HNRC DISSOLUTION CO.                                                                            CASE NO. 02-14261



v. ADV. NO. 07-1010







           This court has previously ordered briefing on whether, in the interest of comity with the state court in which a substantially identical lawsuit is pending, permissive abstention is proper in this adversary proceeding pursuant to 11 U.S.C. § 1334(c)(1) because it appears to this court that the primary issues involved in this adversary proceeding are issues of interpreting contract and other state and non-bankruptcy federal law and that, to the extent this court has jurisdiction in this matter, it is concurrent with the state court.

     Both parties have now filed their briefing. Neither party urges the court to permissively abstain.


     Plaintiff is the owner of Franklin County, Illinois real property commonly known as the Old Ben Properties. Plaintiff acquired title to the Old Ben Properties pursuant to agreements, orders, and plans in the underlying Chapter 11 bankruptcy case. On December 1, 1999 Old Ben Coal Company entered into a lease of surface lands with defendant EnviroPower, with Old Ben Coal Company as the lessor and EnviroPower as the lessee. On November 13, 2002, Horizon Natural Resources Company and approximately 70 of its subsidiaries and affiliates, including Old Ben Coal Company, filed the within Chapter 11 proceedings under the Bankruptcy Code involving assets and liabilities of about $1.8 billion. On August 17, 2004, Old Ben Coal Company agreed to sell certain assets to Oldcoal, plaintiff’s predecessor, which later assigned its interests to plaintiff. The contract with EnviroPower is alleged by plaintiff to have been terminated no later than February 7, 2004. Plaintiff is seeking in this action a declaratory judgment by the bankruptcy court that the contract was terminated no later than that date. Defendants deny the allegation that the contract was terminated and have filed voluminous counterclaims. No order rejecting the contract was entered in the bankruptcy cases.

     However, there is much more involved in the litigation between these parties than simply interpreting whether a contract was terminated. There are environmental issues involving the Clean Air Act which involve both power supply for citizens of the State of Illinois and an ongoing business in the State of Illinois. There are allegations of material misstatement of fact tantamount to common law fraud, allegations of abuse of process, allegations of breach of good faith and other duties, allegations of breach of contract, and allegations of conspiracy to defraud. These latter claims for relief appear to involve matters of state law.

     Law and Analysis

     At this early stage of the proceeding there is not enough evidence in the record for this court to determine whether the contract was rejected. However, the court can generally address the issue of whether it was required to approve a rejection of the contract.

     “Unless the court, on request of a party in interest and after notice and a hearing, orders otherwise, the trustee may operate the debtor’s business.” 11 U.S.C. § 1108. “Although section 1108 refers to the power of the trustee to operate the business, the section does not presume that a trustee will be appointed in every case. Rather, the power to operate the business is one of the powers that a debtor in possession acquires by operation of section 1107. Thus, section 1108 should be read as authorizing not only a trustee, but also a debtor in possession, to operate the business.” 7 Collier on Bankruptcy, ¶1108.01 (Matthew Bender 15th ed. rev.). The record indicates that the debtors in possession in the underlying Chapter 11's were authorized to operate the business.

     “If the business of the debtor is authorized to be operated under section 721, 1108 [the applicable provision here], 1203, 1204, or 1304 of this title and unless the court orders otherwise, the trustee may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing.” 11 U.S.C. § 363©)(1). In the underlying bankruptcy case, the leasing of surface lands would appear to be in the ordinary course of business. This case involved thousands of contracts including hundreds of leases. This court is not required to authorize the rejection of those contracts which are involved in the ordinary course of the debtors’ businesses.

      “Except with respect to a case under chapter 15 of title 11, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.” 11 U.S.C. § 1334(c)(1). There appears to be only one issue involving bankruptcy law in this adversary proceeding and that is the alleged rejection of the contract during the Chapter 11 proceeding. All other issues involve the state law of Illinois or other non-bankruptcy federal law, including: (1) environmental issues, (2) power supply for the State of Illinois, and (3) an ongoing business in the State of Illinois. These matters appear to be of significant moment to the citizens of the State of Illinois and it would appear the state courts and, if necessary, the federal courts of that state, should consider and rule on these matters.

     For those reasons, the court hereby permissively abstains, pursuant to 11 U.S.C. § 1334(c)(1), from hearing this adversary proceeding so the courts of the State of Illinois can determine these issues. Because of the court’s abstention herein, the other pending motions before the court are moot.




Steven Soble, Esq.

John Billings, Esq.