UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEXINGTON DIVISION

IN RE:

HORIZON NATURAL RESOURCES COMPANY CASE NO. 02-14261

DEBTOR

MEMORANDUM OPINION AND ORDER ON MOTION
FOR LIMITED STAY OR RELIEF PENDING APPEAL
FILED BY POCAHONTAS LAND CORPORATION, MOUNTAIN PROPERTIES,
INC. AND OTHERS

This matter is before the court upon the Motion and Memorandum for Limited Stay or Relief Pending Appeal filed herein by Pocahontas Land Corporation and others, and joined by Mountain Properties, Inc., and others ("Movants") by a filing herein on January 22, 2003. The court, on this same date, has entered its Order Resolving Motions to Reconsider Final Order (I) Authorizing Post-Petition Financing, (II) Authorizing the Use of Cash Collateral, and (III) Granting Super Administrative Priority Expense Claim Status. The movants and those joining the movants "...seek the limited relief of a stay of any enforcement of liens against the Leases or a transfer of the same by Deutsche Bank or other parties under the terms of the ..." aforesaid Order Resolving Motions to Reconsider Final Order. That order, among other things, grants a lien or security interest to Deutsche Bank Trust Company Americas ("Deutsche Bank"), as agent for lenders, on the debtors' interests in various coal leases and executory contracts. The court specifically provided in that order that it reserved questions concerning 11 U.S.C. 365 (regarding any assumption and assignment of the leases, etc.) for future consideration.

The movants contend that they have shown that (1) there is a substantial likelihood of success on the merits on their appeal; (2) that they will be irreparably harmed absent a stay; (3) that granting a stay will not substantially injure any other interested parties and (4) that the public interest supports a stay pending appeal.

Deutsche Bank has responded that an appeal of the matter would be moot pursuant to 11 U.S.C. 364(e) (which protects good faith lenders who have made advances upon an unstayed order) and that, therefore, the stay at this point should be denied. Deutsche Bank also contends that, pursuant to Subsection 8.6(e) of the credit agreement which the proposed order would approve, the granting of a stay would constitute an event of default under the terms of that credit agreement and would, consequently, cut off further financing of the debtor and any prospect for reorganization. Deutsche Bank further argues that, upon reaching the merits in the traditional four part test for issuance of a stay, that the movants have not made the necessary showing in order to obtain the stay.

The debtors have joined in the arguments of Deutsche Bank regarding Section 364(e), failure of the movants to satisfy the standards for issuance of a stay and have additionally argued that the movants are not entitled to a stay absent the posting of a bond.

In reviewing the arguments made by the movants and the responding parties, it first appears that the mootness issue is one which should be considered when and if an appeal is, in fact, filed in this matter. This court has taken no proof regarding the advancement of the funds in reliance upon the original financing orders herein, and although it has no reason to doubt either the advancement of funds or the reliance upon the original financing order, it would appear that mootness pursuant to 11 U.S.C. 364(e) should be addressed on appeal. Also, the court believes that the argument that to grant the stay would doom the reorganization is simply part and parcel of the traditional four part test in that, if this happened, it would clearly harm the debtor and creditors in these proceedings. For these reasons, the court has considered this matter based upon the traditional showing necessary for the issuance of a stay pending appeal and believe that the movants have failed to make the appropriate showing for the reasons set forth below.

The necessary showing for a stay pending appeal requires that the court consider four factors in reaching its decision:

1) The likelihood of success on the merits on appeal of the moving party;

2) Whether the proposed stay would prevent irreparable injury to the moving party;

3) Whether the stay would harm other parties to the action; and

4) Whether the public interest would be served by the stay.

In re: Eagle-Pitcher Industries, Inc., 963 F.2d 855 (6th Cir. 1992). The movant party has the burden to persuade the court that the factors favor a stay.

With respect to success on the merits, the court cannot agree that the movants are likely to succeed on the merits. In fact, this standard as applied in practical terms means that if the decision was a "close call" or if there are unsettled questions of law involved in the decision which have dire consequences for movants, the court might find a likelihood of success on the merits. The court finds no such likelihood here.

With respect to irreparable harm claimed by the movants, the court also concludes that such harm has not been shown. The effect of the court's order herein in allowing the debtor to give a lien or security interest on the estate's interest in leaseholds and executory contracts and reserving questions concerning the assignability of those leasehold interests and executory contracts pursuant to 365 of the Bankruptcy Code upon any foreclosure, does not appear to represent any irreparable, and certainly not any immediate, harm to the movants. No such action to foreclose upon any security interest could be taken by the lender herein until there is a default and appropriate steps are taken to attempt to assign pursuant to 365 of the Bankruptcy Code. No party has suggested that a default exists presently, and if a later default occurs while the appeal is pending, a stay can be sought from the district or other appellate court.

The court further finds that the potential of harm to the debtor if a stay pending appeal is granted is real. It does appear to the court that a stay pending appeal may be a violation of the credit agreement the court has approved between the debtor and Deutsche Bank. Upon such an event of default, Deutsche Bank would have the right to declare a default. Whether or not it would do so is not the question before the court at this point. However, the ability to do so poses the potential for significant harm to the debtor's attempt to reorganize its business.

The issuance of the stay has a bearing on public policy. The court sees some merit in the arguments of Deutsche Bank that, since public policy favors reorganization and the possibility that granting of the stay might be an event of default and a default be declared, thus defeating the reorganization and causing the loss of several thousand jobs, public policy is involved. However, this factor is less important simply because the court cannot say with certainty that a default would be declared upon the issuance of the requested stay pending appeal.

Upon consideration of the factors above the court concludes that no stay of the court's order should be granted.

For the reasons set forth above, IT IS HEREBY ORDERED that the Motion for Limited Stay or Relief Pending Appeal and those motions joining in it be, and the same hereby are, OVERRULED.

The attorneys for debtor in possession are directed to serve a copy of the within order upon all parties entitled thereto pursuant to LBR 9022-1(c) including those set forth below.

COPIES TO:

Attorneys for Debtor in Possession
Attorneys for Deutsche Bank
Attorneys for Pocahontas Land Corporation and Others
Attorneys for Mountain Properties, Inc. and Others
Attorneys for Unsecured Creditors Committee

ALL COUNSEL REQUESTING COPIES

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