Patriot Coal Seeks Bankruptcy Court OK to Continue Litigation

Patriot Coal Corporation

Patriot Coal is seeking bankruptcy court permission to proceed with breach-of-contract suits the company has filed against two customers who allegedly declined to take recent coal shipments.

The suits are not subject to the automatic stay initiated by the bankruptcy proceedings, Patriot argues, but objections to the motion can be filed until Aug. 2. A hearing date, if necessary, will be determined at a later date, according to the motion.

Pursuant to section 362 of the Bankruptcy Code, an automatic stay prohibiting the initiation or continuation of any litigation against a debtor is imposed upon the commencement of a bankruptcy case.  There are many exceptions to the automatic stay, however.  For example, the automatic stay does not necessarily apply to enjoin litigation by a debtor, as plaintiff, against a third-party defendant.  Whether the latter litigation is stayed depends on whether the defendant has counterclaims asserted against the debtor, and even then those counterclaims can be severed from the main suit brought by the debtor.

As previously described in an earlier submission to this blog, Patriot filed for chapter 11 protection in Manhattan on July 9, 2012.  The Company produces thermal coal and has operations and coal reserves in Appalachia and the Illinois Basin.

On June 1, 2012, a month before it declared bankruptcy, subsidiary Patriot Coal Sales launched a breach-of-contract action in the U.S. District Court for the Southern District of West Virginia against Keystone Industries, alleging that Keystone failed to take or pay for a shipment of coal, in breach of a Dec. 7, 2011 coal-supply agreement. “Keystone failed to take or pay for a single ton of coal as it is obligated to do…despite having contracted to take and pay for hundreds of thousands of tons of coal,” Patriot wrote in its suit.

Patriot is suing for the value of the lost sales to Keystone, plus interest, but balked at putting a public dollar value on the claim, telling the court that it has a “business interest in avoiding public disclosure of the terms upon which it is willing to contract.”

And two months before that suit, on April 3, Patriot filed a breach-of-contract action in the Circuit Court of Kanawha County, in West Virginia, against private offshore fund Bridgehouse Capital, based in London, and related entities Bridgehouse Commodities Trading, Sentrum Holdings, and Doha-based Bridgehouse consultant Donald Jordan. Patriot alleged that Bridgehouse failed to take or pay for coal in breach of its Sept. 16, 2011 coal-supply agreement, and that Sentrum and Bridgehouse breached an Oct. 27, 2011 letter agreement.

In its motion this week, Patriot said Keystone had failed to respond to its proposed stipulation for proceeding with the Keystone claim, and that service of all but one of the Bridgehouse defendants is still pending. If U.S. Bankruptcy Judge Shelley Chapman grants Patriot’s motion, the Company’s counsel at Thompson Coburn and Dinsmore & Shohl will be allowed to continue their litigation efforts, and perhaps eventually retrieve funds for the estate that could provide for a larger creditor recovery.

This submission is largely a reproduction of an article that can be found at Patriot Coal seeks bankruptcy court OK to continue litigation |