case 18-04177-tom11 doc 964 filed 03/08/19 entered 03/08...

UNITED STATES BANKRUPTCY COURTFOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

In re:

MISSION COAL COMPANY, LLC, et al.:

Debtors.

Chapter 11

Case No. 18-04177-TOM11

(Jointly Administered)

MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORSSEEKING THE ENTRY OF AN ORDER GRANTING IT STANDING AND

AUTHORIZING IT TO PROSECUTE AND SETTLE CERTAIN CLAIMS ANDCAUSES OF ACTION ON BEHALF OF THE DEBTORS' ESTATES

The Official Committee of Unsecured Creditors (the "Committee") of the above-

captioned debtors and debtors-in-possession in these chapter 11 cases (collectively, the

"Debtors"), hereby moves (the "Motion") for entry of an order, under sections 105(a), 1103(c),

and 1109(b) of 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"), in substantially the form

annexed hereto as Exhibit A (the "Proposed Order"), granting the Committee standing and

authorizing the Committee to prosecute and settle certain claims and causes of action on behalf

of the Debtors' estates against Kenneth McCoy, Jason McCoy, Thomas Clarke, Charles Ebetino,

jr., Michael Zervos, ERP Mineral Reserves, LLC, ERP Federal Mining Complex, LLC, Mission

Coal Funding, LLC, ENCECo Inc., Bay Point Capital Partners LP and its affiliates and/or

successors, David Fortner, Robert McAtee, Blue Ridge Natural Mineral Resources, LLC, Iron

Group, Inc., Iron Management, LLC, Iron Management II, LLC, Iron Management III, LLC, Iron

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identificationnumber, include: Mission Coal Company, LLC (8465); Beard Pinnacle, LLC (0637); Oak Grove Land Company,LLC (6068); Oak Grove Resources, LLC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company,LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, LLC (1795); SeminoleWest Virginia Minim!, Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North AmericanCoal, LLC (5102). The location of the Debtors' service address is: 7 Sheridan Square, Suite 300, Kingsport,Tennessee 37660.

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Case 18-04177-TOM11 Doc 964 Filed 03/08/19 Entered 03/08/19 17:17:52 Desc Main Document of 33

REDACTED VERSION

Management IV, LLC, Iron Management V. LLC. Lara Natural Resources LLC, ERP Compliant

Fuels, LLC, ERP Steel Works, LLC, ERP Compliant Coke, LLC, Coking Coal Leasing, LLC,

ERP Aviation, LLC, ERP Steel Funding, LLC, Virginia Conservation Legacy Fund, Inc., VCLF

Land Trust, Inc., Merida Natural Resources, LLC, ERP Environmental Fund, Inc., VCLF

Holdings, LLC, ERP Mineral Reserves, LLC, and Mark Bartkoski (collectively, the

"Defendants"). In support of the Motion, the Committee represents as follows:

PRELIMINARY STATEMENT

1. The Committee brings this Motion for leave to obtain standing and to prosecute

certain claims and causes of action of the Debtors' estates against the Defendants. The value of

these claims is significant, as general unsecured creditors are owed hundreds of millions of

dollars, but are unlikely to receive little, if any, distribution on their claims based on the Debtors'

pending plan filed in these Chapter 11 Cases.

2. In order to ensure the causes of action are in fact pursued in an efficient manner,

the Committee sent a written request to the Debtors outlining the claims and asking the Debtors

to either commence a lawsuit to prosecute the claims or consent to the Committee's standing and

authority to do so. A copy of the Committee's letter to Debtors' counsel dated March 4, 2019 is

attached hereto as Exhibit B. To date, the Debtors have not given their consent nor have they

advised the Committee that they will or intend to prosecute the matter.

3.

2 Capitalized terms not otherwise defined in this Preliminary Statement shall have the meanings ascribed to such

terms later in this Motion or in the proposed Complaint.

The summary of the Claims is only a summary. The Committee's proposed Complaint is attached hereto as

Exhibit C and sets forth the full extent of the Committee's allegations and Claims against the Defendants.

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xviii.

xix.

4. The above transfers amount to an aggregate total of approximately $76,145,000

million which has been siphoned, diverted or deprived from the Debtors in the years prior to the

Petition Date. The estates, through the Committee, should be permitted to pursue these Claims

to recover these amounts and seek the subordination and/or recharacterization of the MCF

Second Lien Loan and determine that MCF does not have a valid lien, mortgage and security

interest in certain assets, a determination that the Debtors own the mining shields, not CCL, and

that Bay Point is a general unsecured creditor for its loan under the sale leaseback transaction,

among other Claims.

5. In order to preserve potentially valuable assets of the Debtors' estates, the

Committee files this Motion seeking entry of an order granting the Committee standing and

authorization to commence and prosecute the Claims set forth in the proposed complaint (the

"Complaint"), substantially in the Conn attached hereto as Exhibit C.4 against the Defendants.

JURISDICTION AND VENUE

6. This Court has subject matter jurisdiction to consider this matter pursuant to 28

U.S.C. § 157 and 1334. and the General Order of Reference of the United States District Court

for the Northern District of Alabama dated July 16. 1984, and as amended on July 17, 1984.

This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper before this Court

pursuant to 28 U.S.C. §§ 1408 and 1409.

The proposed Complaint contains Confidential Material as defined in the Confidentiality Agreement and

Stipulated Protective Order entered by the Court on January 15, 2019 (the "Protective Order")[Docket No. 5491.

Therefore, pursuant to paragraph 10 of the Protective Order, the Complaint has been filed with the Court under seal

and only provided, at this time, to those parties that are bound by the Protective Order.

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7. The statutory basis for the relief requested herein are sections 105. 1103, and

1 109 of the Bankruptcy Code.

-BACKGROUND

A. General Background

8. On October 14, 2018 (the "Petition Date"), the Debtors filed voluntary petitions

for relief under the Bankruptcy Code in the United States Bankruptcy Court for the Northern

District of Alabama (the -Court-). commencing their chapter 11 cases (the -Chapter 11 Cases").

9. On October 25, 2018, the Bankruptcy Administrator for the Northern District of

Alabama appointed the Committee pursuant to 11 U.S.C. §1102. [Docket No. 147.]

B. The Prepetition Capital Structure

10. As of the Petition Date, the Debtors reported approximately $175 million in

funded debt, consisting of (a) approximately $104 million outstanding under a first lien secured

term loan (the "First Lien Loan") pursuant 1L Credit Agreement by and among Debtor Mission

Coal Company, LLC ("Mission Coal") as borrower, the remaining Debtors, along with Jason

McCoy, an equity holder of Mission Coal as guarantors, the First Lien Lenders as lenders, Lara

Natural Resources, LLC (a non-debtor related entity), and Delaware Trust Company as

administrative agent (the "Administrative Agent"); and (b) approximately $71 million

outstanding under the Second Lien Loan pursuant to the Amended and Restated Secured Loan

Agreement, dated as of January 31, 2018 (the "2L Credit Agreement," and the loans and other

obligations outstanding thereunder, the "Second Lien Loan"). by and among certain Debtors as

the borrowers, the guarantors party thereto, and MCF and the lenders from time to time a party

thereto (collectively, the "Second Lien Lender"). See Declaration of Kevin Nystrom, Chief

Restructuring Officer of Mission Coal Company, LLC, in Support of Chapter 11 Petitions and

First Day Pleadings [Docket No. 21] (hereinafter -First Day Declaration") 1[41f 26, 29. MCF is

owned and controlled by principals of the Debtors.

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C. The DIP Facility

1 1. On October 15, 2018, the Debtors filed a Motion for Entity of Interim and Final

Orders 0 Authorizing Postpention Secured Financing Pursuant to 11 U.S.C. 105(1), 361,

362, 363, 364(c)(1), 364(0(2), 3640(3), 364(d)(1) and 364(e), (11) Authorizing the Debtors'

Use of Cash Collateral Pursuant to 11 U.S.C. 363, (III) Granting Adequate Protection

Pursuant to 11 U.S.C. ,s'§ 361 363 and 364, and (11) Scheduling a Final hearing Pursuant to

Bankruptcy Rules -1001(b) and -1001(c) [Docket No. 34], seeking authorization to enter into a

debtor-in-possession credit agreement to be funded by the First Lien Lenders.

12. On November 20, 2018, the Court entered the Final Order (I) Authorizing

Postpetition Secured Financing Pursuant to 11 U.S.C. 105(a), 361 362, 363, 364(0(1),

364(c)(2), 364(0(1), 364(d)(1), and 364(e), (11) Authorizing the Debtors' Use of Cash Collateral

Pursuant to 11 U.S.C. 363. (III) Granting Adequate Protection Pursuant to II U.S.C. 361,

363, and 364 and (IV) Granting Related Relief the "Final DIP Order") [Docket No. 300]. The

Final DIP Order authorized Mission Coal to obtain postpetition financing consisting of a

superpriority priming multiple-draw term loan credit facility in the aggregate amount of no less

than $201,441,464 (the -DIP Facility"). Final DIP Order 11 6(b). The DIP Facility was

guaranteed by the other Debtors. Final DIP Order at p. 2.

D. The Committee's Challenge Rights and Investigation

13. The Committee's Challenge Deadline as too many of the Defendants is set forth

in various Agreed Orders for Bankruptcy Rule 2004 Exams. See Docket Nos. 275, 306, 307,

332. 333, 334. 341 and 385. The Committee's Challenge Deadline was extended to March 8,

2019 (and slightly longer for certain Defendants) pursuant to a Consent Order Extending the

Official Committee of Unsecured Creditors' Challenge Deadline entered on February 7, 2019

[Docket No. 734].

14. The Final DIP Order further provides that, if the Committee or other party-in-

interest files a motion seeking standing to assert claims and defenses before the expiration of the

Challenge Period, then, solely with respect to those claims and defenses, the Challenge Period

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shall be extended for live (5) days after entry of an order ruling on the Standing Motion. Final

DIP Order at 1129(a).

15. The Committee has diligently investigated the liens and claims of the Second Lien

Lender MCF and potential claims and causes of action against the Defendants. As part of its

investigation, the Committee has reviewed in excess of 260,000 documents produced by the

Debtors and certain of the Defendants, and conducted fifteen (15) interviews of witnesses.

Based on this investigation, the Committee has determined that the Claims set forth in the

attached Complaint are viable and the prosecution of such Claims would be beneficial to

unsecured creditors.

RELIEF REQUESTED

16. The Committee hereby requests leave, standing, and authority to commence an

adversary proceeding to prosecute the Claims against the Defendants and the sole authority to

settle all or a portion of the Claims on behalf of the Debtors' estates.

BASIS FOR RELIEF REQUESTED

The Committee Should Be Granted Standing and the Authority to Pursue the

Claims on Behalf of the Debtors' Estates

1 7. These Chapter 11 Cases present a paradigmatic situation for granting the

Committee standing and the authority to pursue valuable and meritorious Claims that the Debtors

simply cannot or will not pursue. The Defendants consist of the Debtors' equity members,

managers and officers, entities they control, or related parties such as Bay Point. It is illogical to

believe or assume that the Debtors' "independent" directors and counsel will turn around and sue

the very people who hired them, or their affiliated entities, including the Second Lien Lender

MCF, which is owned by principals of the Debtors.

1 8. The Committee's authority to bring these Claims flows from its well-recognized

statutory voice in the Debtors' affairs. Section 1109(b) of the Bankruptcy Code provides, in

pertinent part, that the Committee "may raise and may appear and be heard on any issue" in the

Debtors' Chapter 11 Cases. Moreover, pursuant to section 1103(c)(2) of the Bankruptcy Code,

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the Committee may also "investigate the acts, conduct, assets, liabilities, and financial condition

of the debtor, the operation of the debtor's business . . . and any other matter relevant to the case

or to the formulation of a plan.-

I 9. It appears that the Eleventh Circuit has not ruled on the standard for granting

standing to a creditors' committee to prosecute claims on the debtor's behalf I lowever, at least

two courts in this this district have cited the Second Circuit's decision in Unsecured Creditors

Committee v. Noyes (In re SIN Enters.), 779 F.2d 901 (2d Cir. 1985), as the seminal case. See In

re Shelby Motel Grp., Inc., 123 B.R. 98, 101 (N.D. Ala. 1990); In re Chalk Line Allk, Inc., 184

B.R. 828, 832 (Bankr. N.D. Ala. 1995).

20. In Chapter 11 cases where no trustee has been appointed, the Bankruptcy Code

provides that a debtor-in-possession enjoys the powers that would otherwise vest in a bankruptcy

trustee. See 11 U.S.C. §1107( ). In conjunction therewith, a debtor is vested with the fiduciary

duty to maximize the value of the estate for purposes of distribution to all parties in interest. In

re Cybergenics Corp., 226 F.3d 237, 243 (3d Cir. 2000) (finding that the paramount duty" of a

debtor in possession is to act on behalf of creditors to maximize the value of the estate), cited in

Official Committee of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d 548, 568

(3d Cir. 2003) (en bane): see also, In re Marvel Entm'i Group, Inc., 140 F.3d 463, 471 (3d Cir.

1 998) (holding that a debtor has a fiduciary duty to refrain from conduct that may damage the

estate); In re Commodore Intl, Ltd., 262 F.3d 96, 99 (2d Cir. 2001) (finding that a debtor-in-

possession "has an obligation to pursue all actions that are in the best interests of creditors and

the estate").

21. It is well settled law that, under appropriate circumstances, bankruptcy courts may

allow a creditors' committee to commence and pursue litigation on behalf of the estate. See

Cvbergenics, 330 F.3d at 580; Official Committee of Unsecured Creditors v. Barron (In re

Polaroid Corporation), 2004 Bankr. Lexis 841, 2004 WL 1397582 (Bankr. D. Del. Tune 22,

2004); Official Committee of Unsecured Creditors v. Cablevision Systems Corp. (In re Valley

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Media, Inc.), 2003 Bankr. Lewis 940, 2003 WL 21956410 (Banks. D. Del. August 14, 2003);

Official Committee of Unsecured Creditors v. Clark (In re Nall Forge Co.), 304 B.R. 214

(Bankr. W.D. Pa. 2004), gir d, 326 B.R. 532 (W.D. Pa. 2005). See also Scott v. National

Century Enterprises, Inc. (In re Baltimore Emergency Serrices 11 Corp,), 432 F.3d 557, 560 (4t11

Cir. 2005); In re Commodore Int '1 Ltd., 262 F.3d 96 (2d Cir. 2001); Louisiana World Exposition

v. Fed. Ins. Co., 858 F.2d 233, 253-54 (5th Cir. 1988); Unsecured Creditors Committee v. Noyes

(In re S'IN Ewers.), 779 F.2d 901, 904 (2d Cir. 1985); Shelby Motel, 123 B.R. at 101.

Courts in other circuits have held that the Bankruptcy Code contains an implied

right for parties in interest to commence a lawsuit or prosecute a claim on behalf of a debtor-in-

possession with bankruptcy court approval. STN Enters., 779 F.2d at 904. If a debtor is unable

or unwilling to meet its statutory obligation to maximize the value of its estate, "[t]he practice of

authorizing the prosecution of actions on behalf of an estate by [parties in interest] upon a

showing that such is in the interests of the estate, is one of long-standing, and nearly universally

recognized." In re Adelphia Comm. Corp., 330 B.R. 364, 373 (Bankr. S.D.N.Y. 2005) (citations

omitted). As a result, creditors and other stakeholders have "the comfort that potentially

valuable (and sometimes critical) claims on behalf of the estate will be prosecuted — without

requiring bankruptcy judges to . . resort[] to much more draconian or ineffective mechanisms to

ensure the prosecution of those claims, with the destruction to going concern value and creditor

recoveries that would frequently be the result." Id.

23. Where a debtor refuses to bring suit, the court should decide whether such refusal

is unjustified by determining whether 0 "the committee presents a colorable claim or claims for

relief that on appropriate proof would support a recovery" and (ii) "an action asserting such

claim(s) is likely to benefit the reorganization estate." STN Enters., 779 F.2d at 905. When a

debtor consents to a committee bringing suit, the court still must determine whether the suit is

"in the best interest of the bankruptcy estate" and "is necessary and beneficial to the fair and

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efficient resolution of the bankruptcy proceedings." Commodore, 262 F.3d at 100 (citations

omitted).

A. The Debtors Are Unable to Bring the Claims, and Any Committee Demand

to Pursue Such Claims Is Futile

24. The Debtors are effectively disabled from bringing the Claims against the Debtors

due to actual and potential conflicts of interest given the relationship of the Debtors and their

members and affiliated parties with the Defendants. Despite the Committee's written demand to

the Debtors dated March 4, 2019, the Debtors have not given their consent nor have they advised

the Committee that they will or intend to prosecute the Claims. The Debtors did respond by

letter dated March 5.2019. but did not state a definitive position to the Committee's demand.

25. The Committee does not believe the Debtors can or will commence such an action

against the Defendants because certain individual Defendants are the ultimate equity owners of

the Debtors, their affiliated parties, or alleged lenders to the Debtors (MCF and Bay Point).

Thus. the Committee believes that the Debtors and their counsel would have an actual conflict

and be unable to prosecute the Claims. Accordingly, in order for the Committee to fulfill its

fiduciary duty and properly act for the Debtors' estates, the Committee should be granted

standing to file the Complaint and commence an adversary proceeding against the Defendants.

26. Once a party has shown that it has asserted a colorable claim, in order to satisfy

the prong - that the debtor has unjustifiably refused to pursue the claim - the party seeking

derivative standing may show that (a) demand was futile or (b) demand was made of the debtor

and the debtor consented to derivative standing or refused or is unable to act. See STN Enters.,

779 F.2d at 904; In re G-I Ifolcling,s', Inc., 313 B.R. 612. 630-31 (Bankr. D.N.J. 2004).

27. Here, given the potential and actual conflicts, it is unlikely the Debtors could or

would purse the Defendants for the Claims set forth in the Complaint. Thus, only the Committee

is in a position to do so.

28. A debtor's refusal to pursue actions on behalf of the estate must be

"unjustifiable." Cybergenic,s', 330 F.3d at 566-67. Standing should be granted when a debtor

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unjustifiably or unreasonably refuses to pursue claims that the Bankruptcy Court finds would

benefit the estate. See Cybergenics, 330 F.3d at 568; see also In re The V Companies, 292 B.R.

290 (B.A.P. 6th Cir. 2003). If a debtor fails to pursue litigation that is likely to benefit its estate,

such failure is unjustifiable. See, e.g., STN Enters., 779 F.2d at 904-05. "The unjustifiable

failure' of a debtor to bring the suit itself suit does not require an improper motive for the failure.

Rather, a debtor's failure to bring a claim is deemed to be unjustifiable when the committee has

presented a colorable claim that on appropriate proof would support recovery, and the action is

likely to benefit the reorganization estate." Adelphia, 330 B.R. at 374. n.19 (citing STN Ent., 779

F.2d at 905). A creditor need only show that a debtor was unable or unwilling to pursue

claims" on the estate's behalf. In re Newcorn Enterprises Ltd., 287 B.R. 744. 749-50 (Bankr.

ED. Mo. 2002); see also Louisiana World, 858 F.2d at 253 (finding that "[w]here the interests of

an estate and its creditors arc impaired by the refusal of a trustee or a debtor-in-possession to

initiate adversary proceedings to recover property of the estate, . . . that refusal [is] unjustified").

If the Debtors assert the Committee should not be granted standing, such a position would be

unjustifiable given the foregoing. Thus. the Court should grant the Motion and authorize the

Committee to file the Complaint.

B. The Committee's Claims Are Colorable

29. Second, the Committee's Complaint demonstrates that colorable claims exist

against the Defendants. Presenting a colorable claim requires a relatively easy showing under

applicable case law. See, e.g., In re Adelphia Commc'ns Corp., 330 B.R. 364, 376-81 (Thar.

S.D.N.Y. 2005); In re America's Robby Or., 223 B.R. 275. 288 (Bankr. S.D.N.Y. 1998)

(standing should be denied only if claim is "facially defective"). To determine if a colorable

claim exists, courts should not conduct a mini-trial. See STN Enters., 779 F.2d at 905-06; see

also Adelphia Commc 'as, 330 B.R. at 369. A committee seeking standing need not lay bare its

complete proof, but rather is required only to describe a facially valid claim, which will be

evaluated under a standard "much the same as that undertaken when a defendant moves to

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dismiss a complaint for failure to state a claim." America's flabby Cir., 223 B.R. at 282 accord

In re KDI Holdings, Inc., 277 B.R. 493, 508 (Banks. S.D.N.Y. 1999). See also In re iPCS, Inc.,

297 B.R. 283, 291 (Banks. N.D. Ga 2003).

30. Each of the Claims set forth in the proposed Complaint — annexed hereto as

Exhibit C — are colorable. After an intensive investigation by the Committee, the proposed

Complaint asserts facts demonstrating and supporting the various causes of action detailed in the

attached Complaint and summarized in paragraph 3 above. 'Elms, the Committee's Complaint

makes a prima facie showing that the Claims set forth in the Complaint are viable.

31. In sum. the allegations contained in the proposed Complaint are sufficient to

demonstrate that the Claims are colorable. Therefore, the second element of the standing test is

satisfied.

C. The Committee's Pursuit of the Claims Will Benefit the Debtors' Estates

32. Finally, should the Court in its discretion decide to consider the benefit to the

estate, the Committee contends that prosecuting the Claims will benefit the estates. With respect

to this prong as well, the Court need not conduct a "mini-trial . .. to determine [the] likelihood of

success in such a suit or the attendant fees and expenses involved." See ,STNEniers., 779 F.2d at

905. The Court only needs to "assure itself that there is a sufficient likelihood of success to

justify the anticipated delay and expense to the bankruptcy estate that the initiation and

continuation of litigation will likely produce." Id. at 906. In other words, the Committee should

be awarded standing if there is a "fair chance that the benefits to be obtained from the litigation

will outweigh its costs." America's Hobby Ctr., 223 B.R. at 284.

33. The Committee believes that the costs of litigating the Claims against the

Defendants are likely to be far outweighed by the potential recovery for general unsecured

creditors. If successful, the Committee will avoid the Second Lien Lender's alleged liens in the

asserted amount of approximately $127.2 million. In addition, the Committee may recover

potentially tens of millions of dollars in assets or proceeds that would then be available for

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distribution to general unsecured creditors. Even applying a conservative litigation discount

factor, the expected value of the Claims would greatly exceed the cost of litigating them, as the

cost associated with litigating whether these particular assets are subject to a valid lien should

not be time consuming or expensive. Accordingly, the Court should grant the Committee

standing to prosecute the Claims on behalf of the estates.

11. The Committee Should Be Granted Sole Authority to Settle the Claims

34. The Debtors' inability and refusal to pursue the Claims also disables them from

effectively managing or settling any resulting litigation. Therefore, the Debtors should not retain

any rights to settle and compromise any Claims that the Committee is granted leave to prosecute.

35. The Committee's ability to litigate the Claims will be hindered if the Debtors

retain the right to propose a settlement. Among other things, it likely will reduce the Defendants

incentives to enter into settlement negotiations with the Committee. Granting the Committee the

sole right to negotiate a settlement with the Debtors makes clear to all potential defendants that

the party that controls litigation controls any potential settlement. Similar relief has been granted

by various bankruptcy courts. See, e.g., In re Majestic Capital, LID, Case No. 11-36225 (CGM)

(Bankr. S.D.N.Y. Dec. 12. 2011) (Docket No. 211 at 3); In re Evergreen Solar, Inc., Case No.

1 1-12590 (MFW) (Bankr. D. Del. Oct. 28. 201] ) (Docket No. 382 at 113); In re Old CarCo LLC

(f/k/a/ Chrysler LLC), Case No. 09-50002 (AJG) (Bankr. S.D.N.Y. Aug. 13, 2009) (Docket No.

5151 at ¶ 2); In re Vesta Insurance Group, Inc., et al., Case No. 06-02517-TBB11 (Bankr. N.D.

Ala. December 12, 2006) (Bennett, J.) (order granting creditors' committee with derivative

standing to pursue certain causes of action).' Accordingly, the Committee should be granted the

sole right to enter into settlement negotiations and to compromise any Claims against the

Defendants, subject to Court approval.

III. Additional Relief

5 Due to the voluminous nature of the referenced orders. the Committee has not attached such orders hereto. TheCommittee will provide the referenced orders to the Court upon request.

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36. In order to enable the Committee to efficiently and effectively prosecute the

Claims against the Defendants, the Court should determine and grant the Committee the right to

assert, waive, or otherwise exercise any attorney-client privilege, work product privilege,

immunity, and/or confidentiality provision or agreement heretofore vested in, or controlled by,

the Debtors that are related to the Claims and the causes of action substantially set forth in the

Complaint.

37. While the Complaint has been filed under seal consistent with the Protective

Order, the Committee requests the Court permit the Committee to file the Complaint as an

adversary proceeding on the public docket, not under seal, within five (5) days of the Court's

entry of an order granting this Motion.

Reservation of Rights

38. The Committee reserves the right to supplement or amend this Motion at or prior

to any hearing on the Motion, including asserting claims and causes of action against additional

entities and individuals. Nothing in this Motion constitutes an admission by the Committee with

respect to any alleged claims, liens, security interests, and/or encumbrances against the Debtors'

assets.

CONCLUSION

WHEREFORE, the Committee respectfully requests that the Court: (i) enter the

Proposed Order granting the relief sought herein in the same form or substantially the same form

attached hereto as Exhibit A; and (ii) grant the Committee such other and 'further relief as the

Court deems just and proper.

Respectfully submitted,

Dated: March 8, 2019 BAKER DONELSON BEARMAN CALDWELL& BERKOWITZ, P.C.

/s/ Rita Hallett Rita Hullett, Esq.1400 Wells Fargo Tower420 20th Street N

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Birmingham, AL 35203Telephone: (205) 276-9807Email: rhull~bakerdonelson.com

-and-

LOWENSTEIN SANDLER LLPJeffrey Cohen, Esq.Jennifer Kimble, Esq.1251 Avenue of the AmericasNew York, NY 10020Telephone: (212) 262-6700Email: [email protected]

jkimble(cilowenstein.com

-and -

Bruce Bueehler, Esq.Michael Kaplan, Esq.Nicole Fulfree, Esq.One Lowenstein DriveRoseland, New Jersey 07068Email: [email protected]

mkaplanEd,[email protected]

Counsel for the Official CotinnitIce ofUnsecured Ureditors

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EX HIB IT A

Proposed Form of Order

4S I 5-1691-3546v12946678-000001 03/08/2019



SOUTHERN DIVISION

In re:

MISSION COAL COMPANY, LLC, et al.,1

Debtors.

Chapter 11

Case No. 18-04177-TM/111


ORDER GRANTING THE OFFICIAL COMMITTEE OF UNSECURED CREDITORSSTANDING AND AUTHORIZING IT TO PROSECUTE AND SETTLE CERTAINCLAIMS AND CAUSES OF ACTION ON BEHALF OF THE DEBTORS' ESTATES

Upon the Motion of the Official Committee of Unsecured Creditors (the "Committee") of

the above-referenced debtors and debtors-in-possession (the "Debtors"), seeking the Entry of an

Order Granting the Committee Standing and Authorizing the Committee to Prosecute and Settle

Certain Claims and Causes of Action on Behalf of the Debtors' Estates (the "Motion"),2 in the

form of an adversary proceeding against Kenneth McCoy, Jason McCoy, Thomas Clarke,

Charles Ebetino, Jr., Michael Zervos, ERP Mineral Reserves, LLC, ERP Federal Mining

Complex, LLC, Mission Coal Funding, LLC, ENCECo Inc., Bay Point Capital Partners LP and

its affiliates and/or successors, David Fortner, Robert McAtee, Blue Ridge Natural Mineral

Resources, LLC, Iron Group, Inc., Iron Management, LLC, Iron Management II, LLC, Iron

Management III, LLC, Iron Management IV, LLC, Iron Management V, LLC, Lara Natural

The Debtors in these chapter 1 1 cases, along with the last four digits of each Debtor's federal tax identificationnumber, include: Mission Coal Company, LLC (8465); Beard Pinnacle, 11C (0637); Oak Grove Land Company,[LC (6068); Oak Grove Resources, [LC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company,LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, 1-1_,C (1795); SeminoleWest Virginia Mining Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North AmericanCoal, LLC (5102). The location of the Debtors' service address is: 7 Sheridan Square, Suite 300, Kingsport,Tennessee 37660.

All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in theMotion.

36027/203/08/2019 203446446.1


Resources LLC, ERP Compliant Fuels, LLC, ERP Steel Works, LLC, ERP Compliant Coke,

LLC, Coking Coal Leasing, LLC, ERP Aviation, LLC, ERP Steel Funding, LLC, Virginia

Conservation Legacy Fund, Inc., VCLF Land Trust, Inc., Merida Natural Resources, LLC, ERP

Environmental Fund, Inc., VCLF Holdings, LLC, ERP Mineral Reserves, LLC and Mark

Bartkoski (collectively, the "Defendants"), and the Court having reviewed the Motion and any

objections thereto, and have considered the oral argument of counsel with respect to the relief

requested at a hearing held before the Court (the "Hearin;''), and the Court having found that (i)

it has jurisdiction over the matter pursuant to 28 U.S.C. sections 157 and 1334 and the General

Order of Reference of the United States District Court for the Northern District of Alabama

dated July 16, 1984, and as amended on July 17, 1984, (ii) that this is a core matter pursuant to

28 U.S.C. section 157(b)(2), (iii) notice of the Motion and the Hearing was sufficient under the

circumstances, (iv) no other or further notice need be given, and (v) the legal and factual bases

set forth in the Motion and at the Hearing established just cause for the relief granted by this

Order;

IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:

1. The Motion is hereby granted.

2. The Committee is hereby authorized and granted standing to commence and

prosecute an adversary proceeding by the filing of a complaint against the Defendants

substantially in the form annexed to the Motion (the "Complaint").

The Committee is hereby granted a period of five (5) calendar clays from the entry

of this Order to file with the Court the Complaint referenced in paragraph 2 above. The

Complaint is not to be filed with the Court under seal.

-2-


4. The Committee is hereby granted the sole right to enter into settlement

negotiations and to compromise any claims and causes of action with the Defendants asserted in

the Complaint.

5. The Committee is hereby granted the right to assert, waive, or otherwise exercise

any attorney-client privilege, work product protection or privilege, immunity, or confidentiality

provision heretofore vested in, or controlled by, the Debtors related to the subject matter of the

Complaint.

6. Except as otherwise ordered by the Bankruptcy Court, any settlement proposed by

the Committee of any allegations contained in the Complaint or otherwise shall be subject to this

Court's approval.

7. The entry of this Order is without prejudice to the Committee's right to seek to

assert additional claims on behalf of the Debtors' estate against the Defendants, and the

Defendants reserve the right to object to any such additional claims.

8. This Order shall be effective immediately upon entry.

9. The Court shall retain jurisdiction with respect to all matters and disputes arising

under, out of or relating to this Order.

Dated: March , 2019Birmingham, Alabama

110NORABLE TAMARA 0. MITCHELLUNITED STATES BANKRUPTCY JUDGE

-3-


EXHIBIT B

Letter Sent to Debtors

4836-7979-8154v22946678-000001 03/08/2019


LowensteinSandler

March 4, 2019

Via Email

Michael Esser, Esq.Kirkland & Ellis LLP555 California StreetSan Francisco, CA 94104

Re: Mission Coal Company, LLC, et al.Case No. 18-04177-TOM11

Dear Mr. Esser:

I Bruce Buechler One Lowenstein DriveRoseland, New Jersey 07068Partner

T: 973 597 2308F: 973 597 2309

[email protected]

As you know, this firm represents the Official Committee of Unsecured Creditors (the "Committee")in the above-referenced Chapter 1 1 bankruptcy cases. We write to you as counsel for the Debtors.

As you are aware, the Committee has been conducting an investigation of various potential claimsand causes of action the Debtors' estates may have against the various third parties including, but notlimited to, Kenneth McCoy, Jason McCoy, Thomas Clarke, Charles Ebetino, ERP Mineral Reserves,LLC, ERP Federal Mining Complex, LLC, Mission Coal Funding, LLC, ENCECo Inc., Bay PointCapital Partners LP and its affiliates and/or successors, David Fortner, Robert McAtee, MichaelZervos, Blue Ridge Natural Mineral Resources, LLC, Iron Management, LLC, Iron Management II,LLC, Iron Management III, LLC, Iron Management IV, LLC, Iron Management V, LLC, IronGroup, inc., Lara Natural Resources LLC, ERP Compliant Fuels, LLC, ERP Steel Works LLC, ERPCoking Coal LLC, ERP Compliant Coke LLC, Coking Coal Leasing, LLC, ERP Aviation, LLC,ERP Steel Funding, LLC, Virginia Conservation Legacy Fund, Inc., VCLF Land Trust, Inc.,Merida Natural Resources, LLC, ERP Environmental Fund, Inc., VCLF Holdings, LLC and MarkBartkoski (collectively, the "Potential Defendants"). Based on its investigation to date, theCommittee believes a number of causes of action exist against the Potential Defendants to recovermillions of dollars for the benefit of unsecured creditors due to improper transfers of assets,fraudulent conveyances, preferences, improper distributions, and other claims.

The Committee hereby requests that the Debtors promptly commence an adversary proceedingagainst the Potential Defendants. Please advise us by no later than 5:00 p.m. (ET) on March 6, 2019,of the Debtors decision. If we do not hear from you, the Committee intends to file a motion forstanding because the Committee's Challenge Deadline expires on March 8, 2019 pursuant to aConsent Order Extending the Official Committee of Unsecured Creditors' Challenge Deadlineentered on February 7, 2019 [Docket No. 734], for many of the Potential Defendants. Alternatively,the Committee requests the Debtors' consent to the entry of an order by the Bankruptcy Courtgranting the Committee standing and authority to commence and prosecute all potential claims orcauses of action against the Potential Defendants. Based on a conversation you had with JeffreyCohen, Esq., on Friday, we understand the Debtors will agree to the entry of a consent order grantingthe Committee standing and authority to commence an adversary proceeding against the Potential

NEW YORK PALO ALTO NEW JERSEY UTAH WASHINGTON, D.C. Lowenstein Sandier LLP36027/203404/2019 203803220 I


Michael Esser, Esq.March 4, 2019Page 2

Defendants. Please confirm that this is correct as soon as possible. Attached hereto is the proposedform of order we request the Debtors consent to.

Litigation Hold Notice

The Committee also demands that the Debtors and their members, managers, directors, officers,employees, representatives, professionals and agents preserve any and all documents, data, property,and communications, from all sources, in their possession, custody, or control, which relate to theCommittee's claims and causes of action against the Potential Defendants.

"Documents, data, property and communications" as used in this notice means not only hard copydocuments and files, but also electronically and digitally stored information such as audio recordings,videotape, e-mail, text messages, instant messages, word processing documents, spreadsheets,databases, calendars, telephone logs, contact manager information, Internet usage files, and all otherelectronic information maintained, created, and/or received by the Debtors and/or their members,managers, directors, officers, employees, representatives, professionals and agents.

-Sources" include all hard copy files, computer hard drives (including those found in copy machines,fax machines, and document scanners), removable media (e.g., CDs, DVDs, and thumb or flash-drives), laptop computers, tablets, PDAs, Blackberry devices, smartphones, and any other items orlocations where hard copy and electronic data may be stored.

The laws and rules prohibiting destruction of evidence apply to electronically-stored information inthe same manner that they apply to other evidence. Due to its format, electronic information is easilydeleted, modified, or corrupted. Accordingly, the Debtors and their members, managers, directors,officers, employees, representatives, professionals and agents must take every reasonable step topreserve this information until the final resolution of the dispute with the Potential Defendants. Thismay include, but would not be limited to, an obligation to discontinue all data destruction and backuptape recycling policies. With regard to electronic data created subsequent to the date of delivery ofthis letter, relevant evidence should not be destroyed and the Debtors and their members, managers,directors, officers, employees, representatives, professionals and agents are to take the necessarysteps required to avoid destruction of such evidence.

We would appreciate the Debtors' prompt response to the Committee's request contained herein.

V7ery truly you s,/.

Bruce Buechler

B Mid fcc: Jeffrey Cohen, Esq.

Jennifer Kimble, Esq.Michael Kaplan, Esq.Nicole Fulfree, Esq.

LowensteinSandler


DRAFT SUBJECT TO REVISION IN ALL RESPECTSPrepared for Settlement Purposes and Subject to FRE 408


SOUTHERN DIVISION

In re:

MISSION COAL COMPANY, LLC, et a1.,1

Debtors.

Chapter 11

Case No. 18-04177-TOM11


ORDER GRANTING THE OFFICIAL COMMITTEE OF UNSECURED CREDITORSSTANDING AND AUTHORIZING IT TO PROSECUTE AND SETTLE CERTAINCLAIMS AND CAUSES OF ACTION ON BEHALF OF THE DEBTORS' ESTATES

Upon the Motion of the Official Committee of Unsecured Creditors (the "Committee") of

the above-referenced debtors and debtors-in-possession (the "Debtors"), seeking the Entry of an

Order Granting the Committee Standing and Authorizing the Committee to Prosecute and Settle

Certain Claims and Causes of Action on Behalf of the Debtors' Estates (the "Motion"),2 in the

form of an adversary proceeding against Kenneth McCoy, Jason McCoy, Thomas Clarke,

Charles Ebetino, Michael Zervos, ERP Mineral Reserves, LLC, ERP Federal Mining Complex,

LLC, Mission Coal Funding, LLC, ENCECo Inc., Bay Point Capital Partners LP and its affiliates

and/or successors, David Fortner, Robert McAtee, Blue Ridge Natural Mineral Resources, LLC,

Iron Group, Inc., Iron Management, LLC, Iron Management II, LLC, Iron Management III, LLC,

Iron Management IV, LLC, Iron Management V, LLC, Iron Group, Inc., Lara Natural Resources

The Debtors in these chapter 1 1 cases, along with the last four digits of each Debtor's federal tax identificationnumber, include: Mission Coal Company, LLC (8465); Beard Pinnacle, LLC (0637); Oak Grove Land Company,LLC (6068); Oak Grove Resources, LLC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company,LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, LLC (1795); SeminoleWest Virginia Mining Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North AmericanCoal, LLC (5102). The location of the Debtors' service address is: 7 Sheridan Square, Suite 300, Kingsport,Tennessee 37660.

2 All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in theMotion,

36027/203/04/2019 203446446.1


LLC, ERP Compliant Fuels, LLC, ERP Steel Works LLC, ERP Coking Coal LLC, ERP

Compliant Coke LLC, Coking Coal Leasing, LLC, ERP Aviation, LLC, ERP Steel Funding,

LLC, Virginia Conservation Legacy Fund, Inc., VCLF Land Trust, Inc., Merida Natural

Resources, LLC, ERP Environmental Fund, Inc., VCLF Holdings, LLC and Mark Bartkoski

(collectively, the "Defendants"), and the Court having reviewed the Motion and any objections

thereto, and have considered the oral argument of counsel with respect to the relief requested at a

hearing held before the Court (the "Hearing"), and the Court having found that (i) it has

jurisdiction over the matter pursuant to 28 U.S.C, sections 157 and 1334 and the General Order

of Reference of the United States District Court for the Northern District of Alabama dated July

16, 1984, and as amended on July 17, 1984, (ii) that this is a core matter pursuant to 28 U.S.C.

section 157(b)(2), (iii) notice of the Motion and the Hearing was sufficient under the

circumstances, (iv) no other or further notice need be given, and (v) the legal and factual bases

set forth in the Motion and at the Hearing established just cause for the relief granted by this

Order;

IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:

1. The Motion is hereby granted.

The Committee is hereby authorized and granted standing to commence and

prosecute an adversary proceeding by the filing of a complaint against the Defendants

substantially in the form annexed to the Motion (the "Complaint").

3. The Committee is hereby granted a period of five (5) calendar days from the entry

of this Order to file the Complaint referenced in paragraph 2 above.

-2-


4. The Committee is hereby granted the sole right to enter into settlement

negotiations and to compromise any claims and causes of action with the Defendants asserted in

the Complaint.

5. The Committee is hereby granted the right to assert, waive, or otherwise exercise

any attorney-client privilege, work product protection or privilege, immunity, or confidentiality

provision heretofore vested in, or controlled by, the Debtors related to the subject matter of the

Complaint.

6. Except as otherwise ordered by the Bankruptcy Court, any settlement proposed by

the Committee of any allegations contained in the Complaint or otherwise shall be subject to this

Court's approval.

7. The entry of this Order is without prejudice to the Committee's right to seek to

assert additional claims on behalf of the Debtors' estate against the Defendants, and the

Defendants reserve the right to object to any such additional claims.

8. This Order shall be effective immediately upon entry.

9. The Court shall retain jurisdiction with respect to all matters and disputes arising

out of or relating to this Order.

Dated: March , 2019Birmingham, Alabama

HONORABLE TAMARA 0. MITCHELLUNITED STATES BANKRUPTCY JUDGE

-3-


EXHIBIT C

Proposed Complaint — Request to be Filed Under SealTherefore it is Not Attached

4836-7979-8154v22946678-000001 03/08/2019
