Judge Opens Door for Coal Shovel Foreclosure
By Greg Johnson
June 9, 2020 - Eagle Specialty Materials finds its legal pit a little deeper after a U.S. Bankruptcy Court judge cleared the way for Komatsu Mining Corp. to foreclose on a pair of large coal shovels at ESM’s Powder River Basin mines.
Judge Benjamin A. Kahn of the U.S. Bankruptcy Court for the Southern District of West Virginia denied requests last week from both ESM and Blackjewel LLC to hold an evidentiary hearing on Komatsu’s claims that it’s owed millions of dollars on a broken maintenance contract for the shovels — called Shovel 12 and Shovel 13 in court documents.
ESM bought the Eagle Butte and Belle Ayr coal mines in Campbell County as part of a sell-off of assets in Blackjewel’s bankruptcy last year. While both Eagle and Blackjewel claimed during Tuesday’s hearing that the intent was for ESM to own the shovels as part of its $40.2 million purchase of the mines, the sale documents actually exclude the shovels, the judge said.
By granting Komatsu’s motion to lift the automatic stay placed on its lien claims to the shovels by the bankruptcy process, the door has been opened for the mining services company to exercise its lien, which means it can repossess and sell the equipment to recover what it’s owed. Part of that process also could include ESM being given a chance to buy the shovels at that time.
What Komatsu is owed has been the crux of a months-long dispute with the Blackjewel estate and Eagle Specialty Materials. Put simply, ESM is willing to pay Komatsu what it’s legitimately owed on its services contract with Blackjewel, but Komatsu claims it is owed more, said Steven L. Thomas, an attorney representing ESM.
“The real dispute was how much was due to Komatsu,” Thomas said.
He and Blackjewel attorney Stephen Lerner both said the bankruptcy estate deliberately left title to the shovels out of the original sale because of the dispute over what Komatsu is owed on its services contract. Because of the untenable situation that put hundreds of Wyoming coal miners out of work for months when Blackjewel shuttered the mines, it was imperative at the time to close the sale so ESM could reopen the coal mines.
The intention, Lerner said, was for ESM and Komatsu to negotiate a resolution.
“For a long time we were trying to facilitate, or at least not interfere, with the parties’ ability to settle this,” Lerner said. “I wanted the court to appreciate there are other factors that are relevant.”
Intent isn’t the legal issue he had to rule on, Judge Kahn said. Blackjewel didn’t file an objection to Komatsu’s motion to lift the stay on its ability to enforce the lien, he added.
And while “there is some sympathy from the court” that Komatsu hasn’t filed any documentation justifying that it is owed millions under the contract, there also were no grounds for him to hold an evidentiary hearing in the dispute, which both ESM and Blackjewel had pushed for.
Thomas said ESM did a five-year examination of records relating to Komatsu’s contract and found that Blackjewel actually overpaid it by $1 million on Shovel 12, so nothing is owed on that piece of equipment. The company already has offered more than $2 million on Shovel 13, which was rejected by Komatsu.
That was evidence ESM wanted to present had the judge allowed an evidentiary hearing, Thomas said.
“The real crux of the issue is we have five years of reconciliation statements that show what the payments under the (services contract) are and how they were applied for parts and services rendered by Komatsu,” Thomas said.
Not only are Komatsu’s claims inconsistent, “it’s impossible to tie any element of what they claim,” he said.
Thomas also argued that ESM and Blackjewel shouldn’t be held to a higher bill without seeing something to back it up.
“They can’t just file something and say we’re owed millions of dollars and everybody just says, ‘Well, you must be right because you’re Komatsu,’” Thomas said.
Although in court documents Blackjewel and Eagle Specialty Materials have painted Komatsu as trying to “end-run” the court process and extract more money than it’s owed, the mining services company successfully argued to Kahn that it has the law on its side.
Facts include that Komatsu is owed money and has been asking for it since November, that Blackjewel still holds the title on the shovels and that Komatsu has a valid lien on the equipment. That includes being able to serve ESM with a notice of repossession and maintaining Komatsu’s right to enforce its lien through the Wyoming court system.
Because the titles to Shovels 12 and 13 still remain with Blackjewel, Eagle Specialty Materials has possession of equipment it doesn’t own and has been continually using since October, said Komatsu attorney Richard J. Parks.
“They want to ignore the facts, they want to ignore the contract terms,” he said.
ESM President Michael Costello attempted to tell the judge about the circumstances surrounding the sale that excluded the shovels, particularly the pressing need to reopen the mines as soon as possible.
But Kahn shot him down, saying Costello was represented at the hearing by an attorney, Thomas, and that Thomas could speak for him.
Because ESM has possession of the shovels, Parks asked Kahn also to order that the company can’t impede the process of repossessing the shovels or enforcing the lien through the Wyoming legal system, which also could include an auction to sell them to recoup any money owed.
Because each is the “size of a building” and five stories high, the process is more complicated than repossessing a car, he said.
It wasn’t immediately clear whether ESM’s ability to continue using the shovels is in jeopardy as that process proceeds.
Because the sale excluded the shovels, ESM has essentially been operating them without authorization since taking over the mines in October, said Shannon Anderson, an attorney for the Powder River Basin Resource Council, a Sheridan-based watchdog group.
Tuesday’s ruling clears the way for Komatsu to not only enforce its lien, it allows the company to assert that the assets securing it — the shovels — continue to depreciate with use, she said,
“Every day they use them, they’re going to have to settle up with Komatsu for the devaluing of those shovels,” Anderson said. “If I were ESM, I’d stop using those shovels and settle up with Komatsu, if you can.”
She said that despite the acrimony between the companies, they both ultimately want the same thing — for ESM to eventually own the shovels free and clear and to continue mining, she said.
“The big issue is Komatsu doesn’t want these shovels,” she said. “They don’t want to come and get them. They want to be paid. They were special built and rebuilt for these mines, so my guess is (Tuesday’s ruling) just helps Komatsu’s leverage.”