Ohio, EPA, ODNR object to selling coal mine assets

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ____________________________________ ) ) ) Westmoreland Coal Company, et al.,1 ) ) Debtors. ) ) ____________________________________) In re:

Chapter 11 Case No. 18-35672 (DRJ) Jointly Administrated

OBJECTION OF STATE OF OHIO, ENVIRONMENTAL PROTECTION AGENCY AND DEPARTMENT OF NATURAL RESOURCES, TO JOINT MOTION OF THE WLB DEBTORS AND THE WMLP DEBTORS FOR ENTRY OF AN ORDER (I) APPROVING THE SALE OF (A) SUBSTANTIALLY ALL OF THE ASSETS OF OXFORD MINING COMPANY, LLC, AND CERTAIN OF ITS SUBSIDIARIES AND (B) THE BUCKINGHAM MINE, (II) AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION THEREWITH, AND (II) GRANTING RELATED RELIEF, INCLUDING APPROVAL OF THE RELATED SALE PROCESS The State of Ohio, Environmental Protection Agency (“Ohio EPA) and Department of Natural Resources (“ODNR”), by and through their undersigned counsel, submit this Objection to the Joint Expedited Motion to Sell the Assets of the Oxford Mining Company, LLC (“Oxford

1

Due to the large number of debtors in these chapter 11 cases, for which joint administration has been granted, a complete list of the debtors and the last four digits of their tax identification, registration, or like numbers, is not provided herein. A complete list of such information may be obtained on the website of the Debtors’ claims and noticing agent in these chapter 11 cases at www.donlinrecano.com/westmoreland. Westmoreland Coal Company’s service address for the purposes of these chapter 11 cases is 9540 South Maroon Circle, Suite 300, Englewood Colorado 80112.

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Mines”) and the Buckingham Mine and the proposed Order Approving Joint Expedited Motion.2 In support of the Objection, the State asserts as follows: I. SUMMARY OF OBJECTION 1.

The State of Ohio (“Ohio”) is highly concerned whether the buyers of the Oxford

Mines and the Buckingham Mine have the assets to fund all reclamation and surface water mitigation requirements. In addition, Ohio is concerned that the buyers may be blocked from obtaining the permits for these mines from ODNR. 2.

As stated in the Application of the WMLP Debtors Allowance of Administrative

Expenses (Doc. # 1199), the WLB Debtors operate the Oxford Mines owned by the WMLP Debtors and are jointly and severally liable with the WMLP Debtors for compliance with environmental laws and rules. See Declaration of Jeffrey S. Stein, Chief Restructuring Officer of Westmoreland Coal Company3 (“Declaration”) filed on October 8, 2018.

3.

The WLB and WMLP Debtors are parties to an administrative and operational

services agreement (“Shared Services Agreement”). Id. at p. 13. It is under the Shared Services Agreement that the employees of the WLB Debtors operate the Oxford Mines. Id. 4.

In addition to liability for the costs of reclamation, the WLB Debtors and the

WMLP Debtors are jointly and severally liable for the full costs of surface water mitigation requirements.

5.

For a number of years, the WLB Debtors, as operators, and WMLP Debtors, as

owners, failed to comply with mitigation performance standards for stream and wetland impacts

2

Joint Expedited Motion of the WLB Debtors and the WMLP Debtors and Order Approving Joint Expedited Motion (Doc # 1116 and 1116-1).

3

Declaration of Jeffery S. Stein, Chief Restructuring Officer of Westmoreland Coal Company, in Support of Chapter 11 Petitions and First Day Pleading (Doc. # 54).

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addressed in multiple Clean Water Act, Section 401/404 water certifications. In addition, the WLB and WMLP Debtors conducted unpermitted filling of wetlands and streams on the properties related to certain Oxford Mines. Enforcement of these requirements is pending with the Environmental Enforcement Section of the Ohio Attorney General’s Office.

6.

Sale of the Oxford Mines does not release the WLB and WMLP Debtors from

liability to fully fund reclamation and surface water mitigation costs.

7.

Moreover, the Joint Expedited Motion provides no assurances that the selected

buyers will obtain the necessary coal mining and reclamation permits to operate the Buckingham and Oxford Mines. If Sabine Pass Coal Company, LLC4 and Bayou Coal Partners, LLC, collectively, the “Stalking Horse Bidders” for the Buckingham and Oxford Assets, are selected as the buyers of the Oxford Mines and the Buckingham Mine, they will need to demonstrate compliance with Ohio Adm.Code 1501:13-5-01(D)(4). This Rule provides that any coal mining operation owned or controlled by the applicant for the permits or by any person who owns or controls the applicant must show current compliance with environmental laws and rules. If this showing cannot be made, the ODNR Division Chief shall not approve the transfer of the coal mining and reclamation permits.

8.

Based upon ODNR’s review of the United States Office of Surface Mining

Reclamation and Enforcement’s (“OSMRE”) Applicant Violator System, Ohio has requested that OSMRE run a report to determine if there may be cause to block the transfer of the permits to the Stalking Horse Bidders. If ODNR determines after the sale is approved that Sabine Pass

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Information received from the Stalking Horse Bidders and the Commonwealth of Virginia Secretary of State’s website suggests that the name of one of the Stalking Horse Bidders in the Expedited Motion and Asset Purchase Agreement is incorrect. There is no information indicating that “Sabine Pass Coal Company, LLC” has been formed. The name that appears on the Virginia Secretary of State website and formation documents received from representatives of the Stalking Horse Bidder is “Sabine Pass Coal Group, LLC.”

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Coal Company, LLC and Bayou Coal Partners, LLC are permit blocked, these entities will be prohibited from operating the coal mines.

9.

Information that ODNR has received from the Stalking Horse Bidders indicates

that Ana M. Clarke is an officer and director of the Stalking Horse Bidders as well as the 100% owner of the titular parent company. Based on information received from OSMRE, entities owned or controlled by Ana M. Clarke would be blocked from receiving coal mining and reclamation permits.

10.

The asset purchase agreements attached to the Expedited Motion as Exhibits F

and G are signed on behalf of the Stalking Horse Bidders by Thomas M. Clarke as “authorized signatory.” This would indicate that Mr. Clarke has ownership or control of, or serves in an official capacity for, the Stalking Horse Bidders. Based on information received from OSMRE, entities owned or controlled by Thomas M. Clarke would be blocked from receiving coal mining and reclamation permits.

11.

Finally, several environmental covenants on the properties of the Buckingham

Mine and Oxford Mines recorded in accordance with Ohio Rev. Code Chapter 5301, cannot be released from these properties by the Court pursuant to the proposed sale order. Ohio Rev. Code § 5301.89 provides that these environmental covenants are perpetual and are not extinguished or released by any sale of these properties. Environmental covenants run with the land.

II. OBJECTION 12.

The WLB Debtors are jointly and severally liable for the full costs of reclamation

and surface water mitigation requirements for the Oxford Mines. Sale of the Oxford Mines does not release the WLB Debtors of this liability. Therefore, paragraph 12 of the Order Approving

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Joint Expedited Motion, which provides that the WLB Debtors shall not retain liability for assigned contracts and assumed liabilities, should be deleted or amended.

13.

The sale process may result in approved buyers that are permit blocked under

ODNR regulations and unable to operate the purchased mines. Because the results of the auction will be published on February 2, 2019 – two days before the February 4, 2019 Sale Hearing, ODNR will not be able to take a formal position as required by Ohio Adm.Code 1501:13-501(D)(4) as to whether the selected buyers are permit blocked. ODNR can only make this formal position after ODNR receives the transfer permit applications.

14.

After the transfer permits are received, ODNR will review the Office of Surface

Mining’s Applicant Violator System for any violations attributed to the buyers. If violations are listed, ODNR will request a report from OSMRE. Without the transfer permit applications and without a complete review, ODNR is unable to determine if the selected buyers are permit blocked.

15.

The buyers’ purchase of the Buckingham Mine and the Oxford Mines is subject to

all environmental covenants recorded in accordance with Ohio Rev. Code Chapter 5301. In this case, several environmental covenants apply to the Buckingham Mine and Oxford Mines. Any sale of the Buckingham Mine and Oxfords Mines, even in a bankruptcy case, does not release these environmental covenants. Thus, Paragraph 10 of the Order Approving Joint Expedited Motion, which states that the Buyer takes the Assets free and clear of any Liens and Excluded Liabilities, needs to be amended. This amendment must state that the Buyer takes title to the properties subject to all recorded environmental covenants.

16.

The Sale Hearing should be postponed until after ODNR receives the transfer

permit applications and can determine if the selected buyers are permit blocked.

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IV. CONCLUSION 17.

The WLB and WMLP Debtors are jointly and severally liable for the full costs of

the reclamation and surface water mitigation costs for the Oxford Mines and Buckingham Mine.

The Order Approving Joint Expedited Motion should not provide the WLB and WMLP Debtors a release of this liability. In addition, the Order Approving Joint Expedited Motion needs to be amended to state that sale of the Buckingham Mine and Oxford Mines does not release the environmental covenants recorded on the properties of the mines. Finally, no Sale Hearing should be held until ODNR receives transfer permit applications and can then determine whether the selected buyers are permit blocked.

Respectfully submitted,

OFFICE OF THE OHIO ATTORNEY GENERAL DAVE YOST

/s/ Timothy J. Kern MICHAEL E. IDZKOWSKI (admitted pro hac vice) TIMOTHY J. KERN (admitted pro hac vice) Assistant Attorney General Environmental Enforcement Section 30 East Broad Street, 25th Floor Columbus, Ohio 43215

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CERTIFICATE OF SERVICE I certify that on February 1, 2019, I caused a copy of the foregoing document to be served by the Electronic Case Filing System for the United States Bankruptcy Court for the Southern District of Texas.

/s/ Timothy J. Kern Timothy J. Kern Assistant Attorney General

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