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In a dramatic turn in Delaware bankruptcy court, Maryland, Pennsylvania, and the creditors committee have moved to block Heritage Coal’s Chapter 11 liquidation plan, warning that the proposal ignores environmental obligations and hands out unwarranted legal releases. The coalition urged the judge to reject the plan during the upcoming October 15 confirmation hearing, saying it threatens both public safety and the environment.

States Warn of Environmental Fallout

Officials from both states argue that Heritage Coal’s plan fails to detail how it will fund cleanup and site restoration at its remaining mining operations. Maryland and Pennsylvania, which oversee Heritage’s mining permits, said the company’s proposal could hinder enforcement of environmental laws by including an injunction that shields the debtor from state action.

Maryland regulators said two mining sites have already fallen into noncompliance with state environmental standards, warning that deteriorating conditions could harm nearby ecosystems. Pennsylvania added that ten mining sites remain under Heritage’s control, including a 185-foot-high open pit in Somerset County, posing serious safety and pollution hazards.

The Commonwealth of Pennsylvania estimated that restoration costs could exceed the company’s posted bonds by millions, noting that capping waste and cleaning contaminated runoff could cost over $4 million, far surpassing existing financial guarantees.

Creditors Push Back on Legal Releases

Meanwhile, the unsecured creditors committee has taken aim at broad legal releases in the plan, claiming they would unfairly protect Heritage Coal’s current and former owners—including affiliates of KTRV and the Kestenbaum family—without any consideration.

The committee said it lacks the resources to fully investigate allegations of mismanagement and insider ties, and urged the court to delay any releases until those claims can be examined. “The record does not support the extraordinary relief of non-consensual releases,” the committee asserted.

A Web of Allegations and Legal Maneuvers

Heritage Coal, formerly operating mines in Maryland and Pennsylvania, filed for bankruptcy in March with $11.8 million in secured debt and $2.5 million in unsecured claims. The turmoil began after Chief Restructuring Officer Brian Ryniker accused former owner Angela Svonavec and her husband of wrongfully claiming liens on mining equipment pledged to secured lender Bedrock Industries Investco 1 LLC.

After a series of legal volleys, the dispute was settled in July, and the company moved forward with a plan to liquidate remaining assets and pursue litigation to repay creditors. Heritage has already generated $21.6 million from asset sales.

States Say the Plan Ignores Public Safety

Both states argue that approving the plan as written could create “numerous violations of mining laws and hazards to the public.” Pennsylvania highlighted ongoing risks to local water systems, citing a coal waste disposal area that costs $87,000 annually to manage runoff, with long-term remediation expected to exceed bond coverage by more than $1 million.

Maryland echoed those concerns, saying that approving the plan without enforcing environmental accountability would undermine state authority and expose communities to potential contamination.

Legal Teams Prepare for Showdown

Heritage Coal is represented by Morris James LLP, while the creditors committee is backed by Landis Rath & Cobb LLP and Frost Brown Todd LLP. The Commonwealth of Pennsylvania and Maryland are represented by their respective state attorneys.

As the October 15 hearing approaches, all eyes are on whether the court will approve the plan or side with regulators and creditors demanding transparency, accountability, and environmental responsibility.