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Federal Judge Threatens Jail Time as Coal Company Flouts Court Orders

Brittany Patterson

Coal company American Resources Corporation, which owns mines in Kentucky and West Virginia, is facing sanctions after failing to comply with a bankruptcy court’s orders, even after the company received $2.7 million in government aid meant for companies harmed by the coronavirus pandemic.

Indiana-based ARC purchased coal mines and equipment from bankrupt coal company Cambrian for $1 last September. The purchase came with a heavy debt burden that included environmental reclamation obligations, employee wages and health care costs, and utility bills.

Almost immediately, ARC failed to pay those expenses, leading Eastern Kentucky federal bankruptcy court Chief Judge Gregory Schaaf to impose monetary sanctions against the company. Lack of payment to employees at ARC subsidiary Quest Energy led some employees to protest this January by blocking a Pike County, Kentucky railroad.

“It’s hard to go to work between two rocks and not get paid for it,” a Quest miner who asked to be kept anonymous said at the time. “There’s men that’s getting their power bills cut off and men’s children starving.”

“There’s some concern that this is not an inability to pay, but an unwillingness to pay,” said Cambrian attorney Patricia Burgess in a May 14 hearing.

ARC received $2.7 million in loans from the federal government this April through the Small Business Administration’s Paycheck Protection Program, which was intended for small businesses.

ARC attorney Billy Shelton told Schaaf the slump in energy usage brought on by coronavirus-related shutdowns had interfered with ARC’s ability to turn a profit off the newly acquired mines, but the judge said ARC’s failure to pay began long before the pandemic.

“I am at the end of my rope with your client,” Schaaf told Shelton in the same hearing. “And I guess you need to start by telling me why I should believe anything that ARC promises to the court.”

The threat of jail time is a significant escalation in the efforts of bankruptcy judges to hold coal companies accountable for environmental and other liabilities, said Cornell University assistant visiting professor Josh Macey, author of “Bankruptcy as Bailout: Coal Company Insolvency and the Erosion of Federal Law” in the Stanford Review.

“For over a decade, coal companies have been getting rid of non-productive mines by giving them away. In a number of cases, coal companies have even paid another entity to acquire the mine. The acquirer tends to be underfunded,” Macey explained. “These transactions look like a way of offloading burdensome cleanup and retirement obligations. This has worked out reasonably well for both the buyer and the seller but not for local communities.”

Macey has documented a pattern of misuse of the bankruptcy process by coal companies, in which environmental reclamation and miners’ health obligations are loaded onto companies that have no ability to pay them, so the original companies can continue operating without the burden of those debts.

“I would expect [ARC] to liquidate given current market conditions and available liquidity. There is just not enough cash right now for them to keep operating,” he said.

The Trump administration has come under fire over the allocation of PPP funding. The first round of funding was quickly used up, with loans of more than $2 million accounting for some 25,000 loans while thousands of family-owned businesses went without.

Judge Schaaf is expected to decide later this week whether to kick the issue up to a higher court for adjudication.

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