In Re: Blackjewel LLC, et al

Filing 28

MEMORANDUM OPINION & ORDER affirming the Bankruptcy Court's Findings of Fact & Conclusions of Law, as more fully set forth herein. Signed by Judge Robert C. Chambers on 12/21/2023. (cc: counsel of record; any unrepresented parties) (jsa)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION

BLACKJEWEL L.L.C., et al.,
Debtors

CARDINAL RECLAMATION COMPANY, LLC,
Plaintiff
LEXON INSURANCE COMPNAY,
Intervener-Plaintiff,
v.

CIVIL ACTION NO.
3:23-0439
BANKRUPTCY CASE NO. 3:19-30289

BLACKJEWEL, L.L.C;
REVELATION ENERGY, LLC;
HAROLD KEEN COAL CO., LLC;
RHINO ENERGY, LLC;
JEWEL VALLEY MINING, LLC;
MOUNTAINEER METALLURGICAL HOLDINGS, LLC;
KOPPER GLO MINING, LLC; and
NALLY & HAMILTON ENTERPRISES, INC.,
Defendants.
MEMORANDUM OPINION & ORDER
Cardinal Reclamation Company, LLC and Rhino Energy, LLC dispute who owns four
mining permits that come with reclamation obligations. After a two-day bench trial, the
Bankruptcy Court concluded Cardinal holds these permits. This Court agrees.

BACKGROUND
In 2019, Blackjewel, LLC and ten other entities 1 (collectively “Defendants”) declared
bankruptcy. See Notice of Appeal, Ex. A (Findings of Fact & Conclusions of Law) at 9, ECF No.
1. Defendants divided their assets into “lots”—including the “Western Assets” and the “Virginia
Subdivision Assets.” Id. After receiving bids and conducting a sale hearing, the Bankruptcy Court
determined Rhino held the highest bid for the Virginia Subdivision Assets and Contura Energy,
Inc. held the highest bid for the Western Assets. See id. at 9–10.
The transfer of the Virginia Subdivision Assets went smoothly. Defendants and Rhino
executed an agreement to transfer the Virginia Subdivision Assets (“the Rhino Sale Agreement”).
See id. at 10. Under the agreement, Jewell Valley—a subsidiary of Rhino—acquired:
1) eleven permits associated with the Virginia Subdivision Assets
(“enumerated permits”);2
2) all government permits “necessary and desirable for the operation”
of the enumerated permits “as such operation would be operated by
an experienced and prudent operator;” and
3) any real property, improvement, leases, equipment, parts, and
inventory within the Virginia Subdivision “whether or not contained
within, on[,] or under” the Rhino Sale Agreement.

1

Blackjewel Holdings LLC; Revelation Energy Holdings, LLC; Revelation Management Corporation; Revelation
Energy, LLC; Dominion Coal Corporation; Harold Keene Coal Co. LLC; Vansant Coal Corporation; Lone Mountain
Processing, LLC; Powell Mountain Energy, LLC; and Cumberland River Coal LLC. See id. at 4 n.6. The Bankruptcy
Court converted the Cumberland River Coal, LLC and Powell Mountain Energy Chapter 11 proceedings into Chapter
7 proceedings. See id.
These permits are Permit #1201797 (D-15 – Pioneer #1); Permit #1202258 (D-16 Mavrick – Dominion #30); Permit
#Y-4015-97 (D-16 Mavrick – Dominion #30 Shadow Permit); Permit #1702261 (D-17 Tiller #4 – Surface Mine #1);
Permit #1202259 (D-18 Tiller #5 – Dominion Mine #7); Permit #Y-3032-12 (D-18 Tiller #5 – Dominion Mine #7
Shadow Permit); Permit #Pending Transfer (D-18 – Dominion 7 Shadow Permit); Permit #1202286 (D-20 Beehive –
Dominion Mine #34); Permit #1702276 (P-12 Flatrock – Flatrock Plant & Refuse); Permit #1102084 (R251 – Flatrock
Northeast); and Permit #1302005 (T-12 Raven Loadout – Raven Dock). See August 23, 2019 Order Approving the
Sale of Certain Assets to Rhino Energy LLC, Ex. A (Purchased Assets), ECF No. 8-4.
2

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Findings of Fact & Conclusions of Law at 10–11. Jewell Valley did “not assume any reclamation
obligations” for permits “not identified” in the Rhino Sale Agreement. Id. at 12 (quotation
omitted). The Commonwealth of Virginia and the State of West Virginia approved the transfer.
See id. at 10, 12–13.
The transfer of the Western Assets proved rockier. Defendants and Contura could not reach
an agreement. See id. at 13. As a result, the Bankruptcy Court approved a private sale of the
Western Assets to Eagle Specialty Materials, LLC. See id. Through the sale, Eagle acquired
$90,000,000 and “the mining permits, all owned and leased real property, accounts receivable[,]
and equipment” related to coal mines in Wyoming held by Defendants. Id. (quotation omitted).
An affiliate of Eagle—Cardinal—then acquired twenty-one “specific permits” in the
Virginia Subdivision (“Eastern Permits”). Id. at 14. These came with reclamation obligations. See
id. Cardinal did not acquire any real property, accounts receivable, or equipment located within
the Virginia Subdivision. See id. at 14, 16. It acquired “only the mining permits.” Id. at 16.
Cardinal sued. In its complaint, Cardinal sought an order declaring Rhino and Jewell Valley
responsible for the reclamation obligations of four Eastern Permits: Permit #1102135 (Jones Fork
#3); Permit #1102136 (Jones Fork #4); Permit #1201540 (Dominion #26); and Permit #1201919
(Hatfield #252) (collectively “Disputed Permits”). See R.21 (Amended Complaint) at 31.3
After trial, the Bankruptcy Court issued Findings of Fact & Conclusions of Law. See
generally Findings of Fact & Conclusions of Law. Reviewing the Rhino Sale Agreement, the
Bankruptcy Court determined Rhino (and Jewell Valley) acquired the disputed permits only if they

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Cardinal also sought relief under Fed. R. Civ. P. 60. Id. ¶¶ 99–101. The Bankruptcy Court denied this request. See
Findings of Fact & Conclusions of Law at 34–53. Cardinal does not appeal this denial. See Appellant Reply at 1, ECF
No. 25.

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were “necessary” for the operation of one of the enumerated permits in the Rhino Sale Agreement
and “desirable” to an experienced and prudent operator of a mine. See id. at 26.
Applying this test, the Bankruptcy Court then considered each Disputed Permit. See id. at
29–34. As to necessity, the Bankruptcy Court held each Disputed Permit was not necessary to
conduct mining operations in the Virginia Subdivision because the Virginia Department of Energy
approved the transfer of the enumerated permits to Jewell Valley “without requiring Rhino and/or
Jewell Valley to apply” for the Disputed Permits. Id. at 27. “Even if that fact alone were insufficient
to defeat Cardinal’s claims,” the Bankruptcy Court remarked, Cardinal failed to provide “sufficient
evidence” showing Rhino was “required” to secure the Disputed Permits before operating. Id. As
to desirability, the Bankruptcy Court held Cardinal failed to prove the Disputed Permits would be
“desirable” to a mine operator “taking into account the associated reclamation obligations of the
additional permit.” Id. at 28. In short, Cardinal—not Rhino—held the Disputed Permits and their
reclamation obligations. See id. at 53.
Cardinal appealed. Cardinal challenges the Bankruptcy Court’s conclusions regarding the
Jones Fork #3, Jones Fork #4, and Hatfield #252 permits. See Appellant Reply at 2.
STANDARD OF REVIEW
Findings of fact are reviewed for clear error. See In re Litton, 330 F.3d 636, 642 (4th Cir.
2003). Conclusions of law are reviewed de novo. See id.
If a bankruptcy court’s order contains “ambiguity or obscurity,” the bankruptcy’ court’s
interpretation of its own order receives “substantial deference.” In re Tomlin, 105 F.3d 933, 940–
41 (4th Cir. 1997) (“The bankruptcy court was ‘in the best position to interpret its own orders.’”).

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A district court can “affirm, modify, or reverse a bankruptcy judge’s judgment, order” or
“decree or remand with instructions for further proceedings.” Williams v. Colonial Penniman,
LLC, 582 B.R. 391, 396 (E.D. Va. 2018).
ANALYSIS
I
Cardinal and Rhino debate who owns the Disputed Permits. To resolve this debate, the
Court looks to the Rhino Sale Agreement. Under this agreement, Defendants agreed to transfer the
“Purchased Assets described in Exhibit A” “free and clear of all liens, claims, interests, and
encumbrances” to Rhino. R.5.A (Rhino Sale Order), at 48, ECF No. 8-4. Exhibit A to the
agreement lists eleven permits by Job/Job Name and Permit, see id., and explains these “Purchased
Assets” include all governmental permits “necessary and desirable for the operations of such
Job/Job Name and Permit as such operation would be operated by an experienced and prudent
operator and which are held by [Defendants] with respect to such Job/Job Name and Permit.” Id.
Relevant here, the Rhino Sale Agreement requires a government permit meet two
conditions before Rhino acquires it. First, the government permit must be “necessary” to operate
one of the enumerated “Job/Job Name and Permit[s]” listed in Exhibit A. Id. Second, the
government permit must be “desirable” to operate one of the enumerated “Job/Job Name and
Permit[s]” listed in Exhibit A. Id. Both conditions must be satisfied. That is, Cardinal must show
each Disputed Permit is necessary and desirable for Rhino to acquire the permit. The Rhino Sale
Agreement, however, does not define either term. As such, they carry their “natural and ordinary
meaning.” Bennet v. Dove, 277 S.E.2d 617, 619 (W. Va. 1981). Consider each in turn.
A
Begin with “necessary.” The Bankruptcy Court held a Disputed Permit is “necessary” if

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Virginia law requires Rhino to hold the Disputed Permit to operate an enumerated permit. See
Findings of Fact & Conclusion of Law at 27.
This Court agrees. Black’s Law Dictionary defines “necessary” as “needed for some
purpose or reason,” “essential,” “must exist or happen and cannot be avoided,” and “inevitable.”
Black’s Law Dictionary 1241 (11th ed. 2019). Other sources agree. See, e.g., Random House
College Dictionary 884 (2000) (defining “necessary” as “essential, indispensable, or requisite”);
10 Oxford English Dictionary 275–76 (2d ed. 1989) (defining necessary as “[i]ndispensable,
requisite, essential, needful; that cannot be done without” and “absolutely required”). It is a
“word[] of limitation.” In re Microsoft Corp. Antitrust Litig., 355 F.3d 322, 327 (4th Cir. 2004).
Cardinal does not contest this definition. Instead, it argues the Disputed Permits are
“necessary” to operate the enumerated permits because Virginia law requires a permit for
reclamation. See Appellant Br. at 18–20. Sure enough. No person “shall engage in or carry out any
coal surface mining operation without having first obtained a permit to engage in such operation.”
Va. Code Ann. § 45.2-1009(A). See Sierra Club v. Kempthorne, 589 F. Supp. 2d 720, 728 (W.D.
Va. 2008) (same). Yet this truism misses the point.
For a transfer to occur, the Director of the Virginia Department of Energy must conclude
the transferee’s operation plan satisfies all reclamation obligations under state and federal law. See
4 Va. Admin. Code §§ 25-130-774.17(d)(1); 25-130-773.15(c)(2) (“The applicant has
demonstrated that reclamation as required by the Act and this chapter can be accomplished under
the reclamation plan contained in the permit application.”). Absent contrary evidence, this Court
presumes the Director made this finding. See Almy v. Sebelius, 679 F.3d 297, 309 (4th Cir. 2012)
(describing the “presumption of regularity” afforded to “official acts of public officers” under
which “courts presume [] they have properly discharged their official duties” absent “clear

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evidence to the contrary”) (quotation omitted); Ohio Valley Env’tl Coalition v. Coal-Mac, 775 F.
Supp. 2d 900, 921 (S.D. W. Va. 2011) (Chambers, J.) (explaining federal courts usually defer to
the “state’s authority over implementation of [a] permitting process”—including refusing to “sit[]
in review of a state-issued permit”) (quotation omitted). The Director’s approval of the transfer of
the eleven enumerated permits to Rhino, therefore, means the Commonwealth of Virginia decided
Rhino’s reclamation obligations could be met with only the enumerated permits. Rhino did not
need the Disputed Permits for reclamation. This determination by state regulatory authority proves
“fatal” to Cardinal’s argument. Findings of Fact & Conclusions of Law at 27.4
Cardinal presses on. Notwithstanding the Commonwealth of Virginia’s transfer decision,
Cardinal argues the Disputed Permits are physically required to operate the enumerated permits.
See Appellant Br. at 19–26. Without the Disputed Permits, Cardinal argues, Rhino cannot operate
the enumerated permits like Blackjewel did. See id.
Cardinal misunderstands the weight its evidence bears. Cardinal demonstrated how
Blackjewel operated the enumerated permits before its bankruptcy. For instance, Cardinal
suggested Blackjewel ran water from the JV-17 mine—an enumerated permit—to water pumps
and settling ponds by passing under Jones Fork #4—a Disputed Permit. See, e.g., Trial Tr. vol. 1
at 102, ECF No. 6. See also Appellant Br. at 19–24 (discussing how the JV-17 mine, Jones Fork
#3, and Jones Fork #4 are “connected”). Similarly, Cardinal suggested Blackjewel ran a coal
conveyor belt from the Flat Rock Plant—an enumerated permit—to Hatfield #252—a Disputed
Permit. See Trial Tr. vol. 1 at 149. See also Appellant Br. Brief at 24–26 (explaining how the
Hatfield #252 “has always been utilized in operating the Flat Rock Plant”).

Of course, if the Commonwealth of Virginia believes the Disputed Permits are now necessary, it “may require
reasonable revision or modification” of Rhino’s permits. Va. Code Ann. § 45.2-1012(B). See also Va. Code Ann. §
45.2-1025 (detailing administrative procedures to modify, vacate, or terminate a permit).
4

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This evidence speaks to how Blackjewel—a previous operator—ran the JV-17 mine and
the Flat Rock Plant. It does not speak to whether Rhino must copy this behavior. Yes—the past is
often prologue. But it is not destiny. Indeed, Rhino suggested it might deviate from Blackjewel’s
operating practices. See, e.g., Trial Tr. vol. 1 at 165 (discussing how Rhino could access the
settlement ponds without using Jones Fork #4 by using roads controlled by a surety company and
gas company); Trial Tr. vol. 2 at 145–47 (discussing plans by Rhino to reconfigure the coal
conveyor belt currently touching the Flat Rock Plant permit and the Hatfield #252 permit). These
suggestions undermine the implication that the past dictates the present and commands the future.
The Bankruptcy Court recognized this disconnect. As to the JV-17 mine, the Bankruptcy
Court found Cardinal showed it would be “convenient” to use the Jones Fork #3 and Jones Fork
#4 permits to “service some sediment ponds or settling ponds” located near the JV-17 mine.
Findings of Fact & Conclusions of Law at 30. But convenience is not necessity. As such, the
Bankruptcy Court held Cardinal did not show the waterline crossing under the road on Jones Fork
#4 “necessitates” an operator to acquire the Jones Fork #3 or the Jones Fork #4 permit. Id.
Reviewing the record, this Court agrees.
As to Hatfield #252, the Bankruptcy Court found Cardinal failed to show this Disputed
Permit was required to operate the Flat Rock Plant. See Findings of Fact & Conclusions of Law at
33. The Bankruptcy Court relied on Rhino’s suggestion the Flat Rock Plant could be reconfigured
to operate the coal conveyor belt entirely within the Flat Rock Plant permit area. See Trial Tr. vol.
2 at 145–47; Appellant Br. at 25 (recognizing this testimony). The Bankruptcy Court
acknowledged Chris Slone—former Vice President of Operations at Jewell Valley—explained that
reconfiguring the coal conveyor belt might constrict production. See Findings of Fact &
Conclusions of Law at 33–34. Nevertheless, the Bankruptcy Court found Cardinal failed to

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demonstrate these additional expenses “exceed” the cost of the reclamation obligations associated
with the Hatfield #252 permit. Id. at 34. Reviewing the record, this Court agrees.
In short, Cardinal bore the burden to prove the Disputed Permits were necessary to operate
the enumerated permits. The Bankruptcy Court held Cardinal failed to do so. This Court agrees.
B
Turning to “desirable,” the Bankruptcy Court held an experienced and prudent operator
would find a Disputed Permit “desirable” if the reclamation costs “incidental” to acquiring a
Disputed Permit would not “exceed” any “operational savings connected to the acquisition” of the
permit. Id. at 28. Convenience is not enough. See id.
This Court agrees with this definition. Something “desirable” is “worth seeking” and
“pleasing.” The American Heritage Dictionary 386 (2d. ed. 1982). The SMCRA and its state
counterparts “force[] coal companies to internalize some of the environmental costs of surface
mining by requiring a financial guarantee they will reclaim degraded land.” Joshua Macey &
Jackson Salovaara, Bankruptcy as Bailout: Coal Company Insolvency and the Erosion of Federal
Law, 71 Stan. L. Rev. 879, 896 (2019). Reclamation is costly and time-consuming. Not every mine
operator wants to accept these obligations. A desirable permit, therefore, is one in which the
benefits afforded by the permit outweigh the reclamation obligations required under the permit.
The Bankruptcy Court held Cardinal did not show an experienced and prudent mine
operator would want the Jones Fork #3 or Jones Fork #4 permits considering their reclamation
obligations. See Findings of Fact & Conclusions of Law at 30–31. Instead, Cardinal demonstrated
only that it was “convenient” for a prior operator of the JV-17 mine to use both permits. Desirable
permits may be convenient. But convenient permits are not automatically desirable. Similarly, the
Bankruptcy Court held Cardinal did not show an experienced and prudent mine operator would

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want the Hatfield #252 permits considering their reclamation obligations. See Findings of Fact &
Conclusions of Law at 33–34. To be sure, Cardinal suggested Rhino’s plan to reconfigure the coal
conveyor belt to fit entirely within the Flat Rock Plant would “constrict production.” Id. at 34. This
evidence certainly shows the Hatfield #252 carries benefits. Yet this evidence only speaks to half
of the equation. Cardinal needed to provide evidence showing whatever benefits the Hatfield #252
permit carried, those benefits outweighed its burdens. The Bankruptcy Court found Cardinal failed
to present “any evidence” resolving this balancing inquiry. Id. Upon review, this Court agrees.
***
In sum, this Court finds no error in the Bankruptcy Court’s interpretation of the Rhino Sale
Agreement or its application to the facts presented at trial.
II
Unlucky on the merits, Cardinal attacks the authority of the Bankruptcy Court to authorize
a legal transfer of a mining permit absent state approval. See Appellant Brief at 18–19, Reply Brief
at 2–3. Cardinal misreads the Bankruptcy Court’s use of the term “transfer.”
The Bankruptcy Court used “transfer” in a “nontechnical” manner to signify a conveyance
of interest. In re Kimmel’s Coal & Packaging, Inc., 2021 WL 5769319, at *2 (M.D. Pa. Dec. 3,
2021). In other words, the Rhino Sale Order awarded Rhino and Jewell Valley the “ability to seek
and obtain permission to conduct mining activities” including the “obligation to assume the
existing reclamation liability once it obtained a permit.” Id. at *4. The Bankruptcy Court did not
usurp the state’s duties under 4 Va. Admin. Code § 25-130-774.17 et seq.
The procedural history of this case confirms this reading. Virginia approved the transfer of
the enumerated permits after the Bankruptcy Court issued the Rhino Sale Order. See Findings of
Fact & Conclusions of Law at 12–13. Indeed, the Bankruptcy Court required Rhino to share an

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update about the state’s transfer decision a year after it entered the Rhino Sale Order. See id. at 10,
12. If the enumerated permits were already legally transferred, the state’s approval and the
Bankruptcy Court’s request for information would have been superfluous.
CONCLUSION
The coal industry continues to decline. In its wake, coal companies increasingly use
bankruptcy to evade reclamation obligations—raising the prospect the environment may never
fully recover. See Macey & Salovaara, Bankruptcy as Bailout at 917, 925–27, 931–32. This case
is no exception. The Court takes seriously Cardinal’s suggestion Defendants orchestrated a deal to
separate the lucrative components of the JV-17 mine and the Flat Rock Plant from their
reclamation obligations. See Appellant Br. at 22 (lamenting “gamesmanship by operators in the
coal industry”). The Court emphasizes nothing in this opinion should be taken to condone or
excuse any party of their liability under applicable law. The Virginia Department of Energy and
other regulatory authorities may seek appropriate relief against any party for their conduct on the
Disputed Permits notwithstanding this litigation. With these admonitions, the Court AFFIRMS
the Bankruptcy Court’s Findings of Fact & Conclusions of Law. The Court DIRECTS the Clerk
to send a copy of this Order to counsel of record and any unrepresented parties.

ENTER:

December 21, 2023

ROBERT C. CHAMBERS
UNITED STATES DISTRICT JUDGE

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