Federal Government Was Investigating Blackjewel Prior To Bankruptcy

Oct 7, 2019

Judge Frank Volk approving the closure of Blackjewel's sale of western assets to Eagle Specialty Materials, LLC
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Prior to bankruptcy, the federal government was investigating Blackjewel, LLC for possible fraud. The U.S Attorney's Office was concerned the coal company may use a reorganization to get out of debts owed to the government. In other words, that it was violating the False Claims Act. Court filings show Blackjewel owes several federal agencies upwards of $50 million.

A filing from Michael B. Stuart, the U.S. Attorney for the Southern District of West Virginia, wrote the United States had issued a subpoena to Blackjewel related to the False Claims Act prior to reorganization on July 1.

Josh Macey, visiting law professor at Cornell University, said the government is unlikely to be able to recover the debt. That's because Blackjewel sold its assets to Eagle Specialty Materials, LLC (ESM) free and clear of any debt obligations.

Filing 1189, though, gives the United States some leeway. It gives them time and flexibility to prosecute the possible False Claims Act violations in the case that Blackjewel does end up mining in some small way down the line. There is still a chance the government could go after ESM, as well, but Macey said that's unlikely to work.

Right now, the most likely scenario would be an ESM repayment plan that would pay for some but not all of the government debt. There are no details of any repayment plan, but the final order approving ESM as the buyer does give some insight into the Department of the Interior's (DOI) role.

Filing 1187 explains the transaction still depends on "DOI's written confirmation to be provided prior to the closing of the Sale Transaction that all known and payable post-petition royalty obligations due as of such date to DOI have been received."

The federal bankruptcy court in West Virginia finalized the sale of Blackjewel's western assets to ESM on Friday, October 4.

Have a question about this story? Contact the reporter, Cooper McKim, at cmckim5@uwyo.edu.