A decision by a federal bankruptcy court in Kentucky this week gives regulators a strong hand in enforcing environmental laws against bankrupt coal companies. As part of Thursday’s decision, the court awarded the West Virginia Department of Environmental Protection more than $2.7 million to address reclamation of an abandoned coal mine in Fayette County.

Bailey & Glasser attorneys Kevin Barrett and Mike Hissam represented the DEP in pursuing claims from the bankruptcy estate of Appalachian Fuels LLC. The claims consisted of environmental penalties, as well as the costs of ongoing reclamation and water treatment at the abandoned site. The case went to trial in bankruptcy court in Louisville in June 2014. After a three-day trial, the bankruptcy court issued a lengthy opinion Thursday granting DEP’s administrative expense application in full.

The bankruptcy court held that Appalachian Fuels had to perform the reclamation obligations of its subsidiary which held the permits, given that Appalachian Fuels had always performed the mining and reclamation obligations at the mine site. The bankruptcy court also held that DEP’s claims were entitled to “administrative expense priority,” despite the fact that DEP had not incurred any reclamation costs while the bankruptcy case was pending and would not incur significant reclamation costs until

years later. In accordance with the decision the court granted the DEP an administrative claim totaling more than $2.7 million, including up to $1.9 million in reclamation and water treatment costs and over $700,000 in penalties.

“With the rise of significant coal company bankruptcy cases in the past two years, and with others on the horizon in a tough coal market, the decision imposes broader corporate responsibility for environmental legacy liabilities,” said Kevin Barrett, a bankruptcy attorney at Bailey & Glasser’s New York office. “It also makes it clear that the responsibility to remediate environmental issues does not end upon the commencement of a bankruptcy case and, indeed, may give rise to significant priority claims that a coal company must satisfy as a condition to reorganizing in chapter 11. The combination gives federal and state environmental regulators a stronger hand in coal company cases.” DEP Secretary Randy Huff man praised the decision as an important victory for state environmental regulators, stating, “The court’s decision clarifies the authority of the states to enforce environmental regulations regardless of bankruptcy. It also warns operators that the protections afforded by the bankruptcy process do not provide an avenue to shirk reclamation responsibilities. Protecting the environment and remediating former surface mine sites is one of our highest priorities.”