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In the Matter of: C.W. Mining Company, D/B/A Co-Op Mining Company v. C.W. Mining Company; Kenneth

April 19, 2011

IN THE MATTER OF: C.W. MINING COMPANY, D/B/A CO-OP MINING COMPANY, DEBTOR. C.O.P. COAL DEVELOPMENT COMPANY, APPELLANT,
v.
C.W. MINING COMPANY; KENNETH A. RUSHTON, TRUSTEE; AQUILA, INC.; HIAWATHA COAL COMPANY, INC., APPELLEES.



APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL FOR THE TENTH CIRCUIT (BAP No. 09-0018-UT)

The opinion of the court was delivered by: Matheson, Circuit Judge.

PUBLISH

Elisabeth A. Shumaker Clerk of Court

United States Court of Appeals Tenth Circuit

Before KELLY, McKAY,and MATHESON, Circuit Judges.

This appeal asks whether the bankruptcy court correctly determined that the Coal Operating Agreement (the "Agreement") between the debtor, C.W. Mining Company ("CWM"), and appellant, C.O.P. Coal Development Company ("COP"), was property of the debtor's bankruptcy estate and could therefore be assumed and sold by the trustee. COP claims that the Agreement automatically terminated shortly after the bankruptcy petition was filed and that the bankruptcy court erred in determining that the Agreement was property of the estate. During the pendency of this appeal, the trustee filed a motion to dismiss, arguing that the appeal is now moot because the Agreement has been sold from the estate. Exercising our jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we deny the trustee's motion to dismiss for mootness and affirm the bankruptcy court's decision.

I. BACKGROUND

COP and CWM entered into the Agreement in March 1997. The Agreement allowed CWM to mine and remove coal from certain land owned or controlled by COP, and it required CWM to pay royalties to COP on the coal that was removed from the mine.

A. Pre-Bankruptcy Proceedings

On October 30, 2007, the federal district court for Utah entered a $24.8 million judgment against CWM in a breach of contract action brought by appellee Aquila, Inc.

On November 9, 2007, COP notified CWM that CWM had defaulted under the terms of the Agreement by failing to make its scheduled royalty payments and to provide an accounting of the coal removed. In the letter, COP identified the steps CWM needed to take to cure the default. The default provision of the Agreement provides:

If [CWM] shall not comply with any of the provisions, or covenants, or agreements herein written and contained, and such default shall continue for a period of 60 days after service of written notice, by certified or registered mail, by [COP] identifying the default and specifying with reasonable particularity the nature and extent thereof, then and in such event this Agreement may be terminated and all of the rights of [CWM] shall cease and be wholly determined and [COP] may at once take possession of any or all of the properties herein described.

Aplt. App., Vol. II at COP512.

Shortly after entry of judgment in its favor, Aquila filed a motion in the district court seeking entry of a supplemental order to help enforce its judgment against CWM. Aquila filed the motion because of the "significant risk that CWM will attempt to transfer its assets to prevent Aquila from executing and recovering its damages." Id. at COP683. On December 19, 2007, the district court granted the motion and entered an order prohibiting CWM from taking any action to transfer or dispose of its assets or to terminate the Agreement ("the Supplemental Order").

On January 3, 2008, COP sent a letter to CWM giving notice that "as per the terms of the 1997 Coal Operating Agreement between [COP] and [CWM], the lease will be canceled at the end of the notice period unless the default is cured prior to the end of the 60 day notice period." Id. at COP525. On January 5, COP sent CWM another letter recounting a conversation between the president of CWM, Charles Reynolds, and the president of COP, J.O. Kingston, about whether CWM could do anything to continue its mine operations. The letter stated that CWM would have to agree to certain terms before COP would consider a new coal operating agreement, including CWM's acknowledging that the Agreement "will cancel if default is not cured by the close of business on January 8th, 2008." Id. at COP527. The letter instructed that Mr. Reynolds should sign it if the terms were agreeable to CWM. He did so.

On January 6, COP sent a third letter to CWM, thanking CWM for its interest in negotiating a new coal operating agreement. COP reiterated that it would try to negotiate a new coal operating agreement only if CWM agreed to certain terms, including "[i]f CWM fails to pay to COP, by wire transfer, before the close of business on January 8, 2008 all amounts in default under the 1997 Agreement, the 1997 Agreement shall be forever terminated, without further notice." Id. at COP530. Mr. Reynolds also signed this letter based on COP's instructions.

B. Bankruptcy Proceedings

On January 8, 2008, at 3:36 p.m. MST, Aquila and a group of creditors filed an involuntary Chapter 11 bankruptcy petition against CWM in the Bankruptcy Court for the District of Utah. In November 2008, the case was ...


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