UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

ASHLAND DIVISION

IN RE:

HNRC DISSOLUTION CO., f/k/a

Horizon Natural Resources

Company, et al.                                                                                             CASE NO. 02-14261

DEBTORS

MEMORANDUM OPINION AND ORDER

           This matter is before the court on the Motion to Modify or Clarify September 16, 2004 Order (“the Motion”) filed by Columbia Natural Resources, LLC, n/k/a Chesapeake Appalachia, LLC (“Chesapeake”). Lexington Coal Company, LLC (“Lexington Coal”) has filed an Objection to the Motion. The Motion and the Objection were heard on December 18, 2007, and the court took the matter under consideration for decision.

           1.        Factual and procedural background:

           Lexington Coal is one of the purchasers of the Debtors’ assets under the September 16, 2004 Order (“the Order”). As such, Lexington Coal became the owner of a parcel of land located in Martin County, Kentucky (“the Lexington Coal parcel”). A subsidiary of the Debtors, 17 West Mining Company, Inc. (“17 West”) had previously mined and reclaimed the Lexington Coal parcel. 17 West was dissolved by order upon adoption of the Chapter 11 reorganization and dissolution plans on September 30, 2004. Chesapeake owns and operates a natural gas well on an adjacent parcel (“the Chesapeake parcel”). Angela Maynard (“Maynard”) owns property next to the Chesapeake parcel.

           Maynard sued Chesapeake in Martin Circuit Court (“the state court action”) on April 13, 2005, seeking damages resulting from a May 2004 mudslide alleged to have been caused by Chesapeake’s negligence at the Chesapeake parcel. Maynard filed an amended complaint seeking damages from a second mudslide which occurred in August 2005. Chesapeake obtained relief from the automatic stay in January 2006, and filed a third party complaint against 17 West and Lexington Coal in the state court action on March 22, 2006. The complaint sought indemnity and apportionment of any liability for Maynard’s damages, compensation for alleged damages to the Chesapeake parcel, and injunctive relief requiring 17 West and Lexington Coal to take action to modify and repair the Lexington Coal parcel. A default judgment against 17 West was entered on June 8, 2006.

           Lexington Coal relied on the Order to claim it was protected from liability from any claims arising from conditions first existing on or prior to the closing on its purchase of the Debtors’ property. According to Chesapeake, it voluntarily dismissed its third-party claims against Lexington Coal because of the Martin Circuit Court’s concerns about its jurisdiction in light of the Order. Chesapeake states that its dismissal was without prejudice to its right to seek clarification and relief from this court. The Martin Circuit Court entered an agreed order dismissing all claims against Lexington Coal arising out of the May 2004 mudslide. Chesapeake then filed the Motion now before the court on December 6, 2007.

           2.        Discussion

           Chesapeake seeks to have the court modify or clarify the Order; it does not, however, state what such modification or clarification should be. As set out in the Motion, Chesapeake’s goal is to proceed with an action (presumably a state court action) “. . . without risk that it is violating the September 16, 2004 Order.” Lexington Coal has cited several paragraphs from the Order that deal with limitations on liability of the purchasers of the Debtors’ assets, and argues that the Order is clear and unambiguous and requires no clarification or modification.

           The court agrees with Lexington Coal that the Order is clear and unambiguous. It addresses, among other things, the position of the various purchasers as of September 16, 2004, in regard to the liabilities, responsibilities, and obligations of the Debtors that existed on that date. The Order does not address, however, the acts and/or omissions of the purchasers once they took control of the property they purchased. This is the issue now before the court. As the court stated from the bench, and reiterates here, it cannot absolve the present owner of responsibility for damage done after it took possession of the property, whether because it allowed exacerbation of then existing conditions or because of some new action.

           Chesapeake contends that conditions exist on the Lexington Coal parcel that create a risk of harm to its property and the Maynard property, specifically that sediment ponds on the Lexington Coal parcel have been allowed to fill up with sediment so as to have insufficient capacity to hold water. Lexington Coal contends that its maintenance of the sediment ponds on its property is proper, and that any mudslide activity was caused by unusually heavy rainfall. Whether Lexington Coal is satisfactorily maintaining its sediment ponds and whether it has allowed conditions to develop or to be exacerbated are factual issues for the Martin Circuit Court to decide, and it is therefore unnecessary for this court to modify or clarify the Order.

           This court therefore concludes that Chesapeake’s Motion to Modify or Clarify September 16, 2004 Order should be, and it hereby is, overruled.

Copies to:

Leigh G. Latherow, Esq.

Gregory R. Schaaf, Esq.

Geoffrey S. Goodman, Esq.