A federal bankruptcy judge on Oct. 11 handed Patriot Coal a procedural win, lifting a stay on pending litigation against the company just enough to allow Patriot to try and get a federal court to let it delay $29m worth of selenium cleanup costs.
Patriot, a major coal producer in southern West Virginia and elsewhere, filed on July 9 for Chapter 11 protection at the U.S. Bankruptcy Court for the Southern District of New York. Patriot Coal asked its bankruptcy court on Sept. 28 for what amounts to some flexibility in dealing with a longstanding lawsuit filed against it in West Virginia over polluted water discharges from some of its mine sites in southern West Virginia.
In its Sept 28 petition, Patriot noted that since as early as 2006, Patriot and various of its subsidiaries have been engaged in litigation, administrative appeals and other disputes with environmental groups, including the Ohio Valley Environmental Coalition, the Sierra Club and the West Virginia Highlands Conservancy, regarding Patriot and its subsidiaries’ compliance with selenium effluent limits present in several National Pollutant Discharge Elimination System (NPDES) permits issued to its Hobet Mining LLC, Apogee Coal Co. LLC and Catenary Coal Co. LLC units.
As a result of litigation brought by the environmental groups long before the bankruptcy petition, which is currently pending before Judge Robert Chambers Jr. in the U.S. District Court for the Southern District of West Virginia, the Patriot subsidiaries are subject to a number of deadlines by which they must comply with effluent limits for selenium. In addition, the Patriot subsidiaries are parties to a March 2012 consent decree with the plaintiffs setting similar compliance deadlines for two additional outfalls associated with Hobet’s mining operations, as well as other outfalls at a number of the mining complexes of these subsidiaries.
By order dated July 25, Judge Chambers modified the requirements of the prepetition orders to extend their compliance deadlines for a short period while the litigants explored compliance options. At the request of the litigants, Chambers did so again by orders dated Aug. 10 and Aug. 16, after the litigants advised the court that counsel had reached an agreement in principle, subject to the requisite approvals, which the parties hoped to reduce to an agreed order.
Patriot said it’s having trouble nailing down compliance delay
“Notwithstanding diligent good-faith efforts by all the Litigants, the parties have been unable to finalize a mutually sought ‘global’ settlement agreement that would modify the Prepetition Orders,” Patriot told its bankruptcy court. “During a telephonic status conference on September 12, 2012, the Debtor Movants advised the West Virginia District Court that despite such failed discussions, they intend to seek from it a modification of the Prepetition Orders to stay the construction of the selenium treatment system at Hobet’s Mine 22, to extend the compliance deadlines under the Prepetition Orders. The Debtor Movants requested that the West Virginia District Court extend the most recent ‘stay’ order of August 16, 2012 for a short period so that it could consider the Debtor Movants’ proposed motion to modify the Prepetition Orders (the ‘Motion to Modify’).”
The company added: “Over the Plaintiffs’ objections, the West Virginia District Court granted an extension of the existing stay for an additional 14 days (until September 26, 2012) and entered a briefing schedule for the Motion to Modif (the ‘Briefing Schedule’). The Briefing Schedule required the Debtor Movants to file the Motion to Modify by September 17, 2012. At the September 12 status conference, despite the fact that the West Virginia District Court had previously stayed or extended the compliance dates in the Prepetition Orders to accommodate settlement discussions between the Litigants, the Plaintiffs asserted for the first time to the West Virginia District Court that an extension of the compliance deadlines would be subject to the automatic stay under section 362 of the Bankruptcy Code.”
Extension of the compliance deadlines would permit the Patriot subsidiaries to seek to delay the installation of costly selenium treatment facilities during this critical period of their Chapter 11 cases, Patriot told the bankruptcy court. In total, Patriot estimated that if the West Virginia court modifies the compliance deadlines as requested, it could defer up to $29m in costs through the end of 2013, helping its troubled near-term finances.
The environmental groups involved in the West Virgina case filed an Oct. 4 protest at the bankruptcy court, saying the Patriot motion to lift the stay so it could pursue compliance delays in the West Virginia court was a stalling tactic that shouldn’t be allowed.
In the Oct. 11 order, bankruptcy Judge Shelley Chapman granted the limited lifting of the automatic stay so that the West Virginia selenium case could move forward. The judge said the automatic stay remains in full force and effect to the extent it otherwise applies to any other aspect of the environmental proceedings. Nothing in this order affects the rights or obligations with respect to the letter of credit required to be maintained under the Hobet 22 order, the judge wrote.