Investors in a failed surface coal mine in Pike County are seeking to enforce a nearly $6 million award from an arbitrator who said they were defrauded of nearly $1 million.
However, one of the developers who allegedly fleeced the investors said the award was improper.
The effort to collect on the arbitration award is the latest move in an acrimonious case that U.S. District Judge Amul R. Thapar wrote was about "a very bad investment."
The deal started in April 2012 when Canadian investors Jason Bedasse and Garth Myers met Nicholas Stodin, a British Columbia resident who said he had the rights to develop a highly profitable mine in Eastern Kentucky, Bedasse and Myers said in a court complaint.
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Stodin provided documents that said the Heller mine, in Pike County, contained 1.6 million tons of high-quality coal; that permits to mine it were in place; and that the mining could be completed in less than two years, according to the complaint.
Stodin was involved with Gill Steven Brown, of Harlan County, in companies called Black Fire Mining and Black Fire Energy, and Brown helped prepare the promotional materials for the Heller mine, the complaint said.
Stodin, Brown and their companies allegedly represented to Bedasse and Myers that net earnings from the mine would total $48.8 million. The investors were to get their initial money back within two months, plus royalties of $11.5 million for financing the operation, according to the initial complaint in the case.
Tallakoy LP, a company operated by Bedasse and Myers, agreed to put $850,000 into the Pike County mine, according to a court document.
However, the mine never got off the ground.
Black Fire Energy allegedly provided excuses for months about why the mine wasn't producing as promised, saying at one point that they were waiting for a part for the auger machine used to drill coal out of the hill, for instance.
The investors found out Black Fire Energy didn't have all the permits needed to mine the coal or an easement for a road to haul it out, however, according to their complaint.
Late in 2012, Black Fire Energy asked the investors for another $120,000 to cover reclamation costs the company said it hadn't known about, according to the complaint.
Tallakoy provided the money in an effort to protect its earlier $850,000 investment, but the mine still didn't produce, according to the complaint prepared by attorneys for Bedasse and Myers.
In April 2013, Black Fire Energy allegedly asked the investors for another $100,000, but they said no and sued soon after.
Bedasse and Myers said in the lawsuit they believed Stodin and Brown used the money they put up for the Pike County mine to develop a separate mine. The investors also learned that $580,000 worth of equipment Black Fire had put up as security on the investment was worth far less, according to the complaint.
Bedasse and Myers charged that Stodin, Brown and their companies committed fraud.
However, the defendants denied that they had committed fraud, broke any state law or misapplied investors' funds. They also denied making statements about the mining project that were false or without a reasonable basis, according to their response.
Stodin and Brown fired back with a lawsuit of their own, alleging Bedasse, Myers and their companies had defamed them with an Internet posting that called Stodin a criminal and urged people not to do business with him and Brown. Stodin and Brown dropped the lawsuit.
Thapar also ultimately dismissed the lawsuit by Bedasse and Myers, ruling the investment contract required using arbitration to handle disputes.
Bedasse and Myers took their claims before an arbitrator, Edmund Karem, a former circuit judge in Jefferson County, but Stodin and Brown did not participate.
Stodin said in a November email included in the court file that Black Fire Energy had never received notice from the American Arbitration Association that a claim had been filed.
However, attorneys Eva Christine Trout and J. Kent Wicker, who represent Bedasse and Myers, said the defendants were notified of the arbitration.
Karem made a finding in his decision that Stodin, Brown and their companies had received notice of the arbitration hearing but failed to take part. Karem found that Stodin and Brown had made a number of false statements and defrauded the investors.
He decided Stodin, Brown and their companies should pay Bedasse and Myers $918,000 to cover their investment; $5 million for defaulting on the contract; and $60,000 in attorney fees.
That is the award attorneys for the investors moved last month in federal court to collect. The request is pending. Brown has not responded in court and attempts to contact him were not successful.
Stodin said in his email to the arbitration association that the investors had failed to properly initiate an arbitration demand, and that Karem's award to them was invalid. He declined further comment.
Brown and Stodin are no longer listed as officers of Black Fire Energy or Black Fire Mining on their annual report to the Kentucky secretary of state's office.