UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN …omnimgt.com/CMSVol2/pub_47269/697863_250.pdf · affiliate owned by Thomas Clarke. [DE Compl. ¶ 65]. 15. On January 5, 2016, Thomas

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

In re: MISSION COAL COMPANY, LLC, et al.,1

Debtors.

Chapter 11 Case No. 18-04177 (TOM) (Jointly Administered)

Proposed Hearing Date: November 19, 2018 at 10:00 a.m. (CT) Proposed Objection Deadline: November 16, 2018 at 4:00 p.m. (CT)

THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS’ MOTION FOR AN ORDER PURSUANT TO BANKRUPTCY RULE 2004 AUTHORIZING THE

EXAMINATION AND PRODUCTION OF DOCUMENTS BY MISSION COAL FUNDING, LLC

The Official Committee of Unsecured Creditors (the “Committee”) of Mission Coal

Company, LLC (“Mission Coal”) and certain of its affiliates, as debtors and debtors-in-

possession (collectively, the “Debtors”), by and through its undersigned counsel, hereby

respectfully moves (the “Motion”), pursuant to Bankruptcy Code sections 105(a), 363, 364, and

Rule 2004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) for the entry

of an order, substantially in the form attached hereto as Exhibit A (the “Proposed Order”)

authorizing Thomas M. Clarke, Ana M. Clarke, Kenneth R. McCoy, Jason R. McCoy, Charles

A. Ebetino, Jr. (collectively, the “Principals”), Mission Coal Funding, LLC (the “Second Lien

Lenders”), and the Debtors (together with the Principals, Second Lien Lenders, and the Debtors,

the “2004 Recipients”), to appear for examination and produce documents and communications

within their respective possession, custody, or control that are responsive to the categories set

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, include: Mission Coal Company, LLC (8465); Beard Pinnacle, LLC (0637); Oak Grove Land Company, LLC (6068); Oak Grove Resources, LLC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company, LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, LLC (1795); Seminole West Virginia Mining Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North American Coal, LLC (5102). The location of the Debtors’ service address is: 7 Sheridan Square, Suite 300, Kingsport, Tennessee 37660.

Case 18-04177-TOM11 Doc 250 Filed 11/12/18 Entered 11/12/18 15:52:01 Desc Main Document Page 1 of 17

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forth in the document requests attached hereto as Exhibit B (the “2004 Document Requests”), by

no later than December 3, 2018 at 4:00 p.m. (Prevailing Central Time). In support of this

Motion, the Committee respectfully states as follows:

PRELIMINARY STATEMENT

1. Mission Coal, a company that was barely nine months old when it filed for

bankruptcy, is saddled with excessive debt and ownership/management teams that are incapable

of operating the Debtors’ business in good faith.

2. Behind the guise of Mission Coal is Thomas M. Clarke – a business man of

questionable character who fled the nursing home industry in the late 1990’s amidst allegations

of fraud and mismanagement. See Matt Robinson and Bryan Gruley, What's a Nursing-Home

Operator Doing Running an Iron Mine?, BLOOMBERG BUSINESSWEEK (Mar. 21, 2018),

https://goo.gl/Y7q2c6. A review of Clarke’s previous business transactions shows a pattern

remarkably similar to Mission Coal: “acquire a legitimate company, leverage that company in

order to take in substantial funds, pay those funds (under the guise of ‘management’ or

purportedly valid fees) to himself or other entities he controls, default on the acquired company’s

debts, delay or simply ignore payments to creditors, and leave the former entity in ruins or

bankruptcy.” [DE Compl. (defined below) ¶ 6].

3. In the months and years leading up to Mission Coal’s formation, there were

numerous allegations surrounding instances of self-dealing by its owners, below-market coal

sales to affiliates, owner distributions and other transfers to affiliates and insiders which have

robbed Mission Coal of cash flow and its ability to turn a profit despite, arguably, one of the

better coal markets in recent years.

4. Perhaps most egregiously, the Committee has information and belief that Mr.

Clarke sold his stock and other interest in Mission Coal in the days leading up to the Petition

Date.

5. As detailed below, the long list of alleged malfeasance by the Principals and

questionable transactions by the Debtors and their predecessors are identified in litigation


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pending in Delaware initiated by Cleveland-Cliffs, Inc. All potentially fraudulent transfers and

value-destructive behavior identified in the Delaware Litigation (defined below) should be

examined in detail by the Committee. In addition, the Committee should investigate whether

other additional transactions or transfers occurred that were not identified in the Delaware

Litigation or since Mission Coal’s formation. The possibility of numerous avoidance actions

coupled with the Debtors’ gross mismanagement and insider domination of certain of the

Debtors’ operational decision-making (including facts surrounding the Second Lien Loans

[defined below] by an entity with substantial insider ownership) demonstrate the necessity of

having the Committee investigate exactly these types of insider transactions. The Committee, as

an independent party and a fiduciary for all unsecured creditors, is well-equipped to investigate

the types of issues addressed in this Motion, as it is customary for a committee to investigate

exactly these types of insider transactions.

JURISDICTION AND VENUE

6. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper in this

District pursuant to 28 U.S.C. §§ 1408 and 1409.

7. The Committee consents to the entry of a final order in connection with this

Motion if it is determined that the Court, absent the consent of the parties, cannot enter final

orders or judgments consistent with Article III of the United States Constitution.

BACKGROUND

8. The potentially fraudulent transfers made by the Debtors, including the sale of

coal to an affiliated company below market price, transfers made to affiliated companies with no

consideration received in return, and false management fees, are the subject of a lawsuit filed by

Cleveland-Cliffs Inc. (“Cliffs”) in Delaware state court (the “Delaware Litigation”) against

Seneca Coal Resources, LLC (“Seneca”), the Principals, Lara Natural Resources, LLC (“Lara

Natural Resources”), and Iron Management II, LLC (“Iron Management II”) (“Iron

Management” and along with Seneca, the Principals, and Lara Natural Resources, the


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“Defendants”).2 The Delaware Litigation has not been adjudicated, and the Committee has not

been privy to any of the discovery conducted in such matter. The severity of the allegations set

forth below alone give weight to the Committee’s argument that there needs to be a truly

unbiased investigation on the potential fraudulent transfers.

a. The Delaware Litigation

9. At the time the Delaware Litigation was filed, Seneca was majority-owned by

Iron Management II and Lara Natural Resources, and its controlling members were Kenneth

McCoy, Jason McCoy, and Thomas Clarke, with Charles Ebetino as a minority shareholder. [DE

Compl. ¶ 19]. At that time, Lara Natural Resources’ sole members were Thomas and Ana

Clarke, and Iron Management II’s majority members were Kenneth and Jason McCoy. [DE

Compl. ¶¶ 25-26].

10. Seneca is now a subsidiary of Mission Coal.

11. Mission Coal was created in January 2018, and at that time, Seneca’s assets (and

those of the other affiliated companies) were transferred to it. [DE Compl. ¶¶ 95, 97]. Currently,

through Iron Management II and Iron Management III, LLC (“Iron Management III”), Kenneth

McCoy and Jason McCoy own the majority of Mission Coal Company (57.7%). Its other owners

are Charles & Elizabeth Ebetino (through ENECo, Inc.) (15.107%), Michael Zervos (15.107%),

Mark Bartoski (4.532%), and Robert McAtee (7.553%). Lara Natural Resources is now owned

by Kenneth and Jason McCoy. Currently, Mission Coal owns the majority of Seneca (66.195%),

and Lara Natural Resources owns the rest. Seneca in turn owns Seneca North American Coal,

LLC (fka Cliffs North America Coal, LLC DE), which has five subsidiaries: Beard Pinnacle,

LLC; Oak Grove Resources, LLC; Pinnacle Mining Company, LLC; Oak Grove Land Company,

LLC; and Pinnacle Land Company, LLC.

2 This action was originally filed by Cliffs in the United States District Court for the Northern District of Ohio on December 20, 2016. It was transferred by that court on May 12, 2017 to the District of Delaware. That court dismissed the case for lack of diversity jurisdiction, and it was refiled by Cliffs in Delaware state court on May 10, 2018. The publicly available complaint filed in Delaware state court is attached hereto as Exhibit C (the “Delaware Complaint” or “DE Compl.”).


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12. The Delaware Litigation3 stems from the December 2015 sale of two Cliffs mines

to Seneca. [DE Compl. ¶¶ 31-37]. To consummate this sale, Seneca assumed all the liabilities of

the mines, including all workers’ compensation obligations, agreed to perform certain post-

closure requirements, and Seneca agreed to make certain quarterly payments to Cliffs based on

coal sales. Seneca never fulfilled any of these obligations to Cliffs, instead making cash transfers

to affiliated companies and engaging in other fraudulent transfers, prompting Cliffs to sue

Seneca for RICO violations, fraudulent conveyance, common law conspiracy, and breach of

contract. [DE Compl. ¶¶ 37-40].

b. Sale of Coal Below Market Price

13. The Delaware Litigation revealed Seneca’s sale of coal below market prices,

benefitting its affiliate while rendering it unable to pay back its creditors. Under a certain

Override Right Agreement, Seneca was required to provide Cliffs with quarterly statements that

listed the quality of coal sold per quarter and the average sales price per ton for the coal. [DE

Compl. ¶ 47]. These reports show that, among other things, Seneca sold coal to its affiliate on

nearly 50 occasions at a price substantially below market rates. [DE Compl. ¶ 53].

c. Defendants’ Use of Seneca Funds for Their Personal Benefit

14. The Delaware Litigation outlines the plan and conspiracy among the Principals to

use Seneca as their personal ATM rather than paying their creditors. [See DE Compl. ¶ 59].

Specifically, it references an email sent by Thomas Clarke on December 18, 2015 to Jason and

Kenneth McCoy in which Clarke referred to a bridge loan that Seneca had obtained as a

“blessing” and in which he further stated that this loan would allow them to “all pay down our

debt . . . . both corporately and personally.” [DE Compl. ¶ 59].4 Soon afterwards, they began

transferring money from Seneca to the Principals and their companies. [DE Compl. ¶ 64]. On

3 Given that the above captioned bankruptcy matters were recently filed, it remains unclear how the automatic stay will impact the Delaware Litigation, given that the Principles are named defendants in the Delaware Litigation. 4 This email is attached to the Delaware Complaint as an exhibit; however, the complaint was filed under seal and certain portions, including most of the exhibits in their entirety, are redacted. Thus, the Committee has not yet been able to review these relevant documents.


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December 24, 2015, Seneca transferred $50,000 to Lara Natural Resources. [DE Compl. ¶ 64].

On December 30, 2015, Seneca transferred $2.3 million to ERP Compliant Fuels, LLC, an

affiliate owned by Thomas Clarke. [DE Compl. ¶ 65].

15. On January 5, 2016, Thomas Clarke, as a representative for Lara Natural

Resources, and Jason McCoy, as representative for Iron Management II, agreed in a phone

conversation to transfer equal amounts of $1 million of Seneca assets for their personal benefit.5

[DE Compl. ¶ 66]. That same day, Seneca wired $1 million to Lara Natural Resources and

$1,050,000 to Iron Management II (the extra $50,000 to Iron Management II was made to

equalize the previous $50,000 transfer to Lara Natural Resources on December 24, 2015). [DE

Compl. ¶ 66]. These transfers were made without adequate consideration or equivalent value,

and were made to insiders. [DE Compl. ¶ 68]. This money was not used for any legitimate

business purpose; “[i]nstead, Kenneth and Jason McCoy evenly split the $1,050,000 transferred

to Iron Management. Kenneth McCoy moved his half directly into his personal bank account;

Jason McCoy used some or all of his half to settle a personal debt with a friend. Similarly, the

other $1,050,000 was transferred to Lara Natural Resources, whose account is controlled by

Thomas and Ana Clarke. The Clarkes used these funds to cover personal expenses.” [DE Compl.

¶ 67].

16. Seneca continued to make fraudulent transfers. On January 7, 2016, it made a

“loan” transfer to Clarke’s ERP Compliant Fuels, LLC for $1 million, and on January 12, 2016,

Seneca made two more “loan” transfers—a $2 million transfer to ERP Federal Mining Co. and a

$1 million transfer to ERP Environmental Fund, Inc., both owned in part by the Principals and/or

their affiliated entities. [DE Compl. ¶¶ 70-71]. Seneca also made a $300,000 transfer to ERP

Environmental Fund, Inc. on February 3, 2016, and a $300,000 transfer to Iron Management II

on February 9, 2018. [DE Compl. ¶¶ 74, 76]. On February 24, 2016, Seneca transferred

$31,923.18 to Lara Natural Resources. [DE Compl. ¶ 76].

5 This phone conversation was memorialized in a January 5, 2016 email, attached to the Delaware Complaint as an exhibit, and also redacted in its entirety.


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17. In April 2016, Seneca transferred $500,000 to ERP Mineral Reserves, LLC; ERP

Mineral Reserves in turn moved the $500,000 to Iron Group (an entity that pays salaries to those

associated with Iron Management II). [DE Compl. ¶ 81]. This was done to artificially improve

Iron Group’s finances, so that it could secure a $900,000 loan that would be used to purchase a

helicopter. [DE Compl. ¶ 81].6

18. Additionally, several internal emails among the Principals confirmed their on-

going scheme to cause the transfer of Seneca assets for their personal benefit.7 [DE Compl. ¶¶

82-83]. The “loans” from Seneca were used to pay off individual debts, personal vacations,

private jet travel, clothing allowances, and other personal expenses of the Principals. [DE Compl.

¶ 101].

d. Fabricated Management Fees

19. As alleged in the Delaware Litigation, Jason McCoy and representatives from

ERP Compliant Fuels, LLC discussed additional transfers from Seneca to both Lara Natural

Resources and Iron Management II under the guise of so-called “management fees.” [DE Compl.

¶ 72]. Seneca and the Principals set no dollar amount based on any negotiated terms, and instead

simply agreed to transfer money on a monthly basis to their individual companies. [DE Compl. ¶

73]. On January 29, 2016, Seneca transferred $70,000 to Iron Management and $116,000 to Lara

Natural Resources for concocted “management fees.” [DE Compl. ¶ 73]. These were allegedly to

compensate these entities for Seneca’s use of their employees; however, these two entities do not

have any full-time employees other than the Principals. [DE Compl. ¶ 73]. Thus, in reality, these

“fees” were not for value, nor for any pre-arranged debt or bargained-for services. [DE Compl. ¶

73].

20. On November 8, 2016, Seneca paid a $31,923.18 “management fee” to Lara

Natural Resources with the Defendants’ understanding that $25,000 would be redirected to Ana

6 Correspondence from Jason McCoy outlining this plan is attached to the Delaware Complaint as an exhibit, but is also redacted in its entirety. 7 These emails are attached to the Delaware Complaint as exhibits, but are also redacted in their entirety.


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Clarke. [DE Compl. ¶ 84]. Between December 5 and December 20, 2016, Seneca moved $3.6

million to Seminole Coal Resources, LLC (“Seminole”), ERP, and ERP’s affiliate Federal

Mining Complex, for no consideration.

21. Seneca continued to make monthly “management fee” payments between $20,000

and $30,000 to Iron Management II and Lara Natural Resources through 2017. [DE Compl. ¶

80].8

e. Additional Financial Transactions Worthy of Investigation

22. Cliffs filed its initial complaint in the Northern District of Ohio on December 20,

2016, and sought expedited discovery. [DE Compl. ¶ 89]. In response, the Principals sent Cliffs

declarations admitting to the transfers to Lara Natural Resources and Iron Management in

December 2015 and January 2016, as well as to the payment of the “management fees.” [DE

Compl. ¶ 91]. The declarations also promised that if a transfer by Seneca was contemplated in

the future, Defendants would provide thirty days’ written notice to Cliffs prior to the transfer.

[DE Compl. ¶ 92]. Defendants quickly breached that promise, and unbeknownst to Cliffs, made

60 transfers to affiliates for tens of millions of dollars from January 12, 2017 to June 20, 2017.9

[DE Compl. ¶¶ 92-93].

23. On May 12, 2017, the Cliffs litigation was transferred to the District Court for the

District of Delaware. While the Cliffs litigation was pending, in June 2017, Seneca obtained a

$17.255 million secured loan from Bay Point Advisors (“Bay Point”) that was later refinanced.

Shortly thereafter, in July 2017, there was a roof fall at the Oak Grove mine.

f. Creation of Mission Coal and Subsequent Financial Transactions

24. In January 2018, Defendants created Mission Coal and restructured Seneca to be a

subsidiary of Mission Coal. [DE Compl. ¶¶ 95, 97]. Since then, Mission Coal has been the

vehicle for further fraudulent activity. To perform the corporate restructuring, Defendants used

8 A chart of these transfers is attached to the Delaware Complaint as an exhibit, but is also redacted in its entirety. 9 Records of these transfers are attached to the Delaware Complaint as exhibits, but are also redacted in their entirety.


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proceeds from a loan secured by Seneca’s assets. [DE Compl. ¶ 96]. However, instead of going

to Seneca, some of the loan funds went to Mission Coal, and some were used to pay off a note to

Thomas Clarke. [DE Compl. ¶¶ 96-97]. Mission Coal did not use any of the loan proceeds to pay

debts owed to Cliffs or other creditors. [DE Compl. ¶ 138].

25. Further investigation of the circumstances surrounding the formation of Mission

Coal and what has occurred since formation is needed as well to fully evaluate potentially

voidable transactions.10

26. In the days leading up to the Petition Date, the Debtors hired two “independent

directors.” The Committee anticipates that the Debtors will seek to have the independent

directors, with the help of Debtors’ counsel, lead the Debtors’ investigation of the pre-petition

transactions involving the Principals, and will argue that it is the Debtors’ obligation to

undertake such an investigation. The Committee has seen this strategy employed before in

unrelated chapter 11 cases. One cannot expect the independent directors to be able to examine

the potentially fraudulent transfers involving the Principals with an independent lens, especially

if they will be advised by Debtors’ counsel. By contrast, the Committee can, and is prepared, to

continue its truly unbiased investigation on the potential fraudulent transfers, and can report back

to the Court on the investigation’s results in a matter of weeks.

g. The Bankruptcy Cases

27. On October 14, 2018 (the “Petition Date”), the Debtors filed voluntary petitions

for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

Northern District of Alabama (the “Court”). Pursuant to sections 1107 and 1108 of the

Bankruptcy Code, the Debtors continue to operate their businesses and properties as debtors-in-

possession. No trustee or examiner has been appointed in these cases.

10 Mission Coal also wholly owns Seminole. Seminole’s assets include operating assets from the bankruptcy estate of Walter Energy, Inc., which ERP acquired on February 1, 2016. Seminole, in turn, owns two subsidiaries: Seminole Alabama Mining Complex, LLC and Seminole West Virginia Mining Complex, LLC.


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28. On October 25, 2018, the Bankruptcy Administrator appointed the nine-member

Committee. [Docket No. 147]. The Committee convened and selected counsel on October 30,

2018.

h. The Debtors’ Prepetition Capital Structure

29. As of the Petition Date, the Debtors state they have approximately $175 million in

total unfunded debt obligations consisting of $104 million owed under a certain first lien credit

agreement by and among Mission Coal, as borrower, Lara Natural Resources, LLC as a Loan

Party (a non-debtor), Delaware Trust Company, as Administrative Agent, and the First Lien

Lenders (the “First Lien Loans” or “First Lien Credit Agreement”) and $71 million owed under

the Second Lien Credit Agreement by and among Mission Coal, Seminole Coal Resources, LLC,

Seneca Coal Resources, LLC, collectively as the borrowers and the guarantors parties thereto,

and Second Lien Lenders (the “Second Lien Loans” or “Second Lien Credit Agreement”).

30. Based on the Committee’s limited, preliminary review, it appears there may be

grounds for asserting significant avoidance claims against parties, including the First Lien

Lenders and the Second Lien Lenders (collectively, the “Prepetition Secured Parties”) which

could provide substantial recoveries to general unsecured creditors. Additionally, there appears

to be grounds to recharacterize or equitably subordinate the validity and priority of the Second

Lien Loans based upon the insider ownership and questionable conduct of the certain Second

Lien Lenders.

31. Moreover, the Committee has not yet had the opportunity to investigate whether

the Prepetition Secured Parties have properly perfected their interest in any of the prepetition

collateral. After investigation, the Committee may determine that certain of the Prepetition

Secured Parties’ liens are not properly perfected, thereby uncovering substantial sources of value

recoverable through avoidance actions.

RELIEF REQUESTED

32. Pursuant to Bankruptcy Rule 2004, the Court should authorize the issuance of

subpoenas/document requests to the 2004 Recipients in substantially the form and manner set


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forth in the Proposed Order attached hereto as Exhibit A, and the 2004 Document Requests,

which are attached hereto as Exhibit B.

33. Moreover, the Committee needs to be informed in short order to meaningfully

participate in these seminal case events. As a fiduciary for all unsecured creditors, the Committee

is granted broad statutory powers to, among other things, “investigate the acts, conduct, assets

and liabilities and financial condition of the debtor, . . . and any other matter relevant to the case

or to the formulation of a plan.” 11 U.S.C. §1103(c)(2).

34. While the Debtors have produced certain documents related to the Delaware

Litigation and the Debtors, given the nature of the numerous allegations surrounding instances of

self-dealing by the Debtors’ Principals, below-market coal sales to affiliates, owner distributions,

and other transfers to affiliates and insiders, the Committee believes that pursuant to its duties

and in an effort to investigate any possible avoidance actions, including fraudulent transfers, this

Motion is necessary and appropriate.

35. The examination of the 2004 Recipients and the 2004 Document Requests will

inform whether, and to what extent, the 2004 Recipients may have (i) breached any fiduciary

duties; (ii) made or received transfers that may constitute fraudulent transfers or preferences; (iii)

coordinated their actions; and/or (iv) breached any covenant of good faith and fair dealing.

Moreover, the documents in the possession and/or control of the 2004 Recipients will help the

Committee determine whether any causes of action may have arisen out of the Second Lien

Loans.

36. Pursuant to Bankruptcy Rule 2004, the 2004 Recipients should be ordered to

appear for examination by the Committee as specified in the Proposed Order attached as Exhibit

A.

37. Also pursuant to Bankruptcy Rule 2004, the Court should authorize the issuance

of subpoenas/document requests to the 2004 Recipients in substantially the form and manner set

forth in the Proposed Order and the 2004 Document Requests, which are attached hereto as

Exhibit B.


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38. Until the 2004 Recipients appear for examination by the Committee and the 2004

Recipients produce the documents requested by the 2004 Document Requests, the Committee

will not be able to fully discharge its fiduciary duty to all creditors by investigating potential

claims and causes of action, including claims and causes of action against the Principals and

Prepetition Secured Parties.

REQUESTED DISCOVERY

39. The Committee respectfully submits that sufficient cause exists for the Court to

authorize the issuance of subpoenas for the 2004 Recipients to appear for examination as detailed

in the Proposed Order attached as Exhibit A, and to produce the 2004 Document Requests on an

expedited basis in order for the Committee to investigate whether there are grounds for potential

avoidance actions and other causes of action. The Committee seeks information regarding the

topics and subject matters set forth in Exhibit B attached hereto.

40. In particular, the Committee seeks information about the numerous allegations

surrounding instances of self-dealing by the Principals, below-market coal sales to Mission Coal’s

affiliates, the Principals’ distributions, and other transfers to affiliates and insiders which have

deprived Mission Coal of cash flow and its ability to turn a profit despite, arguably, one of the better

coal markets in recent years.

41. Discovery is appropriate for a number of independent reasons, including, without

limitation: (i) the existence of potential avoidance actions for a bankruptcy estate with excessive

debt and ownership/management teams that are incapable of operating the Debtors’ business in

good faith; and (ii) the extent, nature, validity and priority of the Second Lien Loans and whether

these loans should be recharacterized or equitably subordinated in light of the insider ownership

and questionable conduct of such parties; and (iii) the effort of the Debtors and their “independent

board members” to forestall the Committee’s investigation efforts by performing their own cursory

review. These circumstances require that the 2004 Recipients not delay the Committee’s efforts

to obtain necessary information critical to the Committee’s ongoing investigation.


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42. Each request in the 2004 Document Requests seeks information concerning the

acts, conduct, property, liabilities, and/or financial condition of the Debtors, or matters affecting

the administration of the Debtors’ estates. As a result, the 2004 Document Requests fall squarely

within the scope of discovery permissible under Bankruptcy Rule 2004. The relief requested herein

should be granted to permit the Committee to adequately investigate claims against the Debtors’

estates and prevent further dissipation of assets. Accordingly, the Committee respectfully submits

that the Motion should be granted, and the Committee be authorized to conduct the Bankruptcy

Rule 2004 discovery requested herein on an expedited basis.

BASIS FOR RELIEF

43. The facts and circumstances outlined above demonstrate that good cause exists to

allow the Committee to pursue the requested Bankruptcy Rule 2004 discovery in order to aid the

Committee’s investigation into potential causes of action. The examination of the 2004

Recipients and the 2004 Document Requests are intended to provide a more complete picture of

the specific conduct of the 2004 Recipients that is not otherwise available to the Committee, and

will provide the requisite facts needed to determine whether any potential causes of action exist

and should be pursued.

44. As previously stated, the Committee is a fiduciary for all unsecured creditors.

Thus, the Committee is granted broad statutory powers to, among other things, “investigate the

acts, conduct, assets, liabilities, and financial condition of the debtor . . . and any other matter

relevant to the case or to the formulation of a plan.” 11 U.S.C. § 1103(c)(2). To permit the

Committee to exercise its investigative powers, Bankruptcy Rule 2004 provides that “[o]n

motion of any party in interest, the court may order” the production of documents. Fed. R.

Bankr. P. 2004(c).

45. Discovery under Bankruptcy Rule 2004 includes within its scope, inter alia, any

matter that may relate to the property and assets of the estate; the financial condition of the

debtor; and any matter that may affect the administration of a debtor’s estate. See Fed. R. Bankr.

P. 2004(b); see also In re Teleglobe Commc’ns Corp., 493 F.3d 345, 354 n.6 (3d Cir. 2007)


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(Rule 2004 allows parties with an interest in the bankruptcy estate to conduct discovery into

matters affecting the estate); Official Comm. of Unsecured Creditors of Cybergenics Corp. v.

Chinery, 330 F.3d 548, 564-65 (3d Cir. 2003) (“creditors’ committee may certainly assist a

debtor in locating property under Bankruptcy Rule 2004”); In re Wash. Mut., Inc., 408 B.R. 45,

50 (Bankr. D. Del. 2010) (“[t]he purpose of the examination is to enable the trustee to discover

the nature and extent of the bankruptcy estate.”); In re Johns-Manville Corp., 42 B.R. 362, 364

(S.D.N.Y. 1984) (“The examination of witnesses having knowledge or the debtor’s acts, conduct,

liabilities, assets, etc. is [] proper”). Bankruptcy Rule 2004 affords both debtors and creditors

the broad rights of examination of a debtor’s or third-party’s records. See Snyder v. Soc’y

Bank, 181 B.R. 40, 41-42 (S.D. Tex. 1994) (emphasis added) (citing Cameron v. United States,

231 U.S. 710, 716 (1914)).

46. Indeed, the scope of inquiry under Bankruptcy Rule 2004 is broad because “[t]he

purpose of a Rule 2004 examination is to assist a party in interest in determining the nature and

extent of the bankruptcy estate, revealing assets, examining transactions and assessing whether

wrongdoing has occurred.” In re Recoton Corp., 307 B.R. 751, 755 (Bankr. S.D.N.Y. 2004).

This broad inquiry extends to third parties “[b]ecause the purpose of the Rule 2004 investigation

is to aid in the discovery of assets, any third party who can be shown to have a relationship with

the debtor can be made subject to a Rule 2004 investigation.” In re Ionosphere Clubs, Inc., 156

B.R. 414, 432 (S.D.N.Y. 1993), aff’d, 17 F.3d 600 (2d Cir. 1994); see also In re Mittco, Inc., 44

B.R. 35, 36 (Bankr. D. Wis. 1984) (“[w]hen there is a showing that the purpose of the

examination is to enable a party to probe into matters which may lead to the discovery of assets

by examining not only the debtor, but also other witnesses, such inquiry is allowed”); In re

Wilcher, 56 B.R. 428, 433 (Bankr. N.D. Ill. 1985) (Rule 2004 examination “may extend to

creditors and third parties who have had dealings with the debtor”). This is because “[t]he clear

intent of Rule 2004 . . . is to give parties in interest an opportunity to examine individuals having

knowledge of the financial affairs of the debtor in order to preserve the rights of creditors.” In re

GHR Cos., Inc., 41 B.R. 655, 660 (Bankr. D. Mass. 1984).


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47. Furthermore, even in instances where estate representatives try to ascertain

whether or not to pursue estate claims, Bankruptcy Rule 2004 is recognized as a proper pre-

litigation device that can uncover facts and circumstances that may demonstrate whether a

debtor’s estate holds a claim against a third party and the strength of any such claim. In fact,

“[o]ne of the primary purposes of a Rule 2004 examination is as a pre-litigation device.” Wash.

Mut., 408 B.R. at 53. Similarly, as noted in Bennett Funding Group, Bankruptcy Rule 2004 “is

properly used as a pre-litigation device to determine whether there are grounds to bring an

action.” Bennet Funding, 203 B.R. 24, 28 (Bankr. N.D.N.Y. 1996); see also, In re Blitz U.S.A.,

Inc., Case No. 11-13603 (PJW) (Bankr. D. Del. June 12, 2012); In re Cynergy Data, LLC, Case

No. 09-13038 (KG) (Bankr. D. Del. April 21, 2010); In re Amp’d Mobile, Inc., Case No. 07-

10739 (BLS) (Bankr. D. Del. Aug. 5, 2008) (granting Rule 2004 request for investigation into

claims for potential improper use and/or conversion of intellectual property); In re Rosenberg,

303 B.R. 172, 175 (B.A.P. 8th Cir. 2004) (use of Rule 2004 to investigate potential claims

against the debtor’s employer permitted where the claim is an asset of the estate); In re Hughes,

281 B.R. 224, 226 (Bankr. S.D.N.Y. 2002) (rejecting argument that a subpoena issued against an

accounting firm seeking the production of documents was improper because it was primarily

sought for the purpose of investigating potential claims that the debtor may have against the

accounting firm).

48. As set forth herein, there are numerous allegations against the Principals related to

transfers and other dealings which could have a significant impact on the Mission Coal

bankruptcy estates. Accordingly, the Committee’s Motion seeking authorization to issue

subpoenas for the examination of the 2004 Recipients and the production of documents by the

2004 Recipients should be granted.

RESERVATION OF RIGHTS

49. The Committee reserves all rights to serve additional requests for documents or

examinations in the course of its investigation, pursuant to Bankruptcy Rule 2004 or otherwise,


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and to propound discovery in connection with this matter and/or any other matter that may arise

in these cases.

[Remainder of this page intentionally left blank]


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CONCLUSION

WHEREFORE, the Committee respectfully requests the Court grant the Motion

and enter the Proposed Order attached hereto as Exhibit A, and grant the Committee such further

relief as is just and appropriate.

Dated: November 12, 2018 BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, P.C.

/s/ Rita Hullett_________________ Rita Hullett, Esq. 1400 Wells Fargo Tower 420 20th Street N Birmingham, AL 35203 Telephone: (205) 276-9807

Email: [email protected] LOWENSTEIN SANDLER LLP

Jeffrey Cohen Jennifer Kimble 1251 Avenue of the Americas New York, New York Telephone: (212) 262-6700 Facsimile: (212) 262-7402 E-mail: [email protected] [email protected] – and – Mary Seymour Michael Kaplan One Lowenstein Drive Roseland, New Jersey 07068 (973) 597-2500 (Telephone) (973) 597-2400 (Facsimile) E-mail: [email protected] [email protected]

Proposed Counsel for the Official Committee of Unsecured Creditors


EXHIBIT C

Case 18-04177-TOM11 Doc 250-1 Filed 11/12/18 Entered 11/12/18 15:52:01 Desc Exhibit A Page 1 of 3

36027/2

11/12/2018 203161247.4


SOUTHERN DIVISION


Debtors.


ORDER GRANTING THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS’ MOTION FOR AN ORDER PURSUANT TO BANKRUPTCY

RULE 2004 AUTHORIZING THE EXAMINATION AND PRODUCTION OF DOCUMENTS BY MISSION COAL FUNDING, LLC

Upon consideration of The Official Committee of Unsecured Creditors’ Motion for an

Order Pursuant to Bankruptcy Rule 2004 Authorizing the Examination and the Production of

Documents by Mission Coal Funding, LLC (the “Motion”),2 and any responses thereto; and the

Court having conducted a hearing on the Motion, and upon the record thereof; and after due

deliberation thereon; and good and sufficient cause existing therefor, it is hereby

ORDERED, ADJUDGED, AND DECREED that:

1. The Motion is granted as set forth herein.

2. The Committee is authorized to (a) conduct a Rule 2004 examination of Mission

Coal Funding, LLC, and (b) serve on Mission Coal Funding, LLC document requests

substantially in the form attached as Exhibit B to the Motion.

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, include: Mission Coal Company, LLC (8465); Beard Pinnacle, LLC (0637); Oak Grove Land Company, LLC (6068); Oak Grove Resources, LLC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company, LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, LLC (1795); Seminole West Virginia Mining Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North American Coal, LLC (5102). The location of the Debtors’ service address is: 7 Sheridan Square, Suite 300, Kingsport, Tennessee 37660. 2 Capitalized terms used but otherwise not defined herein shall have the meanings ascribed to such terms in the Motion.


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3. Mission Coal Funding, LLC must respond to the document requests on a rolling

basis following the entry of this Order so as to be completed no later than forty five (45) days

after entry of this Order.

4. The Committee is authorized to depose Mission Coal Funding, LLC upon service

of appropriate deposition notices and subpoenas, if it determines that depositions are warranted.

Such depositions shall take place no earlier than ten (10) days after substantial completion of the

above referenced document production. In any event, such depositions shall be completed within

ninety (90) days after entry of this Order.

5. Mission Coal Funding, LLC may designate one or representatives (the “MCF’s

Designees”) to testify on Mission Coal Funding, LLC’s behalf concerning the matters on which

examination is requested as described by the Committee. The Debtors shall be bound by the

testimony of the MCF’s Designees.

6. Nothing in this Order shall be deemed to limit or restrict the Committee’s right to

seek further discovery, including but not limited to additional documents and communications,

from Mission Coal Funding, LLC.

7. Notwithstanding Bankruptcy Rule 6004(h), this Order shall be effective and

enforceable immediately upon entry.

8. This Court shall retain jurisdiction to resolve any disputes arising from or related

to this Order, and to interpret, implement, and enforce the provisions of this Order.

Dated: Birmingham, Alabama November __, 2018 __________________________________________ HONORABLE TAMARA O. MITCHELL UNITED STATES BANKRUPTCY JUDGE


EXHIBIT B

Case 18-04177-TOM11 Doc 250-2 Filed 11/12/18 Entered 11/12/18 15:52:01 Desc Exhibit B Page 1 of 11


SOUTHERN DIVISION


Debtors.


THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS’ REQUESTS

FOR DOCUMENTS AND INFORMATION FROM MISSION COAL FUNDING, LLC

DEFINITIONS

1. “Bankruptcy Court” means the United States Bankruptcy Court for the

District of Delaware.

2. “Board” means any Officer, Director, or any group, or subcommittee with

the responsibility of, among other things, governing the Debtors and/or the Non-Debtors or

overseeing the activities and operations of the Debtors and/or the Non-Debtors.

3. “Chapter 11 Cases” means the chapter 11 cases filed by the Debtors in the

Bankruptcy Court on the Petition Date, jointly administered under Case No. 18-04177.

4. “Communication” means any writing or any oral conversation of any kind

or character, including, by way of example and without limitation, e-mails, instant messages, text

messages, voicemail or messages, personal conversations, telephone conversations, letters,

meetings, memoranda, telegraphic and telex communications or transmittals of Documents, and

all Documents concerning such writing or such oral conversation. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, include: Mission Coal Company, LLC (8465); Beard Pinnacle, LLC (0637); Oak Grove Land Company, LLC (6068); Oak Grove Resources, LLC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company, LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, LLC (1795); Seminole West Virginia Mining Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North American Coal, LLC (5102). The location of the Debtors’ service address is: 7 Sheridan Square, Suite 300, Kingsport, Tennessee 37660.


-2-

5. “Concerning” means consisting of, reflecting, referring to, relating to,

regarding, involving, evidencing, constituting, or having any legal, logical, evidential, or factual

connection with (whether to support or to rebut) the subject matter designated in any paragraph

of these requests. A request for documents “concerning” a specified subject matter always shall

include communications, notes, and memoranda (whenever prepared) relating to the subject

matter of the request.

6. “Debtors” means the above-captioned debtors and debtors-in-possession,

including their predecessors or successors, assignees, prior or current parents, partners,

subsidiaries, affiliates or controlled companies, and each of their prior or current Officers,

Directors, employees, agents, advisors, and attorneys.

7. “DIP Motion” means the Debtors’ Motion for Entry of Interim and Final

orders (I) Authorizing Postpetition Secured Financing Pursuant to 11 U.S.C. §§ 105(A), 361,

362, 363, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e), (II) Authorizing the Debtors’

Use of Cash Collateral Pursuant to 11 U.S.C. § 363, (III) Granting Adequate Protection

Pursuant to 11 U.S.C. §§ 361, 363 and 364, and (IV) Scheduling a Final Hearing Pursuant to

Bankruptcy Rules 4001(b) and 4001(c) [Docket No. 34].

8. “Directors” means each present and former director of the Debtors and

Non-Debtors.

9. “Document(s)” means, without limitation, the original and all copies, prior

drafts, and translations of information in any written, typed, printed, recorded or graphic form,

however produced or reproduced, of any type or description, regardless of origin or location,

including without limitation all Electronically Stored Information, correspondence, records,

tables, charts, analyses, graphs, schedules, reports, memoranda, notes, lists, calendar and diary


-3-

entries, letters (sent or received), telegrams, telexes, messages (including, but not limited to,

reports of telephone conversations and conferences), studies, books, periodicals, magazines,

booklets, circulars, bulletins, instructions, papers, files, minutes, other communications

(including, but not limited to, inter- and intra-office communications), questionnaires, contracts,

memoranda or agreements, assignments, licenses, ledgers, books of account, orders, invoices,

statements, bills, checks, vouchers, notebooks, receipts, acknowledgments, microfilm,

photographs, motion pictures, video tapes, photographic negatives, phonograph records, tape

recordings, wire recordings, voice mail recordings or messages, other mechanical records,

transcripts or logs of any such recordings, and all other data compilations from which

information can be obtained. The term “Document(s)” is intended to be at least as broad in

meaning and scope as the usage of this term in or pursuant to the Federal Rules of Civil

Procedure.

10. “Electronically Stored Information” shall include, without limitation, the

following:

a. Information that is generated, received, processed, recorded, or

accessed by computers and other electronic devices, including but not

limited to e-mail;

b. Internal or external web sites;

c. Output resulting from the use of any software program; and

d. All items stored on cache memories, magnetic disks (such as computer

hard drives or floppy drives), optical disks (such as DVDs or CDs),

magnetic tapes, microfiche, or on any other media for digital data

storage or transmittal (e.g., a smartphone such as an iPhone®, a tablet


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such as an iPad®, or a personal digital assistant such as a

Blackberry®).

11. “Identify” means to state, to the extent known (or, if not known, to so

state), the (i) type of document; (ii) general subject matter; (iii) date of the document; and (iv)

author(s), addressee(s), and recipient(s).

12. “Mission Coal” means Mission Coal Company, LLC, including and its

present and former parents, members, partners, direct and indirect subsidiaries, affiliates,

predecessors, successors, employees, officers, directors, agents, advisors, contractors,

representatives, attorneys, and all other persons and entities acting or purporting to act on its

behalf.

13. “Mission Coal Funding” means Mission Coal Funding, LLC, along with

any other funds and/or entities that currently hold and/or control any securities in connection

with the Debtors and/or related Non-Debtors and their present and former parents, members,

partners, subsidiaries, affiliates, predecessors, successors, employees, officers, directors, agents,

advisors, contractors, representatives, attorneys, and all other persons and entities acting or

purporting to act on its behalf.

14. “Non-Debtors” means any affiliate and/or direct or indirect subsidiary of

the Debtors who are not Debtors in the Chapter 11 Cases, including their professionals,

employees, agents and other representatives.

15. “Officers” means each present and former officer of the Debtors and Non-

Debtors.

16. “Person” means any natural person or any business, legal, or governmental

entity or association.


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17. “Petition Date” means October 14, 2018.

18. “Relating to” means consisting of, reflecting, referring to, regarding,

Concerning, involving, evidencing, constituting, or having any legal, logical, evidential, or

factual contention with (whether to support or to rebut) the subject matter designated in any

paragraph of this request. A request for documents “relating to” a specified subject matter

always shall include notes and memoranda (whenever prepared) relating to the subject matter of

the request.

19. “Second Lien Credit Agreement” means the certain Amended and

Restated Secured Loan Agreement dated January 31, 2018 (as amended, restated, amended and

restated, waived, supplemented, or otherwise modified) by and among Mission Coal, Seminole

Coal Resources, LLC, Seneca Coal Resources, LLC, collectively as the borrowers, the

guarantors party thereto, and Mission Coal Funding, LLC and the lenders from time to time a

party thereto.

20. “Time Period” means October 14, 2014 through the present, unless

otherwise noted.

RULES OF CONSTRUCTION

1. The following rules of construction apply to these Requests: (1) the terms

“all” and “each” shall be construed as all and each; (2) the connectives, “and” and “or” shall be

construed either disjunctively or conjunctively as necessary to bring within the scope of these

Requests all responses that might otherwise be construed to be outside of their scope; and (3) the

use of the singular form of any word shall include the plural and vice versa.


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2. Capitalized terms not defined herein shall have the meaning ascribed to

them in the DIP Motion, as applicable. All other words, terms, and phrases not defined herein are

to be given their normal and customary meaning in the context in which they are used.

INSTRUCTIONS

1. Unless otherwise indicated, all documents shall be produced for the

relevant time period, including any documents having an earlier origin and in use during the

relevant time period.

2. The obligation to produce documents responsive to these Requests shall be

continuing in nature, and a producing party is required promptly to produce any document

requested herein that it locates or obtains after responding to these Requests, up to the conclusion

of the Chapter 11 Cases.

3. Where an objection is made to any document request, the objection shall

state with specificity all grounds for objection.

4. Where a claim of privilege is asserted in objecting to the production of any

document and a document called for by this Request is withheld on the basis of such assertion,

the objecting party shall identify the nature of the privilege (including work product) that is

being claimed and, if the privilege is governed by state law, indicate the state’s privilege rule

being invoked. In addition, the objecting party shall provide the following information with

respect to any document so withheld: (i) the type of document, e.g., letter or memorandum; (ii)

the general subject matter of the document; (iii) the date of the document; and (iv) such other

information as is sufficient to identify the document for a subpoena duces tecum, including,

where appropriate, the author of the document, the addressees of the document, and any other


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recipients shown in the document, and, where not apparent, the relationship of the author,

addressees, and recipients to each other.

5. In the event that a requested document has been lost, destroyed, discarded,

and/or otherwise disposed of; the parties will identify the document by identifying: (i) its author

or preparer; (ii) all persons to whom distributed or shown; (iii) date; (iv) subject matter; (v)

attachments or appendices; (vi) date, manner, and reason for destruction or other disposition;

(vii) person authorizing destruction or other disposition; (viii) the document request or requests

to which the document is responsive.

6. Produce all responsive documents as they are kept in the usual course of

business, or organize and label them to correspond with the Request to which they are

responsive.


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DOCUMENT REQUESTS TO MISSION COAL FUNDING

1. Any and all Documents reviewed or considered by Mission Coal Funding concerning the decision by Mission Coal Funding to enter into the Second Lien Credit Agreement.

2. Any and all Documents provided to Mission Coal Funding, including, but without limitation, via electronic or hard copy transmission or via a data room, in connection with the Second Lien Credit Agreement.

3. Any and all Documents pursuant to which a lien was granted to Mission Coal Funding securing the Second Lien Credit Agreement.

4. Any and all Documents and Communications between Mission Coal Funding on the one hand and Mission Coal on the other hand during the Time Period Concerning Mission Coal and/or the Second Lien Credit Agreement.

5. Any and all Documents and Communications between Mission Coal Funding on the one hand and Zolfo Cooper, LLC on the other hand during the Time Period Concerning Mission Coal and/or the Second Lien Credit Agreement.

6. Any and all Documents and Communications between Mission Coal Funding on the one hand and Jefferies LLC on the other hand during the Time Period Concerning Mission Coal and/or the Second Lien Credit Agreement.

7. Any and all Documents and Communications between Mission Coal Funding on the one hand and any Person (not included in Document Requests [4] through [6] above) on the other hand during the Time Period Concerning Mission Coal and/or the Second Lien Credit Agreement.

8. Any and all Documents and Communications created between January 31, 2018 and the Petition Date Concerning the Debtors’ actual or projected financial performance or financial condition (including any segmental analysis), including but not limited to any projection, analysis, proposal, study, plan (including business plan), report, prediction, forecast, statement, or opinion (by any Person, and whether formal or informal), financial statement, balance sheet, income statement, statement of cash flows, cash flow projection, revenue projection, or forecast or analysis of Mission Coal’s actual or projected compliance or ability to comply with the covenants under the Second Lien Credit Agreement.

9. Any and all Documents provided by Mission Coal Funding to its board or committee that authorized Mission Coal Funding to enter into the Second Lien Credit Agreement.


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10. Any and all Documents and Communications Concerning, discussing, or constituting any valuation or appraisal of the business or assets of any of the Debtors from October 14, 2016 to the present date.

11. Any and all Documents and Communications Concerning or containing any opinion on the solvency or potential solvency of the Debtors (or any of them) between October 14, 2016 and the Petition Date.

12. Documents sufficient to identify Mission Coal Funding as of the Petition Date and its respective holdings under the Second Lien Credit Agreement, as applicable.

13. Any and all Documents and Communications Concerning the acquisition or disposition by Mission Coal Funding of any securities (including but not limited to common stock, preferred stock, units, membership interests, partnership interests, and all other equity interests) issued by, or debt (including but not limited to any loan or loan participation) owed by Mission Coal.

14. Any and all Documents and Communications Concerning the debt schedule of the Second Lien Credit Agreement, including those showing daily balances from inception of the Second Lien Credit Agreement.

15. Any and All Documents and Communications Concerning any payments (including prepayments) of the Second Lien Credit Agreement, including, but not limited to, documents sufficient to identify the entities that funded each of the payments, the source of funds used for such payments, how each payment was recorded by Mission Coal, and the solvency analysis performed in connection with payment.

16. Any and all Documents and Communications Concerning any financial consultant that Mission Coal retained in connection with the Second Lien Credit Agreement.

[Remainder of the page intentionally left blank]


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Dated: November 12, 2018 BAKER DONELSON BEARMAN CALDWELL

& BERKOWITZ, P.C.

/s/ Rita Hullett_________________ Rita Hullett, Esq. 1400 Wells Fargo Tower 420 20th Street N Birmingham, AL 35203 Telephone: (205) 276-9807

Email: [email protected] LOWENSTEIN SANDLER LLP

Jeffrey Cohen (pro hac vice admission pending) Jennifer Kimble 1251 Avenue of the Americas New York, New York Telephone: (212) 262-6700 Facsimile: (212) 262-7402 E-mail: [email protected] [email protected] – and – Mary Seymour (pro hac vice admission pending) Michael Kaplan (pro hac vice admission pending) One Lowenstein Drive Roseland, New Jersey 07068 (973) 597-2500 (Telephone) (973) 597-2400 (Facsimile) E-mail: [email protected] [email protected]

Proposed Counsel for the Official Committee of Unsecured Creditors


EXHIBIT C

Case 18-04177-TOM11 Doc 250-3 Filed 11/12/18 Entered 11/12/18 15:52:01 Desc Exhibit C Page 1 of 70

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

CLEVELAND-CLIFFS INC. f/k/a CLIFFS NATURAL RESOURCES INC. and CLF PINNOAK LLC,

Plaintiffs,

v.

SENECA COAL RESOURCES, LLC, THOMAS M. CLARKE, ANA M.CLARKE, KENNETH R. MCCOY,JASON R. MCCOY, CHARLES A. EBETINO, JR., LARA NATURAL RESOURCES, LLC, and IRON MANAGEMENT II, LLC,

Defendants.

))))))))))))))))))

C.A. No. N18C-05-058-PRW-CCLD

JURY TRIAL DEMANDED

COMPLAINT

Plaintiffs Cleveland-Cliffs Inc. f/k/a Cliffs Natural Resources Inc. (“Cliffs”)

and CLF PinnOak LLC (“CLF”), for their Complaint against Defendants Seneca

Coal Resources, LLC (“Seneca”), Thomas M. Clarke, Ana M. Clarke, Kenneth R.

McCoy, Jason R. McCoy, Charles A. Ebetino, Jr. (collectively, the “Individual

Defendants”), Lara Natural Resources, LLC (“Lara Natural Resources”) and Iron

Management II, LLC (“Iron Management” and along with Seneca, the Individual

Defendants, and Lara Natural Resources, the “Defendants”) specifically allege the

following:

EFiled: May 10 2018 10:46AM EDT Transaction ID 62014587

Case No. N18C-05-058 PRW CCLD

Case 18-04177-TOM11 Doc 250-3 Filed 11/12/18 Entered 11/12/18 15:52:01 Desc Exhibit C Page 2 of 70

2

INTRODUCTION

1. This is an action for damages for violations of 18 U.S.C. §§ 1962(a),

1962(c) and 1962(d), fraudulent conveyance, common law conspiracy, and breach

of contract. It arises from a systematic and sustained scheme by Defendants to

defraud Plaintiffs of the funds and assets that Seneca owed them, and the ultimate

laundering of those funds and remaining Seneca assets into a new criminal

enterprise, Mission Coal Company, LLC. Defendants carried out this fraudulent

scheme through a sustained pattern, over an extended period of time, of illicit and

illegal transfers of Seneca’s assets and funds to their own personal accounts and to

other legal entities that they controlled.

2. The scheme, to which all Defendants agreed, was hatched by Thomas

Clarke. As detailed below, it comes from a playbook that he has developed over

the course of his career. The existence and scope of this scheme did not become

clear until recent discovery and further factual investigation allowed Defendants to

finally connect the dots.

3. Defendants formed Seneca in December 2015 for the sole purpose of

purchasing two coal mines from Cliffs. That purchase included ongoing

obligations based on the operation of the mines transferred to Seneca. But Seneca

has not honored those obligations. Instead, the Individual Defendants, as part of a

continuous and ongoing scheme to defraud, have regularly and repeatedly used

Case 18-04177-TOM11 Doc 250-3 Filed 11/12/18 Entered 11/12/18 15:52:01 Desc

Exhibit C Page 3 of 70

3

Seneca for their own ends. Defendants have transferred Seneca’s funds and assets

to themselves, Lara Natural Resources, Iron Management, and other Seneca

affiliates. The Individual Defendants, separately among themselves as well as with

the corporate Defendants, combined, conspired, confederated and agreed to treat

Seneca as their personal piggy bank, rather than paying money due and owing to

Cliffs and CLF on or around the time of the transfers. And despite submitting

sworn statements to a federal court in early 2017 promising not to distribute

Seneca funds without thirty days’ notice to Cliffs, discovery has revealed that such

distributions have continued into 2018.

4. In January 2018, Defendants transferred the assets of Seneca and

other affiliated companies into a newly created entity, Mission Coal Company,

LLC (“Mission Coal”). Defendants then had this new entity pledge its assets in

order to obtain more than in additional financing, a significant portion

of which was immediately distributed for the benefit of Thomas Clarke (and

possibly other Individual Defendants as well). Although the financing was

obtained based, in part, on Seneca’s assets, none of the funds were reserved for the

millions of dollars that Clarke has admitted Seneca owes Cliffs.

5. Since acquiring the two coal mines from Cliffs in December 2015,

Defendants have committed many acts of wire and mail fraud in furtherance of

their ongoing scheme to pilfer the assets of Seneca for their own benefit while



4

moving assets in a way designed to avoid the legitimate claims of creditors,

including Cliffs. More plainly, Defendants turned Seneca into a criminal

enterprise, the regular way of doing business of which centered on this systematic

pattern of fraudulent conveyances to Defendants and others affiliated with Seneca.

And the extent of this ruse is still coming into focus. Cliffs learned that the

Mission Coal transaction had occurred and of the corresponding distribution to Mr.

Clarke for the first time in a February 2018 deposition. Even today, Defendants

refuse to provide complete documentation of the refinancing and distribution,

despite committing to working to make such information available.

6. None of this is new for Thomas Clarke. Over the course of this

litigation Plaintiffs have learned that the fraudulent scheme the Defendants have

implemented comes straight out of a playbook developed by Clarke over the past

three decades. A review of his business transactions shows a remarkably similar

and evolving pattern: acquire a legitimate company, leverage that company in

order to take in substantial funds, pay those funds (under the guise of

“management” or purportedly valid fees) to himself or other entities he controls,

default on the acquired company’s debts, delay or simply ignore payments to

creditors, and leave the former entity in ruins or bankruptcy.

7. From May 1987 to 1991, Clarke was treasurer and chief financial

officer of Berkshire Health Systems, Inc. (“Berkshire”), an operator of medical



5

facilities based in Pittsfield, Massachusetts. Scott Van Hooris, Lenox Healthcare

Inc. eyes Berkshire’s Nursing Homes, Boston Bus. J. (Mar. 31, 1997),

https://goo.gl/8JqKiv (“Lenox Healthcare”). Clarke was fired from Berkshire in

1991, after the company amassed in excess of $60 million in debt under Clarke’s

aggressive expansion plan as chief financial officer. Id. The Massachusetts

attorney general also investigated allegedly unauthorized intercompany transfers of

$8.5 million. Matt Robinson and Bryan Gruley, What's a Nursing-Home Operator

Doing Running an Iron Mine?, BLOOMBERG BUSINESSWEEK (Mar. 21, 2018),

https://goo.gl/Y7q2c6 (“Nursing-Home Operator”). With Clarke gone, Berkshire

agreed to specific changes to its corporate governance to address the problems.

Nursing-Home Operator. Even after he was terminated, Clarke attempted to

capitalize on Berkshire’s financial woes, proposing that Berkshire sell its nursing-

home division to a company that Clarke owned. Lenox Healthcare. Having seen

Clarke’s methods up close, Berkshire rejected the offer. As the company’s new

chief financial officer explained, “[g]iven Tom’s history in the debacle of the early

1990s related to the financial issue here, the board at this time has no interest at all

in doing business with Mr. Clark [sic].” Id.

8. Others close to Clarke reached similar conclusions about his business

practices. In 2004, Clarke and his then-wife, Linda, divorced after 24 years of

marriage. Linda had also been Clarke’s business partner. In a post-divorce lawsuit,



6

she accused him of shifting money among corporate entities he controlled in order

to keep it from her. “Mr. Clarke has a history of not paying vendors,” one of his

ex-wife’s filings says. Nursing-Home Operator. “He manages to keep the

companies going from cash flow, one company constantly borrows from the other

to stay afloat.” Id.

9. While facing a threatened IRS collection matter in 2005 for unpaid

payroll taxes, Clarke moved to Venezuela (which has no extradition treaty with the

US) for approximately seven months. While there he charged his company Senior

Care Management Services, Inc. (“SCMS”) for his living expenses and to charter a

private jet for his honeymoon with his new wife, Individual Defendant Ana Clarke.

At the time, the company owed vendors more than $1.5 million. In addition to his

salary, he took an additional $150,000 from the company in what were referred to

as “donations.” These funds were normally wired to different accounts set up by

Clarke and referred to as “donation accounts.”

10. In one email, Clarke bragged about his ability to stymie creditors

through byzantine organizational structures and international entities.

From: tom Clarke [mailto:[redacted]@hotmail.com] sent: Mon 4/4/2005 7:05AMTo: Clarke, Linda; Glass, Gail Cc: [redacted]@hotmail.com Subject: senior care management services lawsuits



7

gail and linda….tbe number of lawsuits against senior care management services is staggering…when people learn about our insurance policy and single purpose entities they assume the gold mine is in senior care…haha…but every once and awhile they go crazy like our friends in virginia and we end up spending tons of time and money to protect the entire company…also the judgments against senior care effect our credit and could result in asset seizure…I am going to set up a venezuelan corporation to be the new manager…this makes sense since i will be a dual citizen and I live here…it can not be perceived as a shell…and linda I will incorporate all of our divorce settlement provisions in the new entity…gail can you think of issues surrounding this? I think it would be fun to get service on the Venezuelan entity…tom

11. In 2010, the former chief operating officer of Kissito (another Clarke

company) sounded a similar alarm, accusing Clarke of deliberately creating dozens

of entities in different States in order to frustrate the efforts of anyone who sued the

company. Nursing Home Operator. In a whistleblower lawsuit alleging that

Clarke had overbilled Medicare, the former executive also asserted that Clarke

“underinsures his facilities in order to avoid paying any potential large judgments

or fines.” Id.

12. When others have discovered his practices, Clarke has simply moved

on, finding new opportunities for exploitation. In another of his ventures, Virginia

Conservation Legacy Fund, Inc. and ERP Compliant Fuels, LLC (“ERP”), Clarke

raised money to acquire two mines in West Virginia—one active, one in



8

reclamation—with stated plans to operate both. With the promise of continued

employment, Mr. Clarke secured an eight-figure commitment from the United

Mine Workers for the project. But within two years, the only operating mine was

closed, taking with it 300 jobs. Id. A spokesman for the United Mine Workers

stated: “Our experience with Mr. Clarke has been quite frustrating and

disappointing.” Id. “What was once a showcase mine just a few years ago became

an example of how fast a mine can sink into disrepair when its ownership loses

interest.” Id.

13. ERP was also the vehicle that Clarke used to acquire assets of

Magnetation, including an Indiana pelletizing plant, three Minnesota ore concentrator

plants, and one rail loading center. Magnetation filed for bankruptcy in 2015, and

Clarke (through ERP) acquired it in February 2017. Dee Pass, Rebirth Plans for

Old Magnetation Site Put on Hold, Minn. Star Tribune (Nov. 24, 2017),

https://goo.gl/1pfAs8. Clarke announced plans to restart the ore concentrator plant

in Grand Rapids, Minnesota, that same year, bringing with it 140 jobs. Id. Shortly

thereafter, however, ERP announced that it would not be able to restart the plants

on the promised timeline. According to the president of the Iron Range Building

and Construction Trades, “The whole thing throws big red flags up with all the trade

groups around here.” Id.



9

14. In each of these instances Clarke or others close to him have received

payments from these unsuccessful projects, draining seemingly legitimate entities

of assets for their own personal gain. These ill-fated endeavors reflect Clarke’s

modus operandi: drain substantial funds from his projects into a web of related

companies—through which he can then use funds for his own benefit—all while

delaying payment or entirely defaulting on legitimate debts owed to creditors

which made deals with Clarke believing him to be operating in good faith. That is

the same scheme that Clarke and the other Defendants have implemented in this

case.

15. In this case, Defendants’ coordinated and extensive pattern of

fraudulent activity violates the Racketeer Influenced and Corrupt Organizations

provisions of the Organized Crime Control Act of 1970, commonly known as

RICO (18 U.S.C. §§ 1961–1968). The factual allegations giving rise to these

claims are set forth in detail below. A summary chart of the various entities,

reorganizations, and known internal distributions is set forth in Ex. A.

16. Defendants’ conduct also gives rise to claims for fraudulent

conveyance, conspiracy, and breach of contract. Lara Natural Resources, Iron

Management, and the other Seneca affiliates to which Defendants have transferred

funds are not legitimate creditors of Seneca, and those conveyances were not for

value, but rather made with the intent to hinder, delay, or defraud Cliffs. Seneca



10

also sold coal to its affiliates (or other companies owned or managed by

Defendants) at prices substantially below market rates and not for reasonably

equivalent value—again, with the intent to hinder, delay, or defraud Cliffs. These

conveyances and the refinancing associated with Mission Coal have drained

Seneca of assets and rendered it unable to meet its obligations to Cliffs and CLF.

Instead of complying with its post-closing obligations and paying monies due to

Cliffs and CLF, Seneca has failed and/or refused to comply with its contractual

obligations, causing damage to Cliffs and CLF.

THE PARTIES, JURISDICTION, AND VENUE

17. Cliffs is an Ohio corporation and, for 170 years, Cliffs has had, and

continues to have, its principal place of business in Cleveland, Ohio. Cliffs is a

leading mining and natural resources company and is a major supplier of iron ore

pellets to the North American steel industry from its mines and pellet plants

located in Michigan and Minnesota.

18. CLF is a Delaware corporation with its principal place of business in

Cleveland, Ohio. Cliffs is the ultimate parent of CLF.

19. Seneca is a Delaware limited liability company with its principal place

of business in Virginia, the majority ownership of which is divided among Iron

Management and Lara Natural Resources. Upon information and belief, its

controlling members are Kenneth McCoy, Jason McCoy, and Thomas Clarke.

Charles Ebetino (“Chuck Ebetino”) is a minority shareholder of Seneca.



11

20. Thomas M. Clarke is a citizen of Virginia.

21. Ana M. Clarke is a citizen of Virginia.

22. Kenneth R. McCoy is a citizen of North Carolina.

23. Jason R. McCoy is a citizen of North Carolina.

24. Charles A. Ebetino, Jr. is a citizen of Ohio.

25. Lara Natural Resources is a Virginia limited liability company with its

principal place of business in Virginia. Its sole members are Thomas and Ana

Clarke.

26. Iron Management is a North Carolina limited liability company with

its principal place of business in North Carolina. Its majority members are

Kenneth and Jason McCoy.

27. Seneca, Lara Natural Resources, and Iron Management are all part of

a connected web of entities over which the Individual Defendants are owners.

Seneca is one of many companies affiliated with ERP Compliant Fuels, LLC and

its sister entities, all of whom are affiliated with or owned by Thomas Clarke

and/or at least one of the Individual Defendants. According to a publicly available

organizational chart, ERP Compliant Fuels, LLC is affiliated with Virginia

Conservation Legacy Fund, Inc., Seneca, ERP Environmental Fund, Inc., ERP

Federal Mining Complex, LLC, Seminole Coal Resources, LLC, and ERP

Compliant Coke, LLC, among others (the “Affiliate Companies”). A list of



12

affiliates and organizational chart can be found here: https://goo.gl/aKCMYY.

Contrary to the foregoing, however, ERP Compliant Coke, LLC also holds itself

out to be a subsidiary of ERP Compliant Fuels, LLC. See https://goo.gl/KRTZBw.

28. Cliffs initially filed this matter in the Northern District of Ohio, Case

No. 1:16CV3034. On March 30, 2017, Seneca filed a motion to transfer venue

under 28 U.S.C. § 1404(a), to the District of Delaware pursuant to the forum

selection clause contained in the Unit Purchase Agreement executed by and among

Cliffs and Seneca, among others. [D. Del., No. 17-567-GAM, D.I. 42.]

29. On May 12, 2017, the Northern District of Ohio granted Seneca’s

motion to transfer venue to the United States District Court for the District of

Delaware. [Id. at D.I. 59.] In briefing that motion, Defendants expressly

represented “that there exists a justiciable case or controversy with Plaintiff to vest

this court with subject matter jurisdiction,” based on diversity of citizenship. [Id.,

D.I. 8-1 at 13–14.] However, after the parties expended significant resources and

had substantially completed discovery, Defendants filed a motion to dismiss for

lack of subject matter jurisdiction, which the court granted on April 30, 2018. [Id.

at D.I. 276, 277.] The Court noted in its decision that, despite having no choice but

to grant the motion, “Plaintiffs appear to have diligently prosecuted claims

involving substantial amounts with the goal of avoiding delay and reaching trial.”



13

[Id. at D.I. 276, p.11.] Cliffs and CLF now file this Complaint as a continuation of

the district court litigation and to seek efficient resolution of their claims.

30. This Court has jurisdiction pursuant to Del. C. Ann. Const., Art. 4, §

7, 10 Del. C. § 541, 10 Del. C. § 3104, and 10 Del. C. § 6501. Pursuant to Section

9.10 of the Unit Purchase Agreement (“UPA”) at issue in this case, the parties

selected Delaware as the exclusive jurisdiction and venue for “any litigation arising

out of or in connection with this [UPA] or the transactions contemplated hereby.”

Moreover, this Court has concurrent jurisdiction over Cliffs’ civil claims for

violations of the Racketeer Influenced and Corrupt Organizations provisions of the

Organized Crime Control Act of 1970, 18 U.S.C. §§ 1961–1968. Additionally,

under the UPA, Defendants “expressly and irrevocably submit[ted] to the exclusive

personal jurisdiction” of any competent court located in New Castle County,

Delaware. All parties either work for or have utilized Seneca, a Delaware limited

liability company, and Mission Coal, a Delaware limited liability company, to take

the actions giving rise to the claims underlying this case. Pursuant to the UPA, the

Northern District of Ohio’s and District of Delaware’s prior rulings, Defendants’

consent, and 10 Del. C. § 3104, this Court has personal jurisdiction over the parties

to this matter, and venue is proper in this forum.



14

FACTUAL ALLEGATIONS

The Unit Purchase Agreement

31. On December 22, 2015, Cliffs, CLF, and Seneca entered into the

UPA, whereby Cliffs, through CLF, agreed to sell the outstanding equity interests

of Cliffs North American Coal LLC (“CNAC”) to Seneca. The value of the

transaction at closing was $268 million, based on Seneca assuming all liabilities of

CNAC and its subsidiaries. The UPA is attached as Ex. B.

32. Also on December 22, 2015, and contemporaneous with the execution

of the UPA, Seneca, Cliffs, and CLF executed an Override Right Agreement (the

“Override Agreement”), which obligated Seneca to make quarterly payments to an

Escrow Account, for the benefit of Cliffs and CLF, up to a certain maximum

amount. Each quarter, Seneca is obligated to calculate the average quarterly per

ton price of coal sales pursuant to a specific formula. If the average quarterly per

ton price is above a certain threshold, then Seneca must pay to the Escrow Account

a certain percentage of the amount that is above that threshold price multiplied by

the tons sold in such quarter (the “Tonnage Payments”). The Override Agreement

is not attached hereto as it is confidential and Seneca has a copy in its possession.

33. Among the liabilities that were assumed by Seneca under the UPA as

of December 22, 2015, were all workers’ compensation obligations in respect of

CNAC’s and its subsidiaries’ current and former employees and workers.



15

34. In addition to Seneca’s assumption of liability, Seneca promised to

perform certain post-closing requirements, including replacing certain bonds and

guarantees in an amount of $16.7 million, replacing Cliffs’ letters of credit

regarding workers’ compensation, as well as reimbursing Cliffs for certain

expenses made prior to and after entering into the UPA in an amount in excess of

$2 million. With respect to replacing the nearly $16.7 million of bonds, Seneca

promised to file replacement surety bonds and cause the release of Cliffs’ bonds no

later than February 5, 2016, i.e. within 45 days of the Closing Date (December 22,

2015). As a result of assuming all workers’ compensation liabilities, Seneca was

obligated to release the Cliffs’ letters of credit in excess of $13.5 million.

35. The parties also agreed to a broad indemnification provision, whereby

Seneca agreed to indemnify and hold harmless Cliffs from any and all Losses

arising out of or resulting from the breach of any agreement of Seneca in the UPA,

the Bonds and Guarantees (as defined in the UPA), and certain legal matters that

were disclosed in the UPA, including attorneys’ fees.

36. In addition to its obligations under the UPA, Seneca had an obligation

under the Override Agreement to make Tonnage Payments into an Escrow

Account, for the benefit of Cliffs and/or CLF. With respect to these Tonnage

Payments, Seneca expressly agreed that it would act in good faith and not take any

actions that would be unfairly prejudicial or discriminatory to the interests of Cliffs

and/or CLF in receiving Tonnage Payments. In direct violation of those



16

obligations, Seneca has never made a payment into the Escrow Account. Seneca

also has failed to make a representative available to Cliffs to discuss this

information and has failed to provide Cliffs reasonable access to all relevant work

papers, schedules, memoranda or other documents supporting its failure to make

payments into the Escrow Account as required by the Override Agreement.

Seneca And Its Owners Have Ignored Its Obligations To Make Payments

37. Despite Seneca’s clear responsibility from December 22, 2015, to

reimburse Cliffs at least $2 million, replace nearly $16.7 million of bonds within

45 days, and promptly assume workers’ compensation liabilities secured by Cliffs’

letters of credit, Seneca failed to do so. Instead, at the direction of the Individual

Defendants, Seneca made millions of dollars of cash transfers to Lara Natural

Resources and Iron Management. These failures forced Cliffs to incur millions of

dollars of out-of-pocket costs. Seneca has failed to reimburse Cliffs for those

costs.

38. Despite Seneca’s clear and acknowledged responsibility to reimburse

Cliffs for certain expenses, such as lease repayments, workers’ compensation costs,

medical out-of-pocket costs, bond premiums, payroll funding and services, and

certain legal costs, Seneca has failed and/or refused to reimburse Cliffs for those

expenses.

39. Despite Seneca’s acknowledgment of the need for Seneca to obtain

workers’ compensation insurance for existing claims and replace in excess of $9



17

million of letters of credit, Seneca has failed to do so. Seneca has also failed to

assume the administration and funding of ongoing workers’ compensation matters,

as required by the UPA and acknowledged by Seneca.

40. Cliffs has sent monthly invoices to Seneca and has had frequent

communications with Seneca regarding its duties under the UPA. Cliffs also has

had multiple conversations and meetings with Seneca in which Seneca

acknowledged its obligations. Seneca, however, has continued to breach the UPA.

The BB&T Litigation And Settlement Agreement

41. In March 2016, BB&T Equipment Finance Corporation filed a lawsuit

in the Northern District of Ohio against Seneca’s company, Oak Grove Resources,

and Cliffs (as guarantor) for Seneca’s failure to make timely lease payments (the

“BB&T Litigation”), including a lease payment of approximately $437,000 that

was due on February 6, 2016.

42. On March 23, 2016, Cliffs notified Seneca that Cliffs had been named

a party to the BB&T Litigation. Cliffs requested indemnification from Seneca

regarding the BB&T Litigation, and Seneca agreed to indemnify Cliffs for all

expenses incurred as a result of the BB&T Litigation.

43. Effective July 14, 2016, the parties agreed to a settlement agreement

to resolve the BB&T Litigation (the “Settlement Agreement”). As part of that

Settlement Agreement, Cliffs specifically reserved all rights against Seneca,

including any and all defaults under the UPA, and Cliffs’ right to seek



18

indemnification from Seneca for Cliffs’ losses in the BB&T Litigation, including

attorneys’ fees. Seneca also reserved all rights against Cliffs in the Settlement

Agreement.

44. As part of the Settlement Agreement, the parties agreed that “Judge

Polster and the Federal District Court for the Northern District of Ohio, Eastern

Division shall retain jurisdiction to enforce the terms of this Agreement or

otherwise.”

45. On July 14, 2016, the Court dismissed the BB&T Litigation with

prejudice, specifically retaining jurisdiction under the Settlement Agreement.

46. Although Seneca agreed to indemnify Cliffs for all expenses incurred

in the BB&T Litigation, Seneca has failed and/or refused to reimburse Cliffs for

those expenses, including attorneys’ fees and interest incurred in the BB&T

Litigation. Instead, it has and continues to make transfers to Lara Natural

Resources and Iron Management rather than paying its legitimate creditor, Cliffs.

Seneca Disregards Its Obligations Under The Override Agreement

47. Pursuant to the Override Agreement, Seneca had an obligation to

provide Cliffs and CLF with quarterly statements that set forth the quantity of coal

sold per quarter, along with the average sales price per ton for such coal. In the

event the average weighted quarterly sales price for such coal exceeded an agreed-

upon per ton price, Seneca had an obligation to make the Tonnage Payments into

an Escrow Account, which would subsequently be paid to Cliffs and/or CLF.



19

48. Thus, if the quarterly average weighted price of coal per ton exceeded

the agreed upon price, Cliffs and CLF would benefit. In addition, the higher the

amount of tons sold per quarter, the more money Seneca must pay in the Tonnage

Payments.

49. As part of its obligations, Seneca agreed to act in good faith and take

no actions that would be unfairly prejudicial or discriminatory to the interests of

Cliffs and CLF.

50. Seneca also has a duty under the Override Agreement to make a

representative available to Cliffs to discuss the information set forth in the

Override Reports and provide Cliffs reasonable access to all relevant work papers,

schedules, memoranda and other documents prepared by Seneca or its

representatives in connection with the preparation of the quarterly calculations.

51. On or about April 4, 2017, Cliffs and CLF received a 4th Quarter

2016 Override Royalty Calculation (the “2016 Override Report”) from Seneca,

which contains the quantity of coal sold (i.e. tons sold), the party to whom Seneca

sold the coal, along with the average weighted price per ton, as required by the

Override Agreement.

52. On or about June 29, 2017, Cliffs and CLF received a 1st Quarter

2017 Override Royalty Calculation (the “2017 Override Report”) from Seneca,

which contains the quantity of coal sold (i.e. tons sold), the party to which Seneca



20

sold the coal, along with the average weighted price per ton, as required by the

Override Agreement.

53. The 2016 and 2017 Override Reports, as well as other data,

demonstrate that Seneca sold coal to its affiliate ERP Compliant Coke, LLC on

nearly 50 occasions at a price substantially below market rates. Seneca sold coal to

ERP Compliant Coke, LLC at an average price of per ton in Q3 of 2016 and

in Q4 of 2016, while its price for the rest of its customers equaled and

per ton, respectively. These prices are significantly below the market price

for metallurgical coal. Seneca’s actions, while benefitting its affiliate, were in

direct breach of its obligations to act in good faith and not take any actions that

would be unfairly prejudicial or discriminatory to Cliffs and CLF.

54. In addition, the 2016 and 2017 Override Reports, as well as other

data, demonstrate that Seneca has sold coal substantially below market price to

customers and has taken actions that have resulted in substantially lower coal

production per quarter than normal. These acts breach Seneca’s obligations to act

in good faith and not take any actions that would be unfairly prejudicial or

discriminatory to Cliffs and CLF.

55. Although Seneca has a clear duty to provide these reports on a

quarterly basis, it has failed to timely provide the reports to Cliffs or fulfill other

obligations. Seneca is thus currently in breach of the Override Agreement.



21

56. Furthermore, Seneca has refused to make a representative available to

Cliffs to discuss the information set forth in the Override Reports and refused to

provide Cliffs reasonable access to all relevant work papers, schedules,

memoranda and other documents prepared by Seneca or its representatives in

connection with the preparation of the Override Reports, in direct breach of the

Override Agreement.

57. The 2016 and 2017 Override Reports, as well as other data,

demonstrate that Seneca breached its contractual duties to act in good faith and not

take actions that would be unfairly prejudicial or discriminatory to the interests of

Cliffs and CLF in receiving the Tonnage Payments.

58. Through Seneca’s breach of the Override Agreement, Cliffs and CLF

have been damaged in an amount estimated to be $50 million.

Defendants’ Coordinated And Systematic CampaignTo Drain Seneca’s Funds For Their Own Benefit

59. In December 2015 or earlier, before the execution of the UPA,

Defendants combined, conspired, confederated, and agreed to defraud Cliffs and

Seneca’s other creditors. Their plan and agreement was to use Seneca as an ATM

to fund their personal interests and their affiliate companies rather than paying

Cliffs and Seneca’s other creditors. In furtherance of this conspiracy, on

December 18, 2015, Thomas Clarke sent an email to Jason and Kenneth McCoy

confirming their plan and agreement. The email attached Seneca’s cash



22

projections as of January 31, 2016, which included a bridge loan to

Seneca from an entity named Referring to the

attachment, Clarke exclaimed that “this is an amazing ‘BLESSING’!” The

amazing “Blessing” was that his projections for the month of January indicated

cash of for Seneca. Clarke stated that in the calculation he “included

the [“bridge loan” to Seneca], so we can all pay down our debt . . . .

both corporately and personally.” A copy of Clarke’s December 18, 2015 email

confirming the purpose of the conspiracy and the agreement between the

Defendants is attached hereto as Ex. C. Thus, this overt act of the conspiracy was

initiated only 4 days before Seneca signed the UPA with Cliffs and CLF. The

scheme to use Seneca funds and assets to fund personal and corporate interests of

the Individual Defendants, rather than paying Cliffs and other creditors, has

continued unimpeded through the day of the filing of this Complaint.

60. As of December 22, 2015, pursuant to the UPA, Seneca was

immediately liable to Cliffs for reimbursement of current workers’ compensation

claims, and replacement of certain letters of credit. Pursuant to the UPA, the

liability of pending and future workers’ compensation costs and claims was

assumed by Seneca. The ongoing workers’ compensation claims were disclosed to

Seneca during the due diligence prior to the execution of the UPA, and therefore

Seneca was aware that its obligations to Cliffs began immediately upon the

execution of the UPA.



23

61. Likewise, as of December 22, 2015, Seneca was immediately liable to

Cliffs for the replacement of nearly $16.7 million of bonds. Seneca likewise knew

of this financial obligation to Cliffs.

62. Further, as of December 22, 2015, Seneca was liable to Cliffs for

more than $2 million in payroll expenses and other reimbursements. This

obligation continues to this day, and Seneca ultimately defaulted on its repayment

obligations.

63. Although Seneca had immediate outstanding financial obligations to

Cliffs, the Defendants caused the first withdrawals from the Seneca ATM within

days of the December 22, 2015 execution of the UPA. Defendants have produced

daily “cash sheets” reflecting these related-party transfers, but only through June

17, 2017. A summary of transfers through that date is set forth in Exs. D, E, F and

G and the underlying cash sheets are attached as Ex. H. Similar transfers have

occurred at least as recently as on or about February 1, 2018, but Defendants

refused to produce the underlying documents showing the specific amounts.

64. Rather than pay Cliffs, Defendants caused the transfer of ,

out of the bridge loan that Seneca received from

, to the Individual Defendants and their companies. In furtherance of the

conspiracy, on December 24, 2015, Seneca transferred $50,000 to Lara Natural

Resources. [See Declaration of Thomas Clarke and Ana Clarke (the “Clarke



24

Declaration”), ¶1, D.I. 8-2; Declaration of Kenneth and Jason McCoy (the “McCoy

Declaration”), ¶1, D.I. 8-3.]

65. On December 30, 2015, despite owing millions of dollars of liabilities

to Cliffs, and in furtherance of the conspiracy to use Seneca assets to benefit the

Individual Defendants both “corporately and personally,” Defendants caused

Seneca to transfer $2.3 million to ERP Compliant Fuels, an affiliate owned by

Thomas Clarke.

66. On January 5, 2016, in furtherance of the conspiracy, Thomas Clarke,

as a representative for Lara Natural Resources, and Jason McCoy, as representative

for Iron Management, agreed in a phone conversation to transfer equal amounts of

$1 million of Seneca assets for their personal benefit. This phone conversation

was memorialized in a January 5, 2016 email, a copy of which is attached hereto as

Ex. I. That same day, Seneca wired $1 million to Clarke’s company Lara Natural

Resources and $1,050,000 to Jason McCoy’s company Iron Management. The

extra $50,000 to Iron Management was made to equalize the $50,000 transfer

Defendants caused to be made to Lara Natural Resources on December 24, 2015.

67. These amounts were used not for any legitimate business purpose, but

instead for the Individual Defendants’ personal benefit. Thomas Clarke admits

that the $2.1 million transferred to Lara Natural Resources and Iron Management

was “not used to fund the operations of Seneca.” Instead, Kenneth and Jason

McCoy evenly split the $1,050,000 transferred to Iron Management. Kenneth



25

McCoy moved his half directly into his personal bank account; Jason McCoy used

some or all of his half to settle a personal debt with a friend. Similarly, the other

$1,050,000 was transferred to Lara Natural Resources, whose account is controlled

by Thomas and Ana Clarke. The Clarkes used these funds to cover personal

expenses.

68. The above transfers of $4.4 million of Seneca assets for the benefit of

the Individual Defendants were made without adequate consideration or equivalent

value, made to insiders such that the interest in the assets were retained by the

transferor, and rendered Seneca unable to pay its debts to Cliffs as they became

due.

69. This was only the beginning of Seneca’s pattern of transfers of its

assets for the benefit of the Individual Defendants without receiving any or

adequate consideration. On January 6, 2016, Bill Campbell, a consultant at ERP

Compliant Fuels, sent a detailed email informing Thomas Clarke and Kenneth

McCoy, among others, that several affiliates of Seneca were

and would be facing by mid-January. (Ex. J.)

Clarke responded with a single-sentence:

(Id.)

70. The next day, January 7, 2016, one of these “several things” occurred,

as Seneca made another “loan” transfer to Clarke’s ERP Compliant Fuels, LLC—

this time for $1 million. As with the prior loan of $2.3 million dollars, this loan



26

was made despite owing $2 million to Cliffs, a replacement obligation of $16.7

million for bonds, and a replacement obligation of millions of dollars in letters of

credit.

71. Less than a week later, on January 12, 2016, Seneca made two more

“loan” transfers—a $2 million transfer to ERP Federal Mining Co. and a $1

million transfer to ERP Environmental Fund, Inc. Both entities are owned in part

by the Individual Defendants and/or their affiliated entities.

72. In furtherance of the conspiracy, on or around January 26, 2016, Jason

McCoy contacted representatives from Thomas Clarke’s ERP Compliant Fuels,

LLC to discuss additional transfers from Seneca to both Lara Natural Resources

and Iron Management under the guise of so-called “management fees.” At that

time, Defendants combined, conspired, confederated, and agreed to make these

payments from Seneca to their respective individual companies without providing

equivalent value. Seneca and the Individual Defendants set no dollar amount

based on any negotiated terms, and instead simply agreed to transfer money on a

monthly basis to their individual companies, all the while leaving Seneca without

the ability to pay its creditors.

73. On January 29, 2016, the Defendants caused Seneca to transfer

$70,000 to Iron Management and $116,000 to Lara Natural Resources under the

guise of a “management fee,” allegedly meant to compensate Lara Natural

Resources and Iron Management for the use of their employees’ time related to



27

Seneca matters. These two entities, however, do not have any full-time employees

other than the Individual Defendants who own the companies. In truth, these fees

were simply distributions to insider affiliate companies and were neither for value

nor for any pre-arranged debt or bargained-for services.

74. Before the deadline to release the nearly $16.7 million of bonds and

guarantees on February 5, 2016, and while Seneca had a duty to assume workers’

compensation obligations and thereby release millions of dollars in letters of credit

posted by Cliffs and reimburse Cliffs at least $2 million, Defendants had already

caused Seneca to transfer over $12.9 million without value for the benefit of the

Individual Defendants and their affiliated companies, including another $300,000

transfer to ERP Environmental on February 3, 2016. The recipients of these

transfers were entities owned in part by Thomas Clarke, Ana Clarke, Kenneth

McCoy, and/or Jason McCoy.

75. On February 5, 2016, Seneca failed to release the nearly $16.7 million

of bonds and guarantees, which Cliffs had posted, including paying any amounts

necessary to do so. Due to the foregoing millions of dollars of transfers, Seneca

was then insolvent or thereby rendered insolvent and unable to satisfy this

obligation as it became due.

76. Furthermore, on February 6, 2016, Seneca defaulted on its $437,000

lease payment to BB&T, which was guaranteed by Cliffs. Even so, on February 9,

2016, Seneca transferred an additional $300,000 to Iron Management. [See D.I. 8-



28

2, 8-3.] On February 24, 2016, after defaulting on the BB&T payment, Seneca

transferred $31,923.18 to Lara Natural Resources.

77. All told, Defendants caused Seneca to transfer at least $12.9 million

for the benefit of the Individual Defendants and their affiliates who were not

legitimate creditors of Seneca for things like a personal vacation by Ana Clarke to

Italy. In fact, Interrogatory No. 1 attached to the Expedited Discovery Motion

required Seneca, Thomas Clarke, Ana Clarke, Kenneth McCoy, and Jason McCoy

to state what Seneca received in return for the transfers set forth in their

declarations. In response, neither the Clarkes nor the McCoys identified any

consideration for the transfers.

78. These funds were not used for any legitimate business purpose.

Charles Ebetino, Bill Campbell, and Jason McCoy have admitted that there was no

consideration for, no interest on, and no repayment of these loans.

79. During the time when Seneca and the Individual Defendants

combined, conspired, confederated, and agreed to cause these transfers, Seneca

was in default of its obligations to Cliffs including its failures to assume and pay

the workers’ compensation liabilities and to replace Cliffs’ bonds totaling nearly

$16.7 million. Seneca also failed to get a release of Cliffs’ guarantee on the BB&T

lease, missed the $437,000 BB&T lease payment on which Cliffs was guarantor

(which resulted in BB&T suing Cliffs), failed to pay the $2 million in payroll, and

failed to release the letters of credit for workers’ compensation.



29

80. Additionally, from March 11, 2016 through October 10, 2017, Cliffs

issued 20 monthly invoices for the reimbursement of other expenses that Seneca

was obligated to pay under the UPA. Seneca failed to pay these invoices when

due, even though Seneca has not contested that the expenses were reimbursable

and due and owing to Cliffs. Instead of paying the net total of $7.9 million on

these invoices, releasing over $9 million in letters of credit and releasing the $16.7

million of bonds, Defendants caused Seneca to transfer $2.1 million in owner

distributions to Lara Natural Resources and Iron Management, a net total of

approximately $31,421,214.31 to the Individual Defendants’ affiliates, and

monthly “management fees” to Lara Natural Resources and Iron Management of

between $20,000 to $30,000 per month through 2017—all without providing

equivalent value. A chart of Cliffs’ invoice dates, along with corresponding

transfers made by Seneca, is attached hereto as Ex. K. These transfers rendered

Seneca unable to pay its obligations to Cliffs as they became due.

81. At times, Defendants used the money owed to Cliffs to defraud other

creditors, thereby compounding their wrongdoing. In April 2016, Defendants

transferred $500,000 from Seneca to ERP Mineral Reserves, LLC; ERP Mineral

Reserves in turn moved the $500,000 to Iron Group (an entity that pays salaries to

those associated with Iron Management). The purpose of these transfers was to

enable Iron Group to temporarily a $500,000 loan that it had received

from a friend of Jason McCoy, so that Iron Group’s finances would appear cleaner



30

as it attempted to secure an even larger loan—for roughly $900,000—to finance

the purchase of a helicopter. As McCoy explained, this would enable him

But those better financials were illusory,

as the $500,000 loan would not actually be paid off. Instead, McCoy explained

that he would only proceed with this plan if he were

—just long enough to deceive the bank

into committing $900,000 to Iron Group. In outlining this plan, McCoy noted that

this was (Ex. L.) This was thus

simply one round of a shell game in which the Defendants used Seneca funds that

were owed to Cliffs to instead finance the operations of other entities, to

Defendants’ benefit.

82. Internally, Defendants were crystal clear about what they were doing.

On June 14, 2016, Thomas Clarke and several other individuals associated with the

Seneca affiliates received an email from Adam Munson, Cliffs’ Director of

Business Development and Group Counsel. Munson explained that Seneca owed

Cliffs roughly $1.05 million to settle outstanding amounts due on several invoices,

and asked about (Ex. M.) In a

subsequent internal email to Clarke and others, an employee of one of Seneca’s

affiliates expressed her understanding that

(Id.) Of course, and consistent with their scheme, the Defendants omitted to

disclose the materiality of this purpose to Munson.



31

83. On October 12, 2016, an email confirming the continuing conspiracy

of the Defendants to cause the transfer of Seneca assets, without providing

equivalent value, for the benefit of the Individual Defendants and their affiliates,

and to the detriment of Cliffs, was sent by Defendant Chuck Ebetino, a minority

owner of Seneca. In that email, which is attached hereto as Ex. N, Ebetino

complained to Thomas Clarke, Kenneth McCoy, and Jason McCoy: “why are

Seneca revenues being transferred to ERP Minerals where the minority owners of

Seneca have no ownership interest?” Mr. Ebetino was objecting to the violation of

the Defendants’ agreement, as discussed above in Paragraph 60, to share in the

“amazing BLESSING!” of using the assets of Seneca to pay the personal debts of

the Individual Defendants and their corporate affiliates as memorialized in Mr.

Clarke’s December 18, 2015 email (Ex. C). In other words, when the transfers

from the Seneca ATM benefitted all of the owners of Seneca, there was no

objection, but when funds leaving Seneca were sent to a company in which only

the Clarkes and the McCoys had an interest, the Defendants’ mutually beneficial

conspiratorial agreement had been breached.

84. On November 8, 2016, despite owing Cliffs $4 million, plus its

payroll obligations of $2 million, and its obligation to replace the nearly $16.7

million in bonds and millions of dollars in letters of credit, Seneca paid a

$31,923.18 “management fee” to Lara Natural Resources with the understanding

of the Defendants that $25,000 would be redirected to Ana Clarke, even though no



32

value was received. Thus, Ana Clarke joined the conspiracy with the Defendants

as of November 8, 2016, at the latest, with $25,000 from Seneca intended to be

directed, and actually directed, to her.

85. During the same period that they were avoiding their debts to Cliffs,

Defendants agreed upon and carried out a second fraudulent scheme. In this

second scheme, Defendants fraudulently induced Cliffs to pay money that Seneca

owed to third parties and then refused to reimburse Cliffs for those payments. The

UPA required Seneca to reimburse Cliffs for certain payments to third parties.

(See, e.g., Ex. B (UPA §§ 6.8, 6.11).) Defendants, however, decided that they

would instead simply stick Cliffs with these bills.

86. To that end, in emails and conversations with Cliffs, Seneca

representatives repeatedly and falsely stated that Seneca lacked the funds needed to

pay debts to third parties. Because Cliffs had corporate guarantees and letters of

credit on much of the third party debt, Cliffs continued to use its own money to

wire the payments while Seneca promised to pay Cliffs back. But Seneca never

did so. Instead, Defendants moved millions of dollars from Seneca to affiliates, so

that Defendants could use the money personally and for other corporate schemes.

(Exs. D–H.)

87. Once again, when communicating amongst themselves, Defendants

were quite clear about what they were doing. On August 12, 2016, Chuck Ebetino

forwarded to Thomas Clarke and others a composite of amounts owed to Cliffs as



33

reimbursement for payments to third parties. Ebetino advised that Seneca should

as Cliffs

(Ex. O.) According to Ebetino, Seneca would be in a

better position to negotiate a settlement of its debts after Cliffs had made additional

payments. He concluded that the to work out a settlement

by which time Cliffs will

(Id.) Clarke responded later that day, stating:

(Id.) Once again, and

consistent with their scheme, Defendants omitted to disclose the materiality of this

purpose to Cliffs.

88. Consistent, however, with Clarke’s proclamation, Ebetino and others

continued to carry out this fraudulent scheme throughout 2016. Over the course of

the year, Cliffs repeatedly sent monthly invoices to Seneca, seeking reimbursement

for payments to third parties. And repeatedly, Ebetino falsely stated that Seneca

was unable to make these reimbursement payments. In an email sent on December

12, 2016, Ebetino told Cliffs’ counsel that Seneca did

for amounts paid to third parties on

Seneca’s behalf. (Ex. P.) Accordingly, Seneca did not reimburse Cliffs for any

portion of this debt. Meanwhile, from December 5 to December 20, 2016, Seneca

moved $3.6 million to affiliates Seminole Coal Resources, ERP Federal Mining



34

Complex, and ERP Compliant Fuels for no consideration. (Exs. D–H.) Seneca

had made similar misrepresentations throughout 2016.

89. On December 20, 2016, Cliffs filed its initial complaint in this matter

in the Northern District of Ohio against Seneca, Thomas Clarke, Ana Clarke,

Kenneth McCoy, and Jason McCoy with claims for breach of contract and

declaratory judgment. [D. Del., No. 17-567-GAM, D.I. 1.] The complaint alleged

that Seneca planned “to transfer and/or divert monies and/or funds from Seneca to

affiliated companies and/or owners with the actual intent to hinder, delay, or

defraud Cliffs.” [Id. at ¶45.] To that end, Cliffs sought a declaration from the

Court that the defendants were not entitled to any such transfer made from Seneca

to affiliated companies or owners until Cliffs right to payment from Seneca had

been satisfied by Seneca.

90. In addition to Cliffs’ complaint, on December 20, 2016, Cliffs also

filed a Motion for Expedited Discovery (the “Expedited Discovery Motion”) in

which it sought, among other things, information regarding whether Seneca had

made, or expected to make, any transfers to any of its owners, members, corporate

parents, subsidiaries, or affiliates from January 2016 to the present. [D. Del., No.

17-567-GAM, D.I. 3.]

91. In response Cliffs’ Expedited Discovery Motion, on December 27,

2016, counsel for the Individual Defendants sent to Cliffs’ counsel declarations



35

executed by the Individual Defendants, which admitted to the transfers to Lara

Natural Resources and Iron Management in December 2015 and January 2016, as

well as management fees. [These declarations are attached to the original

defendants’ Motion to Dismiss, Id. at D.I. 8-2, 8-3.]

92. The declarations, which were signed by all the Individual Defendants

under penalty of perjury, promised Cliffs and the Court that “[i]f a transfer is

contemplated in the future, the undersigned agree to provide Cliffs with written

notice thirty (30) days prior to the contemplated transfer.” [Id.] In these

statements, Seneca represented to the Court that there was no need for expedited

discovery in this case and that Cliffs’ request for expedited discovery should be

denied. [Id. at D.I. 7.] Seneca again doubled-down on this statement in its motion

to dismiss Cliffs’ original complaint, stating to the Court that “Defendants also

offered express assurances to Plaintiff that they would provide thirty-day’s

advance written notice to Plaintiff if such a future transfer was contemplated.” [Id.

at D.I. 8-1.] Unbeknownst to Cliffs, Defendants promptly and continuously

breached these promises to Cliffs and the Court and made millions of dollars in

such transfers.

93. Exhibit D shows that despite the declarations of the Individual

Defendants, and their promise to both the Court and Cliffs that after January 12,

2017, Seneca “would provide Cliffs with written notice thirty (30) days prior to the

contemplated transfer,” Defendants have breached that promise and continued to



36

fraudulently transfer funds away from the reach of its creditors. [See Id.at D.I. 8-2,

8-3.] In fact, from the time that they submitted the declarations until at least June

20, 2017 (the last day on which Seneca produced information regarding transfers),

Defendants caused Seneca to make nearly 60 transfers to affiliates, for tens of

millions of dollars, without once giving notice to Cliffs. (Exs. D–H.)

Defendants Create Mission Coal To Perpetuate Their Scheme

94. Not only have Defendants ignored their duty to notify Cliffs and the

Court, in advance, of transfers from Seneca—while this litigation has been

pending, they have taken affirmative steps to enhance their fraudulent efforts.

95. In January 2018, Defendants created a new entity, Mission Coal

Company, LLC. (Mission Coal’s operating agreement, which was executed on

January 31, 2018, is attached hereto as Ex. Q.) Mission Coal’s largest stakeholders

are Iron Management II, LLC, and Iron Management III, LLC—both companies

within the same corporate structure as Seneca.

96. Mission Coal’s creation was tied to a corporate restructuring

involving Seneca. In late January or early February, Defendants finalized a loan

from Defendants pledged all of

Seneca’s assets to secure this loan. The loan proceeds, however, did not go to

Seneca. Instead, approximately went to Mission Coal for

and another approximately went to

Defendants thus used Seneca’s assets—inflated by Defendants’



37

fraudulent avoidance of debts owed to Cliffs and CLF—in establishing and

operating Mission Coal.

97. As part of the same transaction, Defendants also restructured Seneca

so that it now operates as a subsidiary of Mission Coal. (Seminole Coal

Resources, LLC, has also become a Mission Coal subsidiary.) To execute this

restructuring, Mission Coal used part of the loan to pay off a note to

Thomas Clarke.

98. Despite their promise to do so, Defendants did not disclose to Cliffs

that a transaction would occur until after the pledging of Seneca’s assets and the

restructuring of its corporate ownership had been completed. Worse yet, by giving

Cliffs partial information about the possibility of a future transaction and while

omitting material information, Defendants implied that with respect to any

significant restructuring, Cliffs would be given notice. Instead, this information

was discovered only under questioning in depositions at the end of February 2018.

The Defendants’ Avoidance Of Seneca’s Debts To Cliffs And CLF Are Unlawful

99. Neither Lara Natural Resources nor Iron Management are legitimate

creditors of Seneca.

100. The “other affiliate companies owned by the members,” including but

not limited to ERP Compliant Fuels, LLC, Virginia Conservation Legacy Fund,

Inc., ERP Environmental Fund, Inc., ERP Federal Mining Complex, LLC,



38

Seminole Coal Resources, LLC, and ERP Compliant Coke, LLC, to which Seneca

and the Individual Defendants combined, conspired, confederated, and agreed to

make “loan” transfers are not legitimate creditors of Seneca, nor were Seneca’s

“loan” transfers to affiliates made for adequate consideration or equivalent value.

101. After Seneca made “loans” to these affiliate companies, the Individual

Defendants took distributions from them. “Loans” made from Seneca to affiliate

companies were used to pay off individual debts, personal vacations, private jet

travel, clothing allowances, and other personal expenses of the Individual

Defendants.

102. The assets transferred to Lara Natural Resources, Iron Management,

and the “affiliates” are not for reasonably equivalent value nor in good faith.

103. Furthermore, as set forth in detail above in Exs. D through H,

transfers of cash and other assets continued throughout 2016, and into 2017,

despite Seneca owing millions of dollars to Cliffs.

104. Beginning in 2016, Cliffs issued monthly invoices to Seneca. Despite

Cliffs’ attempts to obtain payment from Seneca, both Seneca and the Individual

Defendants told Cliffs that Seneca did not have the funds to repay Cliffs. Despite

these statements, Seneca and the Individual Defendants have continued to make

transfers to insiders rather than paying Seneca’s legitimate debts to Cliffs,

including monthly “management fees” to Lara Natural Resources of approximately

$30,000 and Iron Management of $20,000.



39

105. Defendants have also stated that Seneca is in dire financial condition,

was insolvent or near insolvency, and was struggling to meet its December 2016

payroll. On December 31, 2016, Seneca defaulted on an admitted obligation to

reimburse Cliffs $2 million for payroll expenses that was incurred on December

22, 2015, bringing the unpaid invoices to a total of over $7.6 million, plus a duty to

obtain new financial assurances sufficient to release Cliffs’ letters of credit for

workers’ compensation insurance.

106. Seneca’s debts to Cliffs have grown steadily since the signing of the

UPA. Those debts continue to grow today, because Seneca still has not

completed the assumption of responsibility for all liabilities for which it is

responsible under the UPA (including the over $9 million for workers’

compensation matters), and because Defendants are continuing to raid Seneca’s

funds for their own benefit.

107. Furthermore, pursuant to the Override Agreement, Cliffs and CLF

were and continue to be entitled to Tonnage Payments for any coal sold by Seneca

whose average weighted price per ton was over an agreed-upon price. As a result,

Cliffs and CLF are legitimate creditors of Seneca.

108. Rather than fulfill its obligations to Cliffs and CLF under the Override

Agreement, Seneca sold coal to its affiliate, ERP Compliant Coke, LLC, at a price

substantially below market rates and not for reasonably equivalent value, in turn

keeping possession of the property at a reduced price.



40

109. Upon information and belief, these coal sales were made with the

intent to hinder, delay, or defraud Cliffs and CLF.

110. These actions were not disclosed to Cliffs and CLF at the time of the

sales. Cliffs and CLF only became aware after the fact via the Override Reports.

CLAIMS FOR RELIEF

COUNT I (Violation of RICO, 18 U.S.C. § 1962(c))

111. Cliffs and CLF reaffirm and reallege the allegations contained in

paragraphs 1 through 111 of this Complaint as if rewritten fully herein.

112. Section 1962(c) of RICO provides that “[i]t shall be unlawful for any

person employed by or associated with any enterprise engaged in, or the activities

of which affect, interstate or foreign commerce, to conduct or participate, directly

or indirectly, in the conduct of such enterprise’s affairs through a pattern of

racketeering activity.”

113. Defendants Thomas M. Clarke, Ana M. Clarke, Kenneth R. McCoy,

Jason R. McCoy, Charles A. Ebetino, Jr., Lara Natural Resources, LLC, and Iron

Management II, LLC (collectively, “the RICO Defendants”) have violated

§ 1962(c) by conducting the affairs of Seneca—“the Seneca Enterprise”—through

a pattern of racketeering activity, for the purpose of fraudulently representing to

Cliffs and CLF that Seneca was unable to pay amounts that it owed to those

entities (including amounts owed as reimbursement for payments that Cliffs or



41

CLF made to third parties), and diverting Seneca’s funds and assets to be used for

the benefit of the RICO Defendants and other affiliates of Seneca.

114. Each RICO Defendant is a “person” within the meaning of 18 U.S.C.

§ 1961(3).

115. Seneca Coal Resources, LLC, a corporation, is an enterprise within

the meaning of § 1961(4).

116. The Seneca Enterprise is engaged in or affects interstate or foreign

commerce. Seneca Coal Resources regularly transacts business in a number of

States, and is directly engaged in the production, distribution, or acquisition of

goods, services, money, or other property in interstate or foreign commerce.

Moreover, the Seneca Enterprise has engaged in the following activities across

State boundaries: the transmission and publication of false and misleading

information concerning Seneca’s finances and ability to pay amounts owed to

Cliffs and CLF; the payment from Seneca to the RICO Defendants and other

Seneca affiliates of funds that were owed to Cliffs and CLF; and the use by the

RICO Defendants and other Seneca affiliates of those funds to pay for expenses for

their own benefit.

117. The transfers to the RICO Defendants are not for any legitimate

business purpose, let alone a purpose that would override Seneca’s obligation to

make payments to Cliffs and CLF as set forth in the UPA and the Override

Agreement. Instead, these transfers have been for the purpose of benefitting the



42

RICO Defendants. Although the RICO Defendants have attempted to portray

transfers to Lara Natural Resources and Iron Management as legitimate by styling

these transfers as “management fees” or other business-related payments, neither

entity has any full-time employees other than the Individual Defendants who own

the companies, several RICO Defendants have admitted that such transfers were

for no consideration, and even where styled as loans have no interest, and were not

repaid. These payments were thus intended simply to benefit the RICO

Defendants personally, and not to cover any actual business expenses.

118. Each RICO Defendant was employed by or associated with the

Seneca Enterprise, as each was aware of the general nature of the Seneca

Enterprise and aware that the Seneca Enterprise extended beyond each RICO

Defendant’s individual role to encompass a broader pattern of fraudulent activity.

119. Each RICO Defendant conducted or participated in the conduct of the

Seneca Enterprise’s affairs, directly or indirectly. Among other things, each RICO

Defendant participated in the operation or management of the Seneca Enterprise in

the following ways:

(a) Thomas Clarke arranged for or directed a number of transfers of funds from Seneca to himself or to Seneca affiliates, so that he could use those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. Clarke also took control of funds fraudulently transferred from Seneca to Lara Natural Resources, and used those funds for his own benefit or for the benefit of one or more other RICO



43

Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. In addition, Clarke falsely represented to Cliffs or CLF, on Seneca’s behalf, that Seneca lacked the funds needed to reimburse Cliffs or CLF for amounts that Seneca owed them, when in fact Seneca was capable of making payments. And Clarke fraudulently represented that amounts that Seneca transferred to Lara Natural Resources and other Seneca affiliates represented “management fees,” when in fact those affiliates had not performed any services as consideration for these transfers.

(b) Ana Clarke took control of funds fraudulently transferred from Seneca to Lara Natural Resources, and used those funds for her own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. Ms. Clarke also fraudulently represented that amounts that Seneca transferred to Lara Natural Resources represented “management fees,” when in fact Lara Natural Resources had not performed any services as consideration for these transfers.

(c) Kenneth McCoy arranged for or directed a number of transfers of funds from Seneca to himself or to Seneca affiliates, so that he could use those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. McCoy also took control of funds fraudulently transferred from Seneca to Iron Management, and used those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. In addition, McCoy fraudulently represented that amounts that Seneca transferred to Iron Management and other Seneca affiliates represented “management fees,” when in fact Iron Management had not performed any services as consideration for these transfers.

(d) Jason McCoy arranged for or directed a number of transfers of funds from Seneca to himself or to Seneca affiliates, so that he



44

could use those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. McCoy also took control of funds fraudulently transferred from Seneca to Iron Management, and used those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. In addition, McCoy fraudulently represented that amounts that Seneca transferred to Iron Management and other Seneca affiliates represented “management fees,” when in fact Iron Management had not performed any services as consideration for these transfers.

(e) Chuck Ebetino arranged for or directed a number of transfers of funds from Seneca to himself or to Seneca affiliates, so that he could use those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. Ebetino also took control of funds fraudulently transferred from Seneca to Seneca affiliates, and used those funds for his own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. In addition, Ebetino falsely represented to Cliffs or CLF, on Seneca’s behalf, that Seneca lacked the funds needed to reimburse Cliffs or CLF for amounts that Seneca owed them, when in fact Seneca was capable of making payments.

(f) Lara Natural Resources repeatedly accepted transfers of funds from Seneca, so that it could use those funds for its own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. Lara Natural Resources also fraudulently represented that amounts that Seneca transferred to it represented “management fees,” when in fact Lara Natural Resources had not performed any services as consideration for these transfers.



45

(g) Iron Management repeatedly accepted transfers of funds from Seneca, so that it could use those funds for its own benefit or for the benefit of one or more other RICO Defendants or other Seneca affiliates, rather than using those funds to pay debts owed to Cliffs or CLF. Iron Management also fraudulently represented that amounts that Seneca transferred to it represented “management fees,” when in fact Iron Management had not performed any services as consideration for these transfers.

120. Through this conduct, the RICO Defendants acted with the specific

intent to deceive Cliffs and CLF, and defrauded Cliffs and CLF of money that they

were owed by Seneca.

121. Each RICO Defendant conducted or participated directly in the

conduct of the Seneca Enterprise’s affairs through a pattern of racketeering

activity, including acts indictable under 18 U.S.C. §§ 1341 (mail fraud) and 1343

(wire fraud). In addition to the foregoing and in addition to those acts of

racketeering activity set forth in Exs. R, S, T, U, V, W, X, Y, Z, AA, BB, CC, DD,

EE, FF, GG, HH, II, JJ, KK, LL, MM, NN, OO, and PP, this pattern of

racketeering activity involved hundreds of separate instances of use of the U.S.

Mail or interstate wire facilities in furtherance of the unlawful scheme to defraud

Cliffs and CLF. These communications and transmissions include, but are not

limited to:

(a) communications with and among the enterprise participants regarding amounts that Seneca owed to Cliffs or CLF, the avoidance of such debts, and the use of funds Seneca owed to



46

Cliffs or CLF for the benefit of the RICO Defendants and other Seneca affiliates;

(b) communications with Cliffs and CLF regarding Seneca’s inability to make payments owed to Cliffs or CLF;

(c) transmittal and receipt of funds from Seneca to the RICO Defendants in the course of and resulting from the RICO Defendant’s fraudulent scheme; and

(d) transmittal of funds received from Seneca for the benefit of the RICO Defendants and other Seneca affiliates, rather than to pay amounts owed to Cliffs or CLF.

122. In addition to these acts of mail and wire fraud, additional acts are

reflected in the materials attached to this Complaint. Also, there are multiple

additional acts of mail and wire fraud that are currently known only to Defendants,

but which will become known to the Plaintiffs through further discovery.

123. Each of these fraudulent mailings and interstate wire transmissions

constitutes “racketeering activity” within the meaning of 18 U.S.C. § 1961(1)(B).

Collectively, and in light of the continuing nature of these activities that now

exceed two (2) years, these violations constitute a “pattern of racketeering

activity,” within the meaning of 18 U.S.C. § 1961(5), through which the RICO

Defendants defrauded Cliffs and CLF.

124. The RICO Defendants’ racketeering activities amounted to a common

course of continued conduct, with a similar pattern and purpose, that was not

isolated, and that was intended to deceive Cliffs and CLF. Each separate use of the

U.S. Mail and/or interstate wire facilities employed by the RICO Defendants was



47

related, had similar intended purposes, involved similar participants and methods

of execution, and had the same results affecting the same victims, including Cliffs

and CLF. The RICO Defendants engaged in the pattern of racketeering activity for

the purpose of conducting the ongoing business affairs of the Seneca Enterprise.

125. The RICO Defendants’ pattern of racketeering activity also poses a

threat of continuous criminal activity, as the RICO Defendants committed these

acts over a substantial period of time and continue to do so. The RICO Defendants

began engaging in these acts no later than December 2015, when they commenced

a series of transactions that caused the movement of $2.1 million from Seneca to

Lara Natural Resources and Iron Management. Moreover, the pattern of

racketeering activity alleged herein is continuing as of the date of this Complaint,

and, upon information and belief, will continue into the future absent Court

intervention. As recently as June 20, 2017, the RICO Defendants had caused

Seneca to transfer tens of millions of dollars to affiliates (including themselves),

without providing the advance notice that they had sworn to provide in a

declaration submitted to this Court. Defendants have not provided any written

documentation regarding transfers since June 20, 2017, but have continued—and

will continue—to conduct the Seneca Enterprise in the same fraudulent manner.

The RICO Defendants have engaged in this pattern of racketeering activity as a

regular way of doing business.



48

126. The pattern of racketeering activity alleged herein and the Seneca

Enterprise are separate and distinct from each other. Likewise, each RICO

Defendant is distinct from the Seneca Enterprise.

127. Cliffs and CLF have been injured in their business or property by

reason of the RICO Defendants’ fraudulent scheme. The RICO Defendants have

worked together to deprive Cliffs of the funds that were rightly owed to Cliffs and

CLF as legitimate creditors of Seneca. As the intended result of the RICO

Defendants’ actions in conducting the Seneca Enterprise, Cliffs and CLF have

been injured in the amount of the funds that the RICO Defendants fraudulently

transferred from Seneca, in an amount to be determined at trial.

128. Cliffs’ and CLF’s injuries were directly and proximately caused by

the RICO Defendants’ racketeering activity.

129. Cliffs and CLF, both directly and indirectly, relied on the RICO

Defendants’ representations as to Seneca’s ability to pay amounts owed to Cliffs

and CLF. The RICO Defendants induced and perpetuated this reliance by taking

the steps detailed above to misrepresent Seneca’s finances and ability to pay

amounts owed to Cliffs and CLF and by omitting to disclose the true course and

materiality of their fraudulent conduct.

130. By virtue of these violations of § 1962(c), Defendants are liable to

Cliffs and CLF for three times the damages sustained, plus the costs of this suit,

including reasonable attorneys’ fees.



49

COUNT II (Violation of RICO, 18 U.S.C. § 1962(a))



132. Section 1962(a) of RICO provides that “[i]t shall be unlawful for any

person who has received any income derived, directly or indirectly, from a pattern

of racketeering activity or through collection of an unlawful debt in which such

person has participated as a principal within the meaning of section 2, title 18,

United States Code, to use or invest, directly or indirectly, any part of such income,

or the proceeds of such income, in acquisition of any interest in, or the

establishment or operation of, any enterprise which is engaged in, or the activities

of which affect, interstate or foreign commerce.”

133. The RICO Defendants have violated § 1962(a) by using or investing

the income derived from the pattern of racketeering activity described above—

namely, the fraudulent transfer of funds from Seneca to the RICO Defendants and

other Seneca affiliates—in the establishment or operation of the Mission Coal

Enterprise.

134. Each RICO Defendant is a “person” within the meaning of 18 U.S.C.

§ 1961(3).

135. Mission Coal Company LLC, a corporation, is an enterprise within the

meaning of § 1961(4).



50

136. The Mission Coal Enterprise is engaged in or affects interstate or

foreign commerce, as it has received funds transmitted across state lines from

Seneca and other Seneca affiliates that were owed to Cliffs and CLF, and has

transmitted such funds across state lines to the RICO Defendants and other Seneca

affiliates, so that those individuals and entities could use the funds for their own

benefit.

137. The RICO Defendants derived income from a pattern of racketeering

activity. As set forth above, the RICO Defendants engaged in hundreds of acts of

mail and wire fraud, through which they fraudulently represented to Cliffs and

CLF that Seneca was unable to pay amounts that it owed to Cliffs and CLF, and

fraudulently diverted Seneca’s funds and assets to be used for the benefit of the

RICO Defendants and other affiliates of Seneca. Each fraudulent mailing and

interstate wire transmission constitutes “racketeering activity” within the meaning

of 18 U.S.C. § 1961(1)(B). Collectively, these violations constitute a “pattern of

racketeering activity,” within the meaning of 18 U.S.C. § 1961(5). Moreover, this

pattern of racketeering activity enabled the RICO Defendants to fraudulently

retain millions of dollars in the possession of Seneca or Seneca affiliates, thereby

generating income, directly or indirectly, from their pattern of racketeering

activity.

138. The RICO Defendants, directly or indirectly, used or invested this

income derived from a pattern of racketeering activity in acquiring an interest in,



51

establishing, or operating the Mission Coal Enterprise. To secure an

approximately loan to Mission Coal, Defendants pledged Seneca’s

assets and then restructured Seneca as a subsidiary of Mission Coal. Mission Coal

then immediately paid a portion of this loan to Thomas Clarke and possibly other

Individual Defendants, thus continuing the scheme of fraudulent transfers.

Mission Coal did not use any of the loan to pay debts owed to Cliffs or CLF. By

transferring Seneca’s assets to Mission Coal—so that Mission Coal could obtain a

substantial refinancing loan and continue Defendants’ fraudulent shell game—the

RICO Defendants used or invested income derived from a pattern of racketeering

activity in acquiring an interest in, establishing, or operating the Mission Coal

Enterprise.

139. Cliffs and CLF and have been injured in their business or property by

reason of the RICO Defendants’ violations of § 1962(a). The RICO Defendants

have worked together to deprive Cliffs of the funds that were rightly owed to Cliffs

and CLF as legitimate creditors of Seneca, and have sought to make these funds

inaccessible by moving them to Mission Coal. As the intended result of the RICO

Defendants’ actions in conducting the Mission Coal Enterprise, Cliffs and CLF

have been injured in the amount of the funds that the RICO Defendants

fraudulently used or invested in operating Mission Coal, in an amount to be

determined at trial.



52


the RICO Defendants’ investment of the proceeds of their pattern of racketeering

activity into Mission Coal.

141. By virtue of these violations of § 1962(a), Defendants are liable to



COUNT III (Conspiracy to Commit a RICO Violation, 18 U.S.C. § 1962(d))



143. Section 1962(d) of RICO provides that “[i]t shall be unlawful for any

person to conspire to violate any of the provisions of subsection (a), (b), or (c) of

this section.”

144. The RICO Defendants have violated § 1962(d) by conspiring to

violate § 1962(c). The object of this conspiracy has been and is to conduct or

participate in, directly or indirectly, the conduct of the affairs of the Seneca

Enterprise described above through a pattern of racketeering activity. The RICO

Defendants combined, conspired, confederated, and agreed with, inter alia, one

another and other Seneca affiliates, to fraudulently represent to Cliffs and CLF that

Seneca was unable to pay amounts that it owed to those entities, and to divert



53

Seneca’s funds to be used for the benefit of the RICO Defendants and other Seneca

affiliates.

145. The RICO Defendants are “persons” within the meaning of 18 U.S.C.

§ 1961(3).

146. Each RICO Defendant knowingly agreed with one or more other

RICO Defendants to facilitate or further a scheme which, if completed, would

constitute violations of § 1962(c) and (a). That is, each RICO Defendant

knowingly agreed to conduct or to participate, directly or indirectly, in the conduct

of an enterprise’s affairs through a pattern of racketeering activity and to use

income derived from a pattern of racketeering activity to acquire and maintain an

interest in an enterprise.

147. Each RICO Defendant, moreover, joined this agreement or conspiracy

knowing of its objective to conduct or participate, directly or indirectly, in the

conduct of an enterprise’s affairs through a pattern of racketeering activity, and to

use income derived from a pattern of racketeering activity to acquire and maintain

an interest in an enterprise. And each RICO Defendant intended to further an

endeavor which, if completed, would satisfy all of the elements of a violation of

§ 1962(c) and a violation of § 1962(a).

148. Cliffs and CLF have been injured in their business or property by

reason of the RICO Defendants’ conspiracy to violate § 1962(c) and (a), and by the

overt acts that the RICO Defendants have taken in furtherance of that conspiracy.



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the RICO Defendants’ conduct in forming this conspiracy and performing overt

acts in furtherance thereof.

150. By virtue of these violations of § 1962(d), Defendants are liable to



COUNT IV (Breach of Contract—The UPA)



152. The UPA is a valid and enforceable contract.

153. Cliffs and CLF have performed their obligations under the UPA in

good faith.

154. Seneca has failed or refused to reimburse Cliffs and CLF for expenses

incurred, as promised in the UPA.

155. Seneca has failed or refused to indemnify Cliffs and CLF for expenses

incurred in the BB&T Litigation.

156. Seneca failed or refused to replace certain bonds and guarantees,

forcing Cliffs and/or CLF to incur additional expenses that Seneca failed or refused

to pay.



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157. Seneca failed or refused to obtain workers’ compensation insurance

for existing claims, obtain new financial assurance sufficient to release Cliffs’

letters of credit around $10 million, and take over the administration and funding

of workers’ compensation matters as required under the UPA and as acknowledged

by Seneca.

158. As a direct and proximate result of Seneca’s breach of contract, Cliffs

and CLF have suffered compensatory damages in an amount to be determined at

trial, but in excess of $7.9 million, exclusive of interest, and have been damaged by

the on-going costs of supplying letters of credit in an amount in excess of $9

million.

159. As a direct and proximate result of Seneca’s breach of contract, Cliffs

is entitled to a declaration that Seneca is required to post collateral sufficient to

replace the collateral that Cliffs has had to post for the letters of credit.

160. In addition, Cliffs and CLF are entitled to their attorneys’ fees in this

action under the parties’ indemnification provision in the UPA.

COUNT V (Breach of Contract—The Override Agreement)



162. The Override Agreement is a valid and enforceable contract.



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163. Cliffs and CLF have performed their obligations under the Override

Agreement.

164. Seneca has breached its obligations under the Override Agreement by,

among other things, selling coal to its affiliates at rates substantially below market

price. This action has denied Cliffs and CLF the Tonnage Payments to the Escrow

Account it would otherwise be entitled.

165. Seneca has also breached its contractual duties to produce and sell

coal in good faith and not take actions that would be unfairly prejudicial or

discriminatory to the interests of Cliffs and CLF in receiving the Tonnage

Payments.

166. As a direct and proximate result of Seneca’s breach of the Override

Agreement, Cliffs and CLF have suffered compensatory damages in excess of $50

million. Upon information and belief, Seneca’s breaches are continuing and Cliffs

and CLF’s damages will continue to escalate with each quarterly Override Royalty

Report received an amount which will be determined at trial.

COUNT VI (Fraudulent Conveyance)



168. Based upon the UPA, Defendant Seneca has an outstanding debt to

Cliffs for reimbursement and indemnification. This debt started from December



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22, 2015, with $2 million in payroll obligation, over $13.5 million dollars in

workers’ compensation obligations, the obligation to replace nearly $16.7 million

in bonds, other reimbursement obligations (including amounts owed pursuant to

the Override Agreement), and continues to increase and is due and owing to Cliffs

and CLF despite repeated attempts by Cliffs and CLF to obtain payment from

Seneca in satisfaction of the debt.

169. Seneca does not dispute that this debt is legitimate and is due and

owing to Cliffs and CLF. As such, Cliffs and CLF are creditors of Seneca.

170. Instead of using Seneca’s funds, including the bridge loan

for company expenses, for payment to Cliffs and CLF in satisfaction of the debt,

Seneca transferred or diverted monies and/or funds to Lara Natural Resources, Iron

Management, and “other affiliate companies owned by the members,” including

but not limited to ERP Compliant Fuels, LLC, Virginia Conservation Legacy

Fund, Inc., ERP Environmental Fund, Inc., ERP Federal Mining Complex, LLC,

Seminole Coal Resources, LLC, and ERP Compliant Coke, LLC—all of which are

owned in part by at least one of the Individual Defendants, with the actual intent to

delay, hinder, or defraud Cliffs or CLF.

171. Lara Natural Resources, Iron Management, and the “affiliates” with

common ownership are insiders of Seneca with knowledge of the debt owed to

Cliffs and CLF. Therefore, any transfer from Seneca to these entities served the



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purpose of retaining possession of Seneca’s assets or an interest in those assets.

None of the insiders took or received transfers from Seneca in good faith.

172. The transfers made to Lara Natural Resources, Iron Management, and

the “affiliates” commenced shortly after Seneca assumed the corporate liabilities

estimated to be $268 million, after immediately incurring debt to Cliffs in the form

of $2 million in payroll obligation, millions of dollars in workers’ compensation

obligations, and the obligation to replace nearly $16.7 million in bonds.

173. The transfer of $50,000 and $1,000,000 to Lara Natural Resources on

December 24, 2015 and January 5, 2016, and $1,050,000 to Iron Management on

January 5, 2016, occurred shortly after the parties executed the UPA, after Seneca

had incurred at least $2 million of debt to Cliffs, further debt associated with

workers’ compensation claims for which it had a contractual obligation to

reimburse Cliffs, millions of dollars in letters of credit to replace, and an

immediate obligation to replace nearly $16.7 million in bonds.

174. The transfer to Iron Management of $300,000 and $30,000 to Lara

Natural Resources occurred shortly after Seneca failed to make the $437,000 lease

payment on the BB&T lease and failed to replace Cliffs’ bonds in the amount of

$16.7 million as required under the UPA. These failures are events upon which

Seneca could have reasonably anticipated litigation.

175. Transfers for these management fees to Lara Natural Resources and

Iron Management have continued on a monthly basis in an amount of



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approximately $30,000 and $20,000 respectively, even as Cliffs issues its monthly

invoices and Seneca has refused to pay those invoices.

176. Seneca’s loan transfers to affiliate companies, which have a net total

of over $30 million dollars, have occurred consistently since Seneca executed the

UPA and have occurred after Cliffs issued its invoices to Seneca. They started after

Seneca incurred significant debt to Cliffs, and continued even as Seneca missed its

deadline to replace the bonds and guarantees, failed to make the BB&T payment,

failed to make other capital lease payments, failed to replace the letters of credit,

and failed to reimburse the $7.9 million owed Cliffs.

177. Upon information and belief, the Individual Defendants received

distributions from these affiliate entities, the purpose of which was to conceal the

distributions under the guise of “loans” to affiliate companies.

178. These transfers from Seneca to affiliate companies, along with

transfers to Lara Natural Resources and Iron Management, ultimately resulted in

distributions to the Individual Defendants.

179. Upon information and belief, Seneca received inadequate

consideration or no equivalent value in exchange for the transfer of funds to Lara

Natural Resources, Iron Management, or the “affiliates.” Despite being required in

Interrogatory No. 1 to identify any consideration or value exchanged for the

transfers by Seneca, the Individual Defendants have identified none in the Clarke

and McCoy Declarations.



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180. According to Seneca, it is unable to pay the outstanding invoices

because of financial difficulties. Therefore, the transfers made by Seneca have

rendered Seneca insolvent or unable to make payment to its creditors, including

Cliffs and CLF.

181. Seneca, Lara Natural Resources, Iron Management, and the

“affiliates” concealed these transfers from its creditors, Cliffs and CLF, until Cliffs

filed its Expedited Discovery Motion which required Defendants to disclose

information regarding transfers. Thereafter, Defendants concealed the subsequent

transfers even after promising to Cliffs and the Court that they would provide prior

notice before making any transfers.

182. Furthermore, emails between Thomas Clarke, Jason McCoy, Kenneth

McCoy, and other employees of Seneca and the affiliated companies confirm that

the Individual Defendants all directed, participated in, and/or ratified the transfers

and the concealment of the transfers from Cliffs. (See Exs. C, J, L, R–PP.)

183. Jason McCoy, Kenneth McCoy, and Thomas Clarke’s control over

Seneca is so complete that Seneca has no separate mind, will, or existence of its

own.

184. Jason and Kenneth McCoy’s control over Iron Management is so

complete that Iron Management has no separate mind, will, or existence of its own.



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185. Thomas Clarke and Ana Clarke’s control over Lara Natural Resources

is so complete that Lara Natural Resources has no separate mind, will, or existence

of its own.

186. Individual Defendants’ control over Seneca, Iron Management, and

Lara Natural Resources, respectively, was exercised in such a manner as to commit

fraud against Cliffs and CLF.

187. Cliffs and CLF suffered injury or unjust loss as a result of Individual

Defendants’ control and wrongdoing.

188. Furthermore, based on Seneca’s obligations to Cliffs and CLF under

the UPA and Override Agreement, Seneca has an outstanding debt to Cliffs and

CLF. As a result, Cliffs and CLF are legitimate creditors of Seneca.

189. Rather than fulfill its obligations to Cliffs and CLF under the UPA

and Override Agreement, including the $2 million Seneca incurred as of December

22, 2015, $16.7 million of bonds, millions of dollars in letters of credit, and the

millions of dollars owed to Cliffs throughout 2016, Seneca sold coal to insider

and/or affiliate ERP Compliant Coke, LLC at a price substantially below market

rate with the actual intent to hinder, delay, and defraud Cliffs and CLF.

190. ERP Compliant Coke, LLC shares common ownership with Seneca

by way of the Individual Defendants and had knowledge of Seneca’s obligations

under the UPA, Override Agreement, and debts owed to Cliffs and CLF. ERP

Complaint Coke, LLC failed to take or receive the sale of coal in good faith.



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191. Seneca did not receive adequate consideration or reasonably

equivalent value in terms of payment received from ERP Compliant Coke, LLC;

instead it received a substantially reduced price from the going market rates.

192. Because Seneca sold its coal to insiders and/or affiliates, Seneca and

its owners kept possession of the property at a reduced price.

193. These actions were not disclosed to Cliffs and CLF at the time of sale.

Cliffs and CLF only became aware after the fact via the Override Reports.

194. These events continued to occur even after this litigation had already

commenced and Seneca was threatened with substantial liability to Cliffs. Even

though Individual Defendants told the Court that it would give thirty days’ notice

of any transfers by Seneca, Defendants failed to do so even as they transferred

millions of dollars to insiders.

195. As a result of the foregoing, Cliffs and CLF have suffered damages in

an amount to be proven at trial, and is entitled to the avoidance and return of any

funds transferred to Lara Natural Resources, Iron Management, and the

“affiliates,” return of any profit lost as a result of fraudulent sales of coal to

affiliates, along with a judgment against all Defendants, jointly and severally, for

the value of the transfers.

196. In addition, Cliffs and CLF are entitled to a declaration that Seneca,

Lara Natural Resources, and/or Iron Management are prohibited from transferring

money or assets from Seneca, Lara Natural Resources, and/or Iron Management to



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anyone until Cliffs’ rights to payment from Seneca (including the replacement of

the collateral for the workers’ compensation policies) have been satisfied by

Seneca.

197. In addition, the acts were committed with actual malice, including that

all Defendants knew of and consciously disregarded Cliffs and CLF’s rights and

knew that the fraudulent transfers would cause substantial harm to Cliffs and CLF.

Cliffs and CLF are entitled to an award of punitive damages and attorneys’ fees

against all Defendants, jointly and severally.

198. Further, Cliffs is entitled to attorneys’ fees against Defendants.

COUNT VI (Conspiracy to Commit Fraudulent Transfer)



200. The Individual Defendants in this matter are members of the

fraudulent transferor, Seneca, and the transferees, Lara Natural Resources, and/or

Iron Management, who received at least $2.4 million in assets from Seneca plus

hundreds of thousands in “management fees.” In addition, Defendant Thomas

Clarke and the other Individual Defendants are the owner/managing members of

the multitude of insiders and/or affiliates who received transfers from Seneca and

coal at below market value from Seneca.



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201. Thomas and Ana Clarke are the sole members of Lara Natural

Resources; Kenneth and Jason McCoy are majority members of Iron Management;

and Kenneth McCoy, Jason McCoy, and Thomas Clarke are majority members of

Seneca.

202. As a result of their respective ownership interests in Seneca, Lara

Natural Resources, and/or Iron Management, the Individual Defendants had a

personal financial interest in ensuring that Seneca’s funds would not be used to

repay its debts to Cliffs and CLF, but rather to divert such funds away to

themselves “corporately and personally” based upon their interest in Lara Natural

Resources, Iron Management, and other owned “affiliates” of Seneca, and to sell

coal to affiliates of Seneca owned by Thomas Clarke at below market prices.

203. To that end, on or before December 18, 2016, Thomas Clarke, Jason

McCoy, and Kenneth McCoy entered into a conspiracy the purpose of which was

to use the assets of Seneca to fund their personal and corporate objectives to the

detriment of Cliffs and other creditors. The Defendants commenced the

conspiracy by using the proceeds of a bridge loan to Seneca to

immediately “pay down [their] debt . . . both corporately and personally.” (See Ex.

B.)

204. Furthermore, on or about January 5, 2015, Thomas Clarke spoke with

Jason McCoy regarding self-payment in the amount of $1 million dollars each to

Lara Natural Resources and Iron Management. This agreement, which was



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mutually beneficial to both parties involved, manifested itself in a transfer of $1

million to Lara Natural Resources and $1,050,000 to Iron Management on the very

same day of the conversation. The total amount of payments to Lara Natural

Resources and Iron Management in late December and early January are exactly

the same: $1,050,000 each.

205. Likewise, on or about January 29, 2016, Jason McCoy communicated

with representatives of ERP Compliant Fuels, Inc. regarding engaging in siphoning

money away from Seneca through a “management fee.” Jason McCoy, Kenneth

McCoy, and Thomas Clarke thereafter repeatedly engaged in email communication

regarding fraudulently transferring funds via this management fee. This agreement

manifested itself in a monthly transfer away from Seneca to Lara Natural

Resources and Iron Management in lieu of payment to Seneca’s creditor, Cliffs.

206. Furthermore, the Defendants combined, conspired, confederated, and

agreed to transfer funds away from Seneca to affiliate companies owned by the

Individual Defendants via “loans” in order to either fund these companies or make

distributions to the Individual Defendants. This agreement among the Defendants

ensured that while Seneca would be unable to pay Cliffs and its other creditors, the

money would still remain in the control of the Individual Defendants.

207. On November 8, 2016, at the latest, Ana Clarke joined the conspiracy

by receiving $25,000 intended to be disguised as a “management fee” from

Seneca.



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208. Prior to, during, and after the transfers of tens of millions of dollars

from Seneca, Seneca owed, and continues to owe, millions of dollars to Cliffs.

209. The Defendants maliciously collaborated and contrived to deprive

Cliffs of the funds that were rightly owed to Cliffs and CLF as legitimate creditors

of Seneca. This collaborative effort to transfer funds and sell coal at below market

prices to the detriment of Cliffs and CLF was purposeful to injure Cliffs and CLF

without reasonable or lawful excuse.

210. None of the Individual Defendants were acting within the scope of

their corporate role, but rather pursuant to their personal interests to “pay down

[their] debt.”

211. Each of the Defendants participated in, authorized, ratified and/or

adopted the fraudulent transfers for their benefit. Each of the Defendants knew

that Cliffs and CLF were legitimate creditors and Lara Natural Resources, Iron

Management, and the “affiliates” were not legitimate creditors of Seneca.

212. As a result of the malicious effort of the multiple Defendants, the

independent unlawful tortious act of actual and constructive fraudulent transfer

occurred in which Seneca fraudulently transferred funds to Lara Natural

Resources, Iron Management, and “affiliates” at the expense of its legitimate

creditors, Cliffs and CLF, and sold coal at below market prices to ERP Compliant

Coke, LLC with the intent to defraud Cliffs and CLF.



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213. As a result of malicious effort of the multiple Defendants, Cliffs and

CLF have been injured by the fraudulent transfers in an amount which will be

determined at trial.

214. In addition, the acts were committed with actual malice, including that

all Defendants knew of and consciously disregarded Cliffs and CLF’s rights and

knew that the fraudulent transfers would cause substantial harm to Cliffs and CLF.

Thus, Cliffs and CLF are entitled to an award of punitive damages and attorneys’

fees against all Defendants, jointly and severally.

DEMAND FOR JUDGMENT

WHEREFORE, Plaintiffs Cliffs Natural Resources Inc. and CLF PinnOak

LLC respectfully requests that the Court enter judgment in its favor as follows:

A. Compensatory damages against Seneca in an amount to be determined at trial, but no less than $7.9 million, plus interest and increasing monthly until trial;

B. A declaration that, pursuant to 10 Del. C. § 6501, Seneca is required to replace the letters of credit in an amount now in excess of $9 million, or post collateral sufficient to replace the collateral that Cliffs has had to post for the letters of credit;

C. Costs, interest and attorneys’ fees against Seneca under the parties’ indemnification provision in the UPA;

D. Costs, interest and attorneys’ fees against Defendants for fraudulent transfer;

E. Compensatory damages against Seneca for its breach of the Override Agreement, in an amount of $50 million;



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F. A declaration that, pursuant to 10 Del. C. § 6501, Seneca, Lara Natural Resources, and/or Iron Management are prohibited from transferring money or assets from Seneca to anyone until Cliffs’ rights to payment from Seneca (including the replacement of the collateral for the workers’ compensation policies) have been satisfied by Seneca;

G. Compensatory damages against all Defendants, jointly and severally, for the value of any transfers made by Seneca to the other Defendants in an amount not less than $35 million;

H. Compensatory damages against all Defendants, jointly and severally, for the value of the coal sold below market value to Seneca’s affiliates or insiders, in an amount to be determined at trial;

I. As to the RICO Defendants, jointly and severally, three times the damages Plaintiffs have sustained as a result of the RICO Defendants’ unlawful conduct in violation of RICO, plus Plaintiffs’ costs, including attorneys’ fees;

J. An award of punitive damages and attorneys’ fees against all Defendants, jointly and severally; and

K. Any other relief this Court may deem just and appropriate under the circumstances.

JURY DEMAND

Pursuant to Rule 38(b), Cliffs and CLF demand a trial by jury on all issues

so triable.



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Dated: May 8, 2018 YOUNG CONAWAY STARGATT & TAYLOR,LLP

Of Counsel:

Robert S. Faxon Kristin S.M. Morrison JONES DAY North Point 901 Lakeside Avenue Cleveland, OH 44114.1190 Telephone: +1.216.586.3939 Facsimile: +1.216.579.0212 E-mail: [email protected]

[email protected]

and

Robert J. Fogarty E. Sean Medina HAHN LOESER & PARKS LLP 200 Public Square, Suite 2800 Cleveland, OH 44114 Phone: 216-621-0150 Facsimile: 216-241-2824 Email: [email protected] [email protected]

John T. Dorsey (No. 2988) M. Blake Cleary (No. 3614) Mary F. Dugan (No. 4704) Pilar G. Kraman (No. 5199) Rodney Square 1000 North King Street Wilmington, Delaware 19801 Phone: 302-571-6600 Facsimile: 302-576-3742 Email: [email protected] Email: [email protected] Email: [email protected] Email: [email protected]

Attorneys for PlaintiffsCleveland-Cliffs Inc. andCLF PinnOak LLC

