Coal Mine Buyer’s Post-Closing Legal Battle Over Reclamation Costs


Explore a detailed analysis of a complex legal battle over reclamation costs following an $88 million bankruptcy acquisition of a coal mine in Pennsylvania. Our latest M&A blog delves into the intricacies of environmental compliance, permit transfers, and the crucial importance of clear M&A documentation to mitigate post-closing risks. Learn how ambiguous contract terms led to multiple legal disputes and discover key takeaways for future acquisitions to avoid similar pitfalls. Ideal for legal professionals, industry experts, and anyone involved in M&A transactions.

M&A Stories

June 10, 2024

Coal mine owners must comply with state environmental laws requiring them to restore the land to its natural state after mining operations end. These reclamation costs can be significant, often running into millions of dollars. For larger mines, the costs can exceed $20 million. It’s crucial for buyers to mitigate these reclamation cost risks through well-drafted provisions in the M&A documents.

This case involves an $88 million bankruptcy acquisition of a coal mine in Pennsylvania, which included coal mining permits. The seller was required to provide security for its reclamation cost obligations, which it did through a bank line of credit.

After closing, the buyer applied to the state for a transfer of the permits, but the application was denied. The issue arose because the seller’s permit covered mining on lands not transferred to the buyer, as they were leased to the seller under an expired lease.

The buyer then submitted a revised permit application, reducing the land covered by the permit from approximately 111 acres to 21 acres. This change led to a series of legal disputes initiated by the seller’s bank, which demanded that the buyer replace the seller’s letter of credit with its own credit facility.

The dispute resulted in four legal skirmishes in bankruptcy court and two appellate decisions by the Pennsylvania federal district court. In the final appeal, the district court judge found the asset purchase agreement and related documents ambiguous regarding the buyer’s obligation to replace the seller’s letter of credit. The case was sent back to the district court for further resolution, requiring a review of external evidence such as emails, meeting notes, and verbal agreements to determine the true intent of the buyer and seller.

Don’t know if the parties could have foreseen this problem. This lengthy legal battle might have been avoided if the buyer had explicitly included in the asset purchase agreement that it had no obligation to replace the seller’s letter of credit with its own. Even if this language had been rejected, the issue would have been clearly identified, allowing for a precise resolution to be documented in the acquisition agreements. 

Case Reference: In Re Kimmel’s Coal and Packaging, Inc.  Civil No. 1:23-CV-00351 Related Bankruptcy Case No. 1:18-BK-01609-HWV, United States District Court, M.D. Pennsylvania(Signed January 17, 2024).

Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.

Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners management, as well as professionals who share an interest in the complexities of M&A law.

By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.



Telephone:      714 273-6291


Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles

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