV, for Georgia Pacific.

Helen Morris, Huntington, WV, Chapter 7 Trustee for M & H Coal Company.

MEMORANDUM OPINION AND ORDER

HADEN, Chief Judge.

On March 13, 1996 the Court referred this matter to the Honorable Ronald G. Pearson, United States Bankruptcy Judge, for proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157. Judge Pearson was designated to consider the pleadings and evidence surrounding the objections of the 1992 Benefit Plan to the Debtors' motion for approval of auction and sale procedures, for authority to sell real and personal property free and clear of liens and encumbrances and for assignment of executory contracts and leases. The UMWA did not file timely written objections to the motion but did object at a hearing before Judge Pearson. Since the issues contained in the objections of both the 1992 Plan and the UMWA are closely related, Judge Pearson appropriately considered both objections in formulating his proposed disposition to this Court.

The proposed disposition was filed March 29, 1996. This Court then entered a briefing schedule for objections. The Court has considered the proposed disposition and the briefing. The case is ripe.

I. DISCUSSION

Following the submission of Judge Pearson's proposed disposition, the Honorable Elizabeth V. Hallanan, United States District Judge for the District, entered a Memorandum Opinion and Order on April 16, 1996, which now is binding district precedent and which resolves the objections filed by the 1992 Plan in this case. See UMWA 1992 Benefit Plan And Its Trustees v. Leckie Smokeless Coal Co., 201 B.R. 163 (S.D.W.Va. 1996).

In Leckie, the Court addressed the "issue of the effect of a free and clear order under 11 U.S.C. § 363 on successor liability under the Coal Industry Retiree Health Benefit Act of 1992 (`the Coal Act'), 26 U.S.C. § 9701, et seq." Op. at 165. In sum, Judge Hallanan held (1) successor liability of a buyer under the Coal Act could not be eliminated simply by virtue of a § 363 sale; (2) only a buyer who is either a related person or "successor in interest" could be required to assume a debtor's Coal Act obligations in a § 363 sale; (3) under an Internal Revenue Code definition of successor in interest, "purchasers of assets in bankruptcy cannot be `successors in interest' because, as that term is defined in the Code, they do not inherit the tax attributes of their predecessors," op. at 171; (4) the obligations due the Funds constituted an "interest in property" under § 363(f) and a "claim" under 11 U.S.C. § 101(5); (5) the debtors' assets could be sold under § 363(f) free and clear of the obligations due the Funds; (6) the debtors did not seek a discharge of debts through the proposed sale, and thus 11 U.S.C. § 524(e) was inapplicable; and (7) the proposed transaction was not a "sham transaction" within the meaning of § 9722 of the Coal Act.

The ruling in Leckie disposes of the objections by the 1992 Plan in this case because, inter alia, the apparent buyer at the proposed sale, as a matter of law, cannot be considered a related person or "successor in interest" to Debtors under the Coal Act. Further, as found by the Bankruptcy Judge, there is absolutely no indication that the free and clear portion of the proposed sale is either a "sham transaction" under § 9722 of the Coal Act or not undertaken in good faith pursuant to § 363(f) of the Bankruptcy Code.¹ Rather, the "sale has not been proposed for any reason other than to liquidate the property of these Debtors in a way to obtain the maximum return for all creditors, including the objecting creditors." Proposed Disp. at 6. Accordingly, the objections of the 1992 Plan are OVERRULED.²

The Leckie decision does not control the objections filed by the UMWA. After careful consideration of those objections, however, the Court concludes they are not meritorious. As amply demonstrated in Judge Pearson's proposed disposition, the breadth of § 363(f) and § 101(5)(B) is sufficient to block the imposition on the buyer of any liability for Debtors' obligations under the collective bargaining agreement. Accordingly, the Court OVERRULES the objections of the UMWA and ADOPTS and INCORPORATES Judge Pearson's proposed disposition relating to the buyer's and Debtors' obligations to the UMWA under § 363(f). As noted, however, Debtors may be subjected to damages later if they should be determined to have breached the collective bargaining agreement.

II. CONCLUSION

As set forth in the foregoing discussion, the Court OVERRULES the objections of the 1992 Plan and the UMWA and ADOPTS the proposed findings of fact and conclusions of law as they relate to the UMWA's objections. This case is REFERRED to the United States Bankruptcy Court with full authority to proceed to sale.

The Clerk is directed to close this miscellaneous proceeding and to send a copy of this Memorandum Opinion and Order to counsel of record and Judge Pearson.

RECOMMENDATION AND MEMORANDUM TO DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA ON OBJECTIONS OF UMWA 1992 BENEFIT PLAN AND UMWA INTERNATIONAL TO THE MOTION OF DEBTORS FOR AUTHORITY TO SELL REAL AND PERSONAL PROPERTY FREE AND CLEAR OF LIENS AND ENCUMBRANCES AND FOR ASSIGNMENT OF EXECUTORY CONTRACTS AND LEASES

RONALD G. PEARSON, Bankruptcy Judge.

INTRODUCTION

The Court has under consideration certain objections to the Motion of Debtors for Approval of Auction and Sale Procedures, for Authority to Sell Real and Personal Property Free and Clear of Liens and Encumbrances and for Assignment of Executory Contracts and Leases (the "Debtors' Motion") as filed on March 7, 1996. A hearing was conducted on the Debtors' Motion and respective objections on March 13, 1996. The parties and counsel appearing at the hearing are noted in Exhibit A. The Court granted the Debtors' Motion subject to the District Court's review of recommended findings of fact and conclusions of law as it relates to the objections of (1) Michael H. Holland, Marty D. Hudson, Thomas F. Connors, and Robert T. Wallace, Trustees of the UMWA 1992 Benefit Plan (the "1992 Plan") and (2) United Mine Workers of America, International ("UMWA"). No other creditor or party-in-interest has any substantive objection to the Debtors' Motion. The Debtors' Motion as presented proposes a piecemeal liquidation of equipment by auction, but requires this Court to conduct a hearing subsequent to the auction to confirm the sale of real estate assets by determining if the Debtors have satisfied the requirements of 11 U.S.C. § 363. The Court must find that the auction was conducted in good faith and any bids represent fair and reasonable value to the bankruptcy estates.

The 1992 Plan filed a written objection to the Debtors' Motion and moved to withdraw reference to the District Court for the Southern District of West Virginia. The District Court by Order entered March 13, 1996 directed this Court to submit proposed findings of fact and conclusions of law as it relates to the objection for disposition of issues regarding the Coal Act as they interact with the Bankruptcy Code or to indicate specifically why the Coal Act is not implicated by the Debtors' proposed grant of relief. The 1992 Plan asserts that a bankruptcy auction cannot be free and clear of obligations under the Coal Industry Retiree Health Benefit Act of 1992 (the "Coal Act"), 26 U.S.C. §§ 9701 et seq. The UMWA filed no timely written objection but announced its objection at the hearing to a sale free and clear of the National Bituminous Coal Wage Agreement of 1993 ("NBCWA"). Since the issues of the 1992 Plan and UMWA are closely related, the Court makes recommended findings of fact and conclusions of law to the District Court as to both objections, which raise successor liability issues. A decision on these objections of the 1992 Plan and UMWA is needed to clarify the obligations of a purchaser.

The 1992 Plan and the UMWA have the right as creditors in these cases to sponsor, purchase, joint venture, assist or finance purchasers willing to assume all or a portion of the premiums due under the Coal Act or the NBCWA. Given these rights, it is difficult to understand how counsel for the 1992 Plan or UMWA employees can assert that they are protecting the respective interests of their clients by raising these objections. Without the auction as proposed by the Debtors, administrative claims of 1992 Plan and UMWA employees will likely go unpaid and it is uncertain whether the 220 employees will work these mines again. The evidence reflects that (1) the...