In re Pierce Coal and Const., Inc., Bankruptcy No. 81-00263-C.
| Decision Date | 15 September 1986 |
| Docket Number | Bankruptcy No. 81-00263-C. |
| Citation | 65 BR 521 |
| Court | U.S. Bankruptcy Court — Northern District of West Virginia |
| Parties | In re PIERCE COAL AND CONSTRUCTION, INC., Debtor. |
Robert G. Durnal, Junior, W.Va., Chapter 7 trustee.
Charles A. Baer, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., Martin P. Sheehan, Asst. U.S. Atty., Wheeling, W.Va., for I.R.S.
Robert J. Blumling and John L. Spiegel, Plowman & Spiegel, Pittsburgh, Pa., for Trans-America Ins. Co.
William D. Wilmoth, Wheeling, W.Va., for debtor.
William Dean, U.S. Dept. of Justice, Tax Div., Washington, D.C., Julia Chincheck, Charleston, W.Va., for Great Lakes Carbon.
Robert M. Amos, Fairmont, W.Va., for Richard and Lynna White.
Robert Trumble, Clarksburg, W.Va., for Jack and Ellen Lambert.
On the 28th day of January, 1986, hearing was had on the Request of Transamerica Insurance Company for Allowance and Payment of Chapter 7 and Chapter 11 Administrative Expenses. Present were Robert G. Durnal, Chapter 7 trustee; William D. Wilmoth, counsel for the debtor; Robert J. Blumling and John L. Spiegel, counsel for Transamerica Insurance Company; William Dean, United States Department of Justice, Tax Division; Julia Chincheck, counsel for Great Lakes Carbon; Robert M. Amos, counsel for Richard and Lynna White; and Robert Trumble, counsel for Jack and Ellen Lambert. The Court heard the testimony presented, then took the matter under advisement and requested counsel to submit memoranda of law on the issue of whether Transamerica Insurance Company's request for reimbursement of $261,000.00 in bond forfeitures due to the alleged environmental violations committed by the debtor and the Chapter 7 trustee is an administrative expense.
On April 8, 1981, Pierce Coal & Construction, Inc., (hereinafter sometimes referred to as "debtor" or "Pierce"), filed its voluntary petition for reorganization under Chapter 11. On that day, an order was entered authorizing the debtor in possession to operate its business, mining coal by the surface mining method. The debtor, while engaged in its prepetition mining business, was required by the State of West Virginia to procure mining permits and to post bonds with the State of West Virginia, Department of Natural Resources, (hereinafter sometimes referred to as "DNR"), now the Department of Energy. West Virginia Mining Conservation and Reclamation Act, W.Va.Code § 22A-3-1 et seq.
The debtor had secured four permits authorizing operations in Union District, Upshur County, from the State and had purchased surface mining reclamation bonds issued by Transamerica Insurance Company (Transamerica) as surety to cover each of the four permit sites. The bonds were issued in favor of the DNR as obligee with the debtor as the designated principal under each bond. The permits and bond amounts were issued as follows:
Permit No. Bond No. Bond Amount Date Issued
112-79 XXXX-XX-XX $ 80,000.00 1979
36-79 XXXX-XX-XX 107,000.00 1979
100-78 XXXX-XX-XX 47,000.00 1978
94-78 XXXX-XX-XX 27,000.00 1978
The debtor operated as a debtor in possession until May 6, 1982, when the Court approved the debtor's motion to convert its Chapter 11 proceeding to a case under Chapter 7. Robert G. Durnal was appointed Chapter 7 trustee. On May 14, 1982, the trustee was authorized by Court order to operate the business of the debtor for a period not to exceed thirty (30) days from the date of conversion of the case to a Chapter 7. On June 18, 1982, a telephonic conference was had on the trustee's motion to continue operating the business, which motion was denied. The operation of the business by the trustee terminated at the close of business on June 18, 1982.
As a result of operations, the DNR revoked the four permits because of allegedly inadequate land reclamation, and made demand of Transamerica in the amount of $261,000.00, the total sum of the four bonds issued by Transamerica. Transamerica forfeited the sums owing under the bonds.
On June 6, 1985, this Court issued a notice of the trustee's request to pay certain Chapter 7 and Chapter 11 administrative expenses. On June 27, 1985, Transamerica filed an objection to the trustee's request asserting that its claim against the debtor's estate arising from the bond forfeitures was also entitled to administrative expense priority and should be paid on a pro rata basis with other administrative expense creditors. On that same date, Transamerica also filed its "Request for Allowance and Payment of Both Chapter 7 and Chapter 11 Administrative Expenses".
At the hearing held on January 28, 1986, Michael G. Reese, a surface mine reclamation inspector with the Department of Energy, State of West Virginia, testified that during the operation of the debtor's business, he inspected the mining sites every fifteen days checking top soil, drainage control, blasting, water quality, regrading, etc. Tr. at 20, 21. He testified as to each of the permits and the violations he observed.
Extensive mining operations under Permit 112-79 were conducted from April, 1981, until September, 1982. Reese observed violations in back filling, regrading, drainage, and revegetation requirements. Tr. at 27, 28, 31, 34. The violations observed were not corrected and have not been corrected to date. Tr. at 29, 34, 35. Although some efforts were made to comply with environmental regulations, the efforts were not sufficient. Tr. at 31. During the bankruptcy period, sixteen (16) additional acres were disturbed by the mining operation. Tr. at 35. In Reese's opinion, the violations described resulted in the revocation of the permit and the forfeiture of the surety bond. Tr. at 29, 35, 37. On cross-examination, Reese testified that none of the four mining sites were in compliance prior to the filing of the Chapter 11 petition in April, 1981. Tr. at 47. The majority of acreage was disturbed prior to the bankruptcy, with approximately 10% of the disturbance being caused during the bankruptcy. Tr. at 52, 53. Also, throughout the bankruptcy, reclamation efforts had improved. Tr. at 49.
According to Reese, as of August, 1981, environmental violations that existed in permit area 36-79 included violations of back filling, regrading and other general reclamation requirements, which violations have not been corrected to date. Tr. at 38. It was his opinion that since the debtor's filing, approximately ten (10) additional acres (10% of the total permit acreage) were disturbed in this area. Tr. at 40. During cross-examination, Reese agreed that none of the disturbance in this area was incurred subsequent to the conversion of the debtor to Chapter 7 in May, 1982. Tr. at 53, 54.
Reese testified that there was total environmental disturbance in permit area 94-78 consisting of failure to revegetate and acid mine drainage and that these violations exist today. Tr. at 38, 41, 55, 62. Again, it was his opinion that these violations led to forfeiture of the surety bond. Tr. at 40. Testimony on cross-examination revealed that this permit area had been disturbed prior to the bankruptcy and had not been reclaimed or revegetated during the bankruptcy. Tr. at 55.
According to the testimony, regrading and revegetation work should have been performed in this permit area, Tr. at 42, 43, and equipment that was located on the site and used by the debtor throughout the bankruptcy for crushing rock had to be dismantled and removed for compliance at an additional cost. Tr. at 35-37, 42, 44, 54. Reese testified that the rock crushing operations were presently being operated by R & R Coal Contractors and had been since 1983. Disturbance caused by R & R Coal Contractors was minimal and did not affect the decision to require forfeiture of the bond. Tr. at 35, 36, 37. On cross-examination Reese admitted that no additional acreage was disturbed in this area from April of 1981 through May of 1982 and that only the rock crushing unit was being operated. The regrading and revegetation violations still exist. Tr. at 42. It was Reese's opinion that permit areas 94-78 and 100-78 would require the same amount of reclamation today as would have been required in April, 1981. Tr. at 54, 55. Additional reclamation from April, 1981, would be required on permit areas 112-79 and 36-79. Tr. at 56. He was further of the opinion that there was significantly more disturbance of land prior to the bankruptcy period and that reclamation efforts were better during the Chapter 11. Tr. at 48, 49.
In summary, Reese testified that the debtor failed to comply with an ongoing regulatory obligation to backfill, regrade, revegetate and generally reclaim the four permit sites throughout the bankruptcy. Tr. at 45, 61-64. Although the debtor did make some effort to reclaim areas 36-79 and 112-79, reclamation was not successful because it was not completed. Tr. at 62, 65. On rebuttal, Reese stated that throughout the Chapter 11 proceeding, the debtor was not concurrent with environmental regulations. Tr. at 116.
Rodney W. Clay, President of Green Mountain Company, a reclamation and construction firm, was contracted by Transamerica to review the permit sites in question for the purpose of estimation of reclamation costs. Tr. at 70. Based upon his study, it was Clay's opinion that reclamation could not be effected on any of the permit areas to bring them into compliance with environmental regulations for less than the amount of the bond covering each permit. Tr. at 72-74.
J. Gregory Hanner, employed by the debtor as Vice President in charge of production shortly after the debtor's petition was filed, testified as to what measures the debtor undertook to try to comply with the State's environmental regulations. He testified that reclamation efforts were ongoing prior to and during the filing of the ...
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