Bankruptcy Court Finds for Komatsu on Shovels at ESM Mines

A load of coal ambles up the haul road and Eagle Butte Sept. 30. Photo courtesy of Taylor Helton.

At a hearing on Tuesday, June 2, Southern District of West Virginia Bankruptcy Court Judge Benjamin Kahn lifted an automatic stay which had prevented Komatsu Mining Corporation and Joy Global Surface Mining Inc. (Joy Global is a subsidiary of Komatsu Mining) from repossessing Shovels 12 and 13 from the Belle Ayr and Eagle Butte mines in Campbell County.

When a debtor enters bankruptcy court, as Blackjewel, L.L.C. did in 2019, an automatic stay is entered to prevent creditors from repossessing equipment during the bankruptcy proceedings in order to allow the entity that is attempting to reorganize to continue operating during reorganization.

With regard to Shovels 12 and 13, Blackjewel sold its Wyoming mines to Eagle Special Materials, LLC (ESM) pursuant to an order on October 4, 2019.  As part of the purchase agreement, ESM accumulated the majority of the western assets of Blackjewel, but that purchase specifically excluded the Komatsu shovels, stating that Komatsu had asserted “a valid and perfected prepetition security interest” and that ESM could not assume any contracts related to the shovels.  Both ESM and Komatsu were to “work in good faith to attempt to reach a consensual agreement” regarding the shovels.

During the hearing, counsel for ESM made the argument that Blackjewel had overpaid for maintenance on the shovels based upon field service tickets, and ESM should, therefore, be able to keep the shovels as they had acquired Blackjewel’s equity interest in the shovels.

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Komatsu, however, pointed out that the Life Cycle Maintenance (LCM) agreements which were the subject of the dispute, and which the shovels served as collateral for, had the maintenance amounts due calculated based upon tons produced, and the allegations of ESM were, therefore, irrelevant.

ESM and Blackjewel also failed to offer into evidence anything that would contest Komatsu’s position on the amounts due.

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Per Komatsu’s filings, Blackjewel owed to Komatsu a “current accelerated payoff/contract termination sum totaling $1,108,218.37” for Shovel 12 as of November 1, 2019, and an amount of $4,092,829.30 for Shovel 13 as of the same date.

Komatsu contended that ESM could have worked to cure the LCM contract balances on behalf of Blackjewel and assume the use of the shovels.  However, ESM continued using the shovels without any rights under either the sale order or anything negotiated with Komatsu, essentially using Komatsu’s shovels without making payment for their use and without any agreement to do so.

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Komatsu contended that ESM ignored past invoices while still using the shovels to mine coal and hid behind the continuing stay to prevent Komatsu from repossessing the shovels.

Judge Kahn, the successor to Judge Volk, who had previously overseen the Blackjewel proceedings, summarized the relevant issues quickly and decisively, finding for Komatsu.  The judge’s order does not authorize Komatsu to simply repossess the shovels but instead requires Komatsu to utilize the relevant provisions of the Uniform Commercial Code (UCC) related to Komatsu’s liens and repossess the shovels through Wyoming courts.

In a memo to employees from COO John McNab provided to County 17, ESM stated, “In response to the judge’s ruling, ESM will remove both shovels from service and adjust our operations accordingly to allow for the continued success of the mines.  These operational adjustments, together with reduced market demand due to the effects of the Covid-19 Virus, will ensure that the loss of the shovels does not have a material adverse impact on our operations.”

Eagle Specialty Materials Letter Regarding Komatsu Shovels
Eagle Specialty Materials Letter Regarding Komatsu Shovels

For more information on the Blackjewel bankruptcy, please view the relevant filings on Prime Clerk by clicking here.