A federal court has provisionally dismissed a longstanding lawsuit filed by the Central West Virginia Energy unit of Massey Energy against Mountain State Carbon LLC over high-vol coal supply to the Follansbee coke plant in northern West Virginia.
On July 16, the U.S. District Court for the Southern District of West Virginia had stayed this case pending further order as a result of a defendant, RG Steel Wheeling LLC, having sought bankruptcy protection on May 31 at the U.S. Bankruptcy Court for the District of Delaware. Pending lawsuits against bankrupt companies are routinely stayed by the bankruptcy court. The West Virginia court said it would reopen the case if the parties wanted it. On Aug. 21, the parties filed a stipulation of dismissal, with the case to be dismissed with prejudice.
On Sept. 17, District Judge Thomas Johnston put the case back on the active docket so he could take action on it, then dismissed it because it had been “compromised and settled.” He said the case could be subject to reopening on motion of any party, and for good cause shown, within 90 days of the Sept. 17 order. “The parties need not submit any additional proposed dismissal or other final order unless it is required by law or is necessary under the terms of any agreement resolving this civil action,” the judge wrote.
Central West Virginia Energy was a Massey subsidiary at the time the lawsuit was filed, in April 2009, then Alpha Natural Resources (NYSE: ANR) picked up the lawsuit in its June 2011 buy of Massey. The lawsuit had accused Mountain State Carbon of failing to take nominated tonnages of coal for Follansbee under an existing, long-term contract.
Also of note is that on Sept. 18, the bankruptcy judge for RG Steel Wheeling, WP Steel Venture LLC and related companies approved the termination of Mountain State Carbon’s management and operating contracts for the Follansbee facility.
On Sept. 27, the bankrupt companies filed a request for an extension, to Jan. 26, 2013, of their exclusive period to file a Chapter 11 plan, and an extended March 27, 2013, deadline to seek approval of that plan from parties to the case. The companies said they have made good progress in selling assets.
Many assets have been recently sold by the bankrupt companies
With bankruptcy court approval, they conducted auctions on July 31 and Aug. 7. At the conclusion of the July 31 auction, the debtors: identified successful bids and back-up bids with respect to the primary facilities that comprise RG Steel Wheeling, which are located along the Ohio River in Mingo Junction, Yorkville and Martins Ferry; and agreed to sell the equipment used in the operation of Wheeling Corrugating Co. At the Aug. 7 auction, they identified successful bids and back-up bids with respect to their main facilities located in Sparrows Point, Md., and Warren, Ohio. As of the date of the Sept. 27 motion, the debtors had closed all but one of these major sales.
“The sales processes should be considered a success given the sale timeframe imposed by the Ratification Agreement, and the fact that the Debtors’ major assets were successfully sold, in consultation with the Committee, the lenders, and their representatives, to the bidders who made the highest and best offers,” they said. “The Debtors have almost completed the sales processes, notwithstanding the fact that nearly all of the sales of the Debtors’ assets were highly contested. In addition to resolving the numerous objections to the larger sales, the Debtors continue to work toward the sale of the Yorkville facility. Further, litigation is ongoing to resolve the motion of Esmark Steel Group, LLC to compel the closing of the sale of certain excess assets that is contemplated to close contemporaneously with the Yorkville sale (the ‘Esmark Litigation’). On September 18, 2012, the Court entered the Scheduling Order setting an evidentiary hearing date of October 15, 2012 (to be continued on October 16, 2012, if necessary) for the Esmark Litigation.”
In addition to the sales of the major facilities, the debtors are continuing to evaluate additional sources of recoveries including the sales of other assets, and pursuing preference actions and other potential causes of action. “To that end, the Debtors have recently retained ASK LLP, subject to Court approval, to collect receivables that are worth millions of dollars,” the bankrupt companies added.
Of note is that there is a special website, http://www.kccllc.net/rgsteel, for this bankruptcy case.
In March 2011, The Renco Group Inc. announced that its newly-formed, wholly-owned subsidiary, RG Steel LLC (one of the bankrupt companies), acquired three steel companies then owned by Russian-based OAO Severstal. RG Steel purchased: Severstal Sparrows Point LLC, based in Baltimore, Md.; Severstal Warren LLC, based in Warren, Ohio; and Severstal Wheeling Inc. and Wheeling Corrugating Co., both based in Wheeling, W.Va. Also, RG Steel acquired a 50% ownership interest in: Mountain State Carbon and a cokemaking facility in Follansbee; and Ohio Coatings Co., based in Yorkville, Ohio. RG Steel got one half of the coke output from Mountain State Carbon. The purchase of these assets provided RG Steel with about 7.5 million tons of annualized steelmaking capacity.
Incidentally, Renco Group, controlled by financier Ira Rennert, is familiar to some coal industry veterans as the company that controlled coal producer Lodestar Energy, which went bankrupt in 2001 in an eastern Kentucky court while under Renco’s control.
On May 31, RG Steel said it was seeking bankruptcy. John Goodwin, CEO of RG Steel, said at the time: “Despite the Company’s aggressive cost reduction efforts, significant improvements in its cost structure, and substantial investment capital, the Company has been unable to overcome the impact of the continued deterioration of the market and the inability of the industry to sustain a meaningful recovery.”