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East Coast Miner LLC v. Nixon Peabody, LLP

United States District Court, E.D. Kentucky, Northern Division, Ashland

October 3, 2017

EAST COAST MINER, LLC, et al., APPELLANTS,
v.
NIXON PEABODY, LLP, et al., APPELLEES.

          MEMORANDUM OPINION AND ORDER

          Henry R. Wilhoit. Jr., United States District Judge.

         This matter is before the Court upon East Coast Miner, LLC and East Coast Miner II, LLC's Appeal from Bankruptcy Court, Judge Tracey Wise's Order Allowing Chapter 11');">11 Professionals' Final Compensation and Payment From Lender's Collateral [Docket No. 1-1]. This matter has been fully briefed by the parties. The Court, having reviewed the record and being otherwise sufficiently advised, hereby affirms the decision of the Bankruptcy Court.

         I.

         This case arises from the final fee applications filed in In Re Licking River Mining, LLC, et. al, United States Bankruptcy Court, Case No. 14-10201. Licking River Mining, LLC and their related Debtors, collectively referred to as "Debtors, " became Chapter 11');">11 debtors-in-possession in June 2014 after the filing of involuntary petitions against them. That case has a lengthy, tortured procedural history. Before this Court, however, is the review of Judge Wise's opinion that the Carve-Out extends to the East Coast Miners, LLC, East Coast Miner II, LLC, Keith Goggin and Michael Goodwin, collectively referred to as the "Licking River Lenders'", prepetition collateral.

         The Bankruptcy Court issued the Carve-Out Opinion, holding that the Licking River Lenders' pre-petition collateral was subject to the Carve-Out under the text of the Final Cash Collateral Order. The Court reasoned, under the text of the Final Cash Collateral Order:

The budgets specifying the expenses that the Debtors were permitted to pay from the cash collateral and included line items for the Professionals' fees and expenses. The inclusion of the Professionals' fees and expenses in the budgets, to be paid from Lenders' prepetition cash collateral is inconsistent with the notion that the carve-out is limited to the post-petition adequate protection liens.

[Docket No. 9-11');">11, p. 9].

         The Court further found that the inclusion of the Committee's Investigation Budget, which was payable from pre-petition cash collateral, within the definition of Carve-Out supported the Professionals' interpretation of the Carve-Out. Id. at 10.

         As for Licking River Lenders' position that it only applied to adequate protection liens, the Court noted that it not "discern how [their] argument makes sense, " because it would "yield[] an illusory and absurd result" in which the Carve-Out applied to adequate protection liens that could attach to virtually nothing. Id. at 9.

         The Court next held that a finding that the Carve-Out applies to the Licking River Lenders' pre-petition collateral was consistent with the record as a whole and the conduct of the parties. The Court noted that the application of the Carve-Out to pre-petition collateral was confirmed by the colloquy in open court at the first-day hearing. Further, the Court reasoned that the Licking River Lenders' consent to the DIP Orders "confirm that the carve-outs are carve-outs from the [Licking River] Lenders' prepetition liens, " as the Carve-Out was senior to Porter's liens which were senior to the Licking River Lenders' pre- petition liens. Id. at 11');">11.

         Finally, the Court held that the Licking River Lenders had stated "unequivocally" in their credit bid filing that the Carve-Out applied to the Debtors' use of pre-petition cash collateral and that this admission was binding upon them. Id.

         Based on all of these reasons, the Court held that "the text of the Final Cash Collateral Order extends to the Licking River Lenders' prepetition collateral." Id. at 13. Extrinsic evidence was not necessary because the Professionals prevailed as a matter of law.

         Following Objections and Orders thereto, Licking River Lenders did not consent to the entry of orders allowing payment of the Professionals' fees and expenses.

         Subsequently, the Professionals filed a joint motion for the entry of orders on the Fee Applications in order to finally receive payment on account of their unpaid fees and expenses, The Licking River Lenders again objected.

         Following a hearing, the Bankruptcy Court entered a Memorandum Opinion and Order Allowing Chapter 11');">11 Professionals' Final Compensation and ...


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