After Blackjewel settlement, Virginia has coal mining permits no one wants

By: - March 26, 2021 12:01 am

Coal piles in Wise County, July 2019. (Sarah Vogelsong/ Virginia Mercury)

Much of Blackjewel’s former coal empire in Virginia remains in disarray, even as a federal judge signed off on a bankruptcy settlement this week.

More than two dozen Virginia mining permits controlled by the company are in limbo, with a handful unable to find a buyer and most of the remainder locked in a dispute between two companies that each claim the other is the owner.

“This is probably one of the most complex bankruptcies in history,” said Ned Pillersdorf, one of the attorneys representing roughly 1,700 former employees of Blackjewel, 1,100 of them from the Central Appalachian mines. And, he added, while “this might be the end of the beginning … it’s far from over.”

Before its collapsed into bankruptcy more than a year and a half ago, Blackjewel owned the Eagle Butte and Belle Ayr mines in Wyoming’s Powder River Basin, two of the largest coal mines in the nation, as well as more than two dozen operations throughout Appalachia. In Virginia, it employed almost 500 coal workers in 2018, making it one of the biggest coal employers in the state. 

On July 1, operations came to a halt as the company’s now-dismissed CEO, Jeff Hoops, filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of West Virginia, citing declining demand for coal and liquidity problems. At the same time, the company clawed back its workers’ paychecks, a move that led Kentucky miners later that summer to mount a two-month blockade of a train carrying coal from a company mine in Harlan County that the U.S. Department of Justice labeled “hot goods.” 

Blackjewel would eventually settle that dispute, agreeing to pay about 1,100 miners in Virginia, West Virginia and Kentucky $5.1 million in unpaid wages. 

Since then, the case has only become more labyrinthine. 

In December, attorneys for the slowly liquidating Blackjewel filed a civil suit against the ousted Hoops, accusing him of defrauding his former company. Over the past 20 months, as the case’s docket has ballooned to more than 3,100 filings, a host of creditors have come forward seeking relief, and miners have sought additional payouts through a class-action suit for the company’s violation of federal laws requiring notifications of mass layoffs and closures. Sales of Blackjewel and its related companies’ assets have brought only further turmoil to the mining empire’s eastern division in Appalachia, where ownership disputes have left many properties languishing for months and in Kentucky have caused environmental damage

For many industry watchers, what makes the Blackjewel case one for the history books is the company’s inability to find a buyer for dozens of its permits, an outcome that may become more and more common as coal increasingly becomes unprofitable.

“To my knowledge, this is the first bankruptcy we’ve seen in Virginia where we’ve had a lot of permits that weren’t immediately transferred to other companies,” said Erin Savage of Appalachian Voices, an environmental and consumer protection nonprofit that tracks mining operations throughout the region. “There’s a number of permits that may not have buyers.” 

That could have financial implications for the state. While all of Virginia’s unresolved permits are backed by surety bonds intended to cover the costs of cleanup, the state could be on the hook for any additional funds if the bonds fail to cover necessary expenses.

The surety companies themselves have indicated that situation isn’t a hypothetical, although concerns have largely focused on Kentucky. In August 2019, one of Blackjewel’s major surety issuers, Indemnity National Insurance Company, argued that while most coal companies undergoing bankruptcy have only “a handful” of permits in which cleanup costs exceed the amount of the bonds, Blackjewel had “a substantial number,” particularly in Kentucky.

“Throughout the sale process, (Blackjewel has) utilized the bond amount on a particular permit as a ‘shorthand’ for the amount of reclamation liability associated with that permit,” Indemnity’s attorneys wrote. “In some cases, that is accurate; in others, the actual liability is millions of dollars in excess of the stated bond amount.” 

In the Blackjewel settlement approved by Judge Benjamin Kahn Monday, the company will be allowed to walk away from 33 Kentucky mine permits that have no buyer. In the words of the bankruptcy court, these “residual” permits are being revoked, not abandoned, although Sierra Club attorney Peter Morgan called it “a distinction without a difference.”

“The use of the term ‘revoke’ means that the regulator is enforcing its rights under” the federal Surface Mining Control and Reclamation Act, he said, referring to the landmark 1977 law that created a system of environmental regulations for coal mining and its cleanup. “‘Abandonment’ has a very specific meaning under the bankruptcy code.” 

In practice, what that means is that state regulators can begin the process of ordering the bonds posted for each permit to be forfeited. The surety companies will have a choice: take over the reclamation themselves or pay out the value of the bonds to the state. 

“The permits will not be abandoned,” the Kentucky Energy and Environment Cabinet said in a statement. The settlement order “preserves the cabinet’s right to seek the costs of reclamation and penalties, which will be heard by the court at a later date. In addition, the order allows time for the purchasers to complete the permit transfers, and reiterates the purchasers’ obligations to reclaim the permits and hopefully put miners back to work.” 

In Virginia, regulators have already begun the process of seeking reclamation costs. While the Blackjewel settlement doesn’t order any Virginia permits to be revoked, it leaves more than two dozen unresolved. Three of those permits, with bonds totaling more than $3.4 million, have no buyers at all. Tarah Kesterson, a spokesperson for the state Department of Mines, Minerals and Energy, said the agency had requested payment of the bonds in June and October, but the surety company, Lexon, “has not sent us the money at this time.” 

“In the event that any of these permits are not successfully transferred or reclamation is not properly completed — we will pursue bond forfeiture,” she wrote in an email. 

22 permits no one wants

Although 43 of Blackjewel’s Virginia permits have been purchased and transferred to their new owners since the bankruptcy, there’s no resolution for over two dozen more. 

Monday’s settlement agreement creates a grace period for more than 170 permits left over from the bankruptcy, granting Blackjewel an additional six to nine months to find a buyer or resolve pending disagreements. 

Those disagreements are both extensive and byzantine, involving numerous companies. The trouble was apparent early on: in August 2019, Lexon complained in one court filing that the quick auction after the bankruptcy was declared meant that “the bidders for the eastern assets had virtually no time to conduct due diligence to even know what they were bidding on. Secured lenders and sureties were all left not knowing what exactly was bid on and what the bids left behind.”

Virginia’s share of the so-called “pending and disputed permits” is 26 permits, most of which have been embroiled in a long-running dispute between two coal companies, Rhino Energy and Eagle Specialty Materials, for more than a year over who actually owns them. 

But while most legal ownership disputes involve two parties each trying to claim ownership of an asset, the Rhino-Eagle fight is the reverse: both companies are adamant that they do not control the permits and their associated cleanup obligations.

The argument dates back to a three-day auction of Blackjewel’s assets that took place a month after Hoops declared bankruptcy. During that auction, Rhino — which has since declared bankruptcy itself — purchased 11 Virginia permits. The bill of sale further declared that the “purchased assets also include any real property, improvements, leases, equipment, parts and inventory located within the Virginia Subdivision” of Blackjewel. 

Two months later, Eagle Specialty Materials agreed to buy 135 remaining mining permits in Blackjewel’s eastern division along with the valuable Eagle Butte and Belle Ayr mines in Wyoming. Of those, 22 permits were associated with mining operations at the so-called Harold Keene Coal and SunCoke Mining Complexes.

According to Eagle, when it sent workers to take over operations at these complexes, it “became aware that Rhino had already begun operations” at the site. Eagle would subsequently argue that Rhino had in fact already acquired control of those permits in the August auction, months before it made its own purchase.

Rhino, however, has strenuously denied it controls the 22 permits despite letters from the Virginia DMME and Office of the Attorney General maintaining that it does. In numerous filings, the company has declared that it purchased no other permits besides those 11 specifically listed in the August 2019 bill of sale and holds only certain mineral and surface rights related to the two mining complexes. 

Complicating matters further is Rhino’s own bankruptcy, which it filed in Ohio last July. In August the company argued that it could not assume liability for Blackjewel’s disputed Virginia permits because of its own “rapidly deteriorating financial condition.” A buyer of Rhino assets, Mountaineer Met, has further become embroiled in the dispute. 

Until the case is resolved, the permits remain in limbo. 

“It’s our understanding that the leases for the sites went to different companies than the permits,” said Kesterson. “A company needs both to have a successful transfer.” 

Both Morgan and Savage said they believed at least some of the permits that the court has given an additional six to nine months to be resolved will likely end up revoked. 

“I think it’s very likely that a number of these permits are headed toward bond forfeiture,” said Savage. “Virginia has a system in place to deal with that, but that system may come under a lot of strain in coming years with more bankruptcies.” 

Morgan, pointing to the continued decline of coal, urged regulators to begin the bond forfeiture process swiftly.

“If I were a regulator, the way I’d be thinking about this is the coal mining industry is never going to have more resources than it does at this moment,” he said. “And rather than kicking the can down the road as this settlement does, it would be better to face facts and start taking responsibility for all of these sites.” 

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Sarah Vogelsong
Sarah Vogelsong

Sarah is Editor-in-Chief of the Mercury and previously its environment and energy reporter. She has worked for multiple Virginia and regional publications, including Chesapeake Bay Journal, The Progress-Index and The Caroline Progress. Her reporting has won awards from groups such as the Society of Environmental Journalists and Virginia Press Association, and she is an alumna of the Columbia Energy Journalism Initiative and Metcalf Institute Science Immersion Workshop for Journalists. She is a graduate of the College of William and Mary. Contact her at [email protected]