UNITED STATES BANKRUPTCY COURT

       EASTERN DISTRICT OF KENTUCKY

       ASHLAND DIVISION

 

 

IN RE:

 

HNRC DISSOLUTION CO. CASE NO. 02-14261

 

DEBTOR

 

 

MEMORANDUM OPINION

 

1.            Introduction and procedural background

This matter is before the court on a Motion to Late File a Complaint Against Lexington Coal Company, LLC; International Coal Group, Inc. and ICG Hazard, LLC to Establish Cure Amount for Assumption and Assignment of Executory Contract (Doc. # 7128)(the “Motion to Establish Cure Amount”) filed by Lewis Biggerstaff et al. (“the Biggerstaffs”) on January 3, 2006.  Lexington Coal Company, LLC (“LCC”) and International Coal Group, Inc. and ICG Hazard, LLC (collectively “ICG”) have filed responses (Doc. #s 7157 and 7159, respectively).  The Biggerstaffs were parties to a coal lease agreement (as lessors) with Leslie Resources, Inc., one of the former Debtors. 

The Biggerstaffs had previously filed an Application . . . for Administrative Expenses for Postpetition Lease Payments for Wheelage of Coal (Doc. # 3275)(the “Administrative Expense Claim”) on June 10, 2004, to which the former Debtors filed an Objection (Doc. # 3391).  LCC filed its Objection to the Administrative Expense Application (Doc. #6037) on May 5, 2005.  All these matters were heard on January 19, 2006 and taken under consideration for decision.

2.            Factual background

 The Biggerstaffs entered into the coal lease agreement (”the Lease”)in January 1997.  It superceded an earlier lease.  Prior to the execution of the Lease, the Debtor or its predecessors had mined the property under the Lease (“the Leased Property”), and was also mining coal from other properties and using an existing haul road (“the Haul Road”) to transport the coal to the tipple.  The Biggerstaffs represent that they were assured by representatives of the Debtor that the Haul Road was on the Leased Property, and were given a survey plat showing the same.  They represent that this plat became a basis for the terms of the Lease which was then negotiated under the presumption that the Haul Road was located on the Leased Property.

The Debtor paid the Biggerstaffs wheelage under the Lease from 1997 to June 1999.  After June 1999, the Debtor made no further wheelage payments because it claimed that the Haul Road was not on the Leased Property, and that therefore the Biggerstaffs had never been due any wheelage payments.  The Biggerstaffs filed suit against the Debtor in the Perry Circuit Court in Civil Action No. 01-CI-537, alleging that the wheelage payments for the balance of 1999 and all subsequent years were due.  The suit proceeded to discovery, and then was stayed upon the filing of the within case on November 14, 2002.

The sale of the Debtors’ assets included the assumption and assignment of the Debtors’ interests in several hundred executory contracts and unexpired leases to proposed purchasers.  Cure claim procedures were implemented in regard to the assumptions and assignments, beginning with the entry of the June 16, 2004 Order: (A) Approving (I) Auction Procedures, (II) a Breakup Fee, and (III) Form and Manner of Notice, and (B) Setting Sale Hearing Date (the “Bidding Procedures Order”).  The Bidding Procedures Order required the Debtors to provide notice to parties to executory contracts and unexpired leases, such as the Biggerstaffs, of cure amounts for the assumption and assignment of each agreement (the “Proposed Cure Claims”), and provided procedures for such parties to object to the Proposed Cure Claims (the “Procedures for Cure Claim Objections”). (Bidding Procedures Order ¶ N).

Under the Procedures for Cure Claim Objections, claimants wishing to contest their Proposed Cure Claims had to file their Cure Claim Objections on or before August 31, 2004, the deadline for filing objections to the confirmation of the Debtors’ Plans.  (Bidding Procedures Order ¶ P).  Failure to timely file such objections barred claimants from later objecting to the Proposed Cure Claims or from subsequently asserting any additional Cure Claims or other claims against the Debtors or the purchasers of the Debtors’ assets.  (Bidding Procedures Order ¶ Q).

The Debtors gave notice of their Proposed Cure Claims in their Third Amended Disclosure Statement, which contained an exhibit listing all Cure Claims (the “Cure Claim Schedule”).  The Disclosure Statement was filed and served upon counsel for the Biggerstaffs on July 11, 2004, and a copy mailed to the Biggerstaffs on July 21, 2004.  The Disclosure Statement provided that the cure amount for each assigned contract or lease was $0.00, unless some other cure amount was provided for on the Cure Claim Schedule.  The Biggerstaffs’ cure amount was not listed as other than $0.00 on the Cure Claim Schedule.  The Biggerstaffs did not file a Cure Claim Objection prior to the expiration of the August 31, 2004 deadline.  In June 2004, the Biggerstaffs filed proofs of claim for rejection of an executory contract and for administrative expenses arising from the post-petition transportation of coal, as set out above.  The former Debtors objected to the Administrative Expense Claim, and the parties apparently began discovery.  Activities involving the Debtors ceased when their assets were sold and the agreements to which they had been parties were assumed and assigned.

The Debtors’ Plans were confirmed on September 16, 2004. In addition, the sale of their assets and assumption and assignment of certain agreements were approved by an order entered on the same date (the “Sale Order”).  The Sale Order protects the purchasers of the Debtors’ assets such as LCC or ICG from claims that arise from or relate to those former assets, including litigation relating to cure claim disputes that did not comply with the Procedures for Cure Claim Objections.  (Sale Order ¶¶ 6, 11, 14 and 24).

3.            Discussion

a.  The Motion to Establish Cure Amount

The Biggerstaffs’ journey through this case has been long and complicated.  Their actions early on were apparently dictated by their belief, whether justified or not, that the Lease had been rejected.  The Biggerstaffs’ Motion to Establish Cure Amount is based on their contention that they did not know until it was too late that the Lease had been assumed, and that they had, in fact, been misled by assurances made by representatives of LCC that the Lease had been rejected.^[1]  They state that but for these representations, they would have filed an exception to the $0.00 cure amount relating to the assumption of the Lease.  They further make the unsupported statement that their failure to object to the cure claim amount was due to “excusable neglect.”  

Even if the Biggerstaffs had made an argument of excusable neglect under Federal Rule of Civil Procedure 60(b), which they have not, it would be unavailing.  It is clear from the record in this case that the Biggerstaffs had ample and timely notice of the treatment of the Lease and the cure amount allotted to it in the Debtors’ Disclosure Statements and Plans and of the applicable deadlines.  Their reliance on any representations to the contrary was at their own risk.  The deadline for filing Cure Claim Objections passed more than a year ago.  There is simply nothing in the record before the court that would justify allowing the Biggerstaffs to file a complaint to establish cure amount now.

b.            The Administrative Expense Claim

The Administrative Expense Claim made pursuant to Bankruptcy Code section 503(b)(1)(A) alleges that the Debtor owed the Biggerstaffs post-petition wheelage payments under the Lease.  As set out above, wheelage payments had been made over a period of time and then stopped when a controversy arose over whether the Haul Road was located on the Biggerstaffs’ property.  The Biggerstaffs state that the estate has benefitted from “extensive coal hauling by the debtor . . .”  They have set out the wheelage rate per ton of coal hauled under the Lease, but have not stated an amount due.  Section 503(b)(1)(A) provides, in pertinent part, “[A]fter notice and a hearing, there shall be allowed administrative expenses, . . .including . . . the actual, necessary costs and expenses of preserving the estate.”  11 U.S.C. § 503(b)(1)(A).  The administrative claimant has the burden of proving that costs and expenses are “actual” and ”necessary” by a preponderance of the evidence.  Solow v. American Airlines, Inc. (In re Midway Airlines, Inc.), 221 B.R. 411, 446 (Bankr. N.D. Ill. 1998).  Further, the evidentiary burden never shifts from the party seeking allowance of an administrative claim.  Id. at 447.   

In this instance, however, it is unnecessary for the court to engage in a section 503(b)(1)(A) analysis.  Cure claims and administrative expense claims are not the same, and an administrative expense claim may be asserted in addition to a cure claim where a debtor is liable to a provider for use of its property during the administration of the case.  A purported administrative expense claim may be subsumed in a cure claim, however, where, as here, the administrative expense claim is for amounts due under the contract at issue, i.e., the Lease.  Since the court has already determined that the Biggerstaffs failed to object timely to the $0.00 cure claim amount allotted to them upon the assumption of the Lease, and that such failure to object is fatal to their attempt to establish a cure amount, their administrative expense claim must fail as well.

Based upon all of the foregoing, it is the opinion of this court that the Biggerstaffs’ Motion to Late File a Complaint Against Lexington Coal Company, LLC; International Coal Group, Inc. and ICG Hazard, LLC to Establish Cure Amount for Assumption and Assignment of Executory Contract and their Application for Administrative Expenses for Postpetition Lease Payments for Wheelage of Coal should be overruled.  An order in conformity with this opinion will be entered separately.

 

Copies to:

 

Joe F. Childers, Esq.

Richard Boydston, Esq.

Patricia K. Burgess, Esq.