Even a ‘Blatant Misrepresentation’ Will Not Save a Challenger That Fails to Timely Object in Bankruptcy Proceedings
In the case of In re Cambrian Holding Company, Inc., 110 F.4th 889 (6th Cir. 2024), the Sixth Circuit Court of Appeals considered a dispute regarding a coal mining lease that was assigned during Cambrian’s bankruptcy proceedings. In its Chapter 11 case, Cambrian sold to American Resources Corporation (“ARC”) its interest in a coal mining lease on land owned by Hazard Coal Corporation (“Hazard”). In connection with its purchase, ARC represented and warranted that it could obtain the necessary mining permits. Based in part on this warranty, the bankruptcy court approved the lease assignment to ARC as a “good faith purchaser” under 11 U.S.C. § 363(m). Hazard did not object to the assignment or appeal the sale order. It was later learned that government authorities had blocked ARC from obtaining a coal mining permit, and that both ARC and Cambria were aware of that fact at all relevant times during the sale process. Upon discovering the misrepresentation, Hazard challenged the assignment by attacking the sale order. The bankruptcy court for the Eastern District of Kentucky denied its challenge because Hazard failed to object during the initial proceedings and had not appealed the sale order.
Hazard then pursued legal action in a suit outside of the bankruptcy case, which prompted ARC to return to the bankruptcy court seeking a declaration that the lease assignment was valid. The bankruptcy court agreed and issued the declaration, and Hazard’s appeal followed. The Sixth Circuit, applying an “abuse of discretion” standard, affirmed the bankruptcy court’s decision, holding that Hazard was estopped from challenging the assignment to ARC due to its failure to promptly protect its rights by timely appealing or objecting to the bankruptcy court’s approval of the assignment. Despite recognizing ARC’s “seemingly blatant misrepresentation,” the Sixth Circuit gave significant deference to the bankruptcy court because of its proximity to the events surrounding the assignment. As this ruling makes clear, even in cases involving misrepresentations, it is extremely important to timely object in bankruptcy proceedings, especially considering the protections given to purchasers under § 363(m) of the Bankruptcy Code.
Attorneys at Wolfson Bolton Kochis PLLC are well versed in protecting the rights of parties in bankruptcy proceedings. Please contact Scott A. Wolfson ([email protected]) for more information.
