Miners say this company shorted them and has become ‘a cancer on the coal industry’

The coal company whose workers blocked a train in Pike County last week in protest over unpaid wages also has allegedly failed to pay employees in Perry County for past work and vacation days, leading the state to suspend mine licenses at its operations in Perry and Pike Counties.

Last week, the Kentucky Division of Mine Safety issued a complaint against American Resources Corporation and several of its related entities. The complaint claims that “contrary to the representations of American Resources Corporation’s officers,” many of the company’s employees still had not received payment for work they had already completed.

The state’s complaint requested financial penalties for McCoy Elkhorn Coal and Management Consulting Services, both ARC-related entities, and suspends mine licenses at the E4-1 and E4-2 mines in Perry County, and the McCoy Elkhorn No. 15 and Carnegie mines in Pike County.

In addition, a Herald-Leader review of court records found that ARC has faced several legal battles over its alleged failure to make good on lease payments, and left a mine in Perry County, which employed dozens of people just three months ago, at risk of flooding after it laid off nearly its entire workforce and failed to pay the mine’s power bill.

He wasn’t paid for working Christmas Day

On Christmas Eve, Robert Smith, a guard at an ARC-affiliated mine in Perry County, put on his work clothes and headed to the company’s E4-1 mine. He worked 12 hours that day.

On Christmas Day, he did it again. According to Smith, he has never been paid for that work.

Smith said Tuesday he hasn’t been paid for a total of 90 hours of work he already completed, plus 15 hours of overtime pay. He was “laid off, fired, whatever you want to call it,” with no notice from the company and no official documentation that he had been let go.

His last day was Jan 12.

When he messaged a company representative about his unpaid wages, the company said it was “reconsolidating everything as we speak,” and that it was having trouble pulling together final pay records.

Smith said he explained that he was a guard, not a miner, and then the company stopped responding.

“I worked 12 hours on Christmas Eve, 12 hours on Christmas day, and I’ve got a 7-year-old son. I was away from my family 12 hours a day for that money,” Smith said. “I’ve worked for some bad people, but I’ve never been done like this.”

In a statement to the Herald-Leader, ARC said Tuesday that it has paid employees for all hours worked and overtime wages that have been reported to the company.

“American Resources has always and continues to stand by its hard working men and women,” the company said. “We take pride in paying our employees very good wages and always ensuring they are paid everything they have earned, and we will continue to do so.”

Smith and other laid-off employees of American Resources reacted with anger last week to a claim that ARC made in bankruptcy court, saying it had “paid all post-petition and TSA wages to the employees at the Perry County Coal operations.”

ARC purchased the Perry County mines during the bankruptcy of Cambrian Coal last year.

Many miners took that claim to mean American Resources had paid all wages due to employees, but ARC’s filing does not refer to work performed since any American Resources’ affiliates took over the business, said ARC communications director Matt Sheldon.

“I want that judge to know that they’re not telling the truth,” said David Mullins, the former general manager of American Resources’ subsidiary Perry County Resources, which operated two underground mines near Hazard. “They really don’t care much about the employees and how they treat them.”

In a statement to the Herald-Leader, ARC officials said the company “stands by their statements and representations made at the Cambrian Holdings Company Inc. bankruptcy hearing regarding their obligations related to paying or assuming liabilities and payroll of Cambrian’s Perry County Coal LLC subsidiary.”

Last week, Mullins estimated the company owed him $10,500 for 22 days — seven work days and 15 vacation days — and said other miners may also be owed for time worked.

On Tuesday, Mullins said the company paid him for two days of work.

Soon after Cambrian sold the mines and preparation plant to ARC in October, the company began to lay off workers. Many of those who were laid off in the early rounds were paid for past work and vacation time, according to several interviews, but the later rounds are still owed significant amounts of money.

Teresa Nichols Maggard, the former Human Resources manager at the mines, also was angered by ARC’s filing in bankruptcy court, and said the company should be held accountable for allowing workers to go unpaid.

“He needs to come through with paying people like he was supposed to,” Maggard said of Mark Jensen, ARC’s CEO. “I’d like for him to have to be accountable for that statement.”

ARC said the company is working to determine what wage obligations it might owe, and that it has allocated funds to pay those amounts once they are determined.

“The records to determine such amounts were admittedly, by the general manager, not in the best of shape that we received from the general manager and head of (human relations) at Perry County Resources, and we are still requesting such records be returned to the company and/or verified by those individuals so we can confirm the balance of PTO is outstanding so it can be paid,” the company said.

Maggard disputed that claim, which, she said, attempts to transfer blame to her and Mullins for ARC’s failure to maintain payroll records.

Maggard said she has given the company every record it needs to determine the amount of paid-time-off and other wages that employees are owed.

“It’s all available to them, it’s all within their grasp,” Maggard said. “Now, whether or not they have the intelligence to do it, I can’t answer that question for you, but the records, the paper documentation, is certainly available to them if they want to go get it.”

‘The worst conditions I’ve ever seen’

Like others, Mullins and Maggard said the company seemed to struggle to fund the operation from the moment it purchased the mines.

“You couldn’t get nuts, screws, bolts,” Maggard said.

Steve Davidson, a foreman at the Perry County coal preparation plant who said Tuesday he is still owed for one week of work, said he often didn’t have fuel for equipment.

Mullins said ARC failed to buy workers’ compensation insurance, forcing the mine to shut down for a couple of days. When it arranged for insurance, the company didn’t pay the premium when it was due and the mine was shut down again, he said.

According to the state’s order, the company’s workers’ compensation insurance was canceled again last week.

It was not unusual for paychecks to be late through most of the time he worked for Perry County Resources, Davidson said.

“This is the worst conditions I’ve ever seen in my lifetime, and I started back in 1985,” Davidson said. “The plant is in such bad shape, it would take I don’t know how many millions of dollars to get it back up and running.”

Davidson blames Cambrian Coal and the bankruptcy judge, Gregory Schaaf, for allowing ARC to take over Perry County Coal in the first place, a transaction that has caused controversy both among coal miners in Eastern Kentucky and bankruptcy attorneys in Lexington.

Companies involved in the bankruptcy case, along with the U.S. Trustee, have criticized the sale process.

The U.S. Trustee, for example, objected to $650,000 of payments that were scheduled to be made to Cambrian’s financial advisor, Jefferies LLC., for allowing ARC to enter the sale.

ARC is blocked from acquiring new mining permits under the federal Applicant Violator System, which reflects coal companies’ violations of the Surface Mining Control and Reclamation Act. A list of violations in the OSM Applicant/Violator system showed 39 violations against American Resources companies as of Dec. 17. Most violations were in Kentucky, and some were in Indiana.

A letter from the Indiana Department of Natural Resources, which was filed in bankruptcy court, included a permit revocation for a mine in Greene County, Ind., for unabated violations, including water quality violations.

Multiple attorneys and industry officials familiar with coal company bankruptcies told the Herald-Leader that “permit-blocked” companies are almost always barred from buying coal mines during bankruptcy because the companies wouldn’t be able to receive any permits for the mines even if they paid a good price.

Without permits, the company can’t mine, and employees are left on the sidelines.

Cambrian didn’t follow that precedent. It entered into a separate purchase agreement with ARC, which was presented to the court weeks after it was finalized, and only after another party discovered it. That agreement allowed ARC to purchase the mines despite being “permit blocked.”

An attorney for Cambrian said the company only went forward with the sale because a Kentucky official said the state would “work with” ARC to remove the permit block.

Judge Schaaf has said in court he was not aware of the companies’ separate agreement until it was brought up weeks later.

Earlier last week, ARC announced plans to sell one of the Perry County mines to Blue Diamond Mining, and assured the court that Blue Diamond and leaseholder Kentucky River Properties “are very close and/or have a deal in principle and are just waiting for the lease to be prepared.”

An attorney for Kentucky River Properties told the court that “nothing could be further from the truth,” and that the companies had not come close to finalizing an agreement.

Flooded mine, lost opportunity

Last week, power was shut off at ARC’s E4-2 mine for lack of payment. As a result, the pumps used to draw water from the mine were turned off, and the mine was at risk of flooding, according to court records.

Another leaseholder, Hazard Coal Corporation, argued in a court motion that ARC’s failure to pay the power bill is a direct violation of its lease, and will cause “catastrophic loss of the economic value to the millions of tons of coal left to be mined on the property.”

Kentucky River Properties also criticized ARC’s failure to properly maintain the mine since it took over.

Steve Barker, President of Kentucky River Properties, said in a statement to the Herald-Leader that Kentucky River paid to restore power at the E4-2 mine over the weekend “to pump water and provide ventilation in hopes of being able to assess mining conditions in the short term.”

“We are very concerned about the continued viability of the Perry County Mining Complex,” Barker said.

Barker said the company was not yet aware of how much potential damage was caused to the mine because power was off.

“Candidly, while we are hoping for the best, we fear the worst,” he said. “Perry and surrounding counties have depended on these jobs for more than two decades. If something does not happen soon, the outcome may be a permanent loss of this mine and the jobs of the miners who worked at the mine complex.”

Employees estimated there are tens of millions of tons left in the coal seam within the E4-2 mine, but that flooding could ruin the equipment left within the mine that is needed for production.

The coal in E4-2 is low-grade metallurgical coal, used to make steel, Mullins said. The market for coal used to make steel is stronger than for coal used at power plants. The flooding, though, could make it economically unfeasible for a company to ever reopen the mine, former employees said.

“Once it (floods), it will cost a tremendous amount of money and lots of years of work for folks,” Maggard said.

ARC said it has, at times, idled its production as part of its restructuring efforts.

“These decisions were enacted by the company in order to adjust, reset, or restructure certain policies, including its insurance and workers comp,” the company said. “Our goal and associated plan of action has always been, and remains, to run our operations profitably under our low-cost operating structure to provide long-term, sustainable employment.”

Emily Cowles, an attorney with Hazard Coal Corporation, said at a bankruptcy court hearing in Lexington last week that ARC’s failure to maintain the terms of the lease showed that ARC was never a qualified bidder to take the Perry County operations.

In a press release that ARC issued in October, the company claimed it would make substantial improvements to the mining complex, including upgrades to the preparation plant and the extension of a belt line.

The company also said it “prides itself on job creation and preservation.”

“What has happened has caused the exact opposite result,” Stan Cave, an attorney for Kentucky River Properties, said during a court hearing last week. “It has caused miners to be put out of work, it has caused valuable assets to be lost and wasted.”

‘A cancer on the coal industry’

A company led by the same managers as American Resources also faces an accusation of stiffing people.

Last month, the state Court of Appeals upheld a $2.5 million judgment against Quest Energy Corporation for allegedly failing to make good on a deal involving a coal company in Knott County.

American Resources has a subsidiary with a slightly different name, Quest Energy Inc., but the Court of Appeals decision identified Mark Jensen and Thomas Sauve as top managers of the company involved in the Knott County lawsuit. Jensen is CEO of American Resources and Sauve is president, according to the U.S. Office of Surface Mining Reclamation and Enforcement.

Quest Energy Corporation finalized an agreement to buy the Knott County company, called Samuel Coal Company, in December 2012, as the industry began to plummet in Eastern Kentucky.

According to court records, Quest agreed to buy the company from Ray Slone, a longtime underground mine operator, and his wife and daughter. The Slones sued in 2016, arguing Quest hadn’t paid and hadn’t provided an accounting of the coal it had mined.

Quest Energy countersued, claiming Slone had deliberately provided incorrect information about the company, such as information on its coal reserves.

The company said that while its chief executive officer, Jensen, and chief financial officer, Sauve, had experience in finance, neither “had much experience in the coal mining business at the time of the acquisition,” the Court of Appeals said in its ruling.

Sauve also acknowledged he had no experience reviewing coal-reserve reports, and Jensen said he didn’t have anyone outside the company review the reserve study, according to the court record.

Slone denied misrepresenting any information, and Knott Circuit Judge Kim C. Childers ruled that Quest had not adequately proven those allegations against Slone.

Childers ruled Quest owed Slone and his family $2.5 million, plus at least $600,000 a year until the rest of the $7 million purchase price was fulfilled.

Quest argued the decision was flawed and asked the Court of Appeals to overturn it, but a three-member panel upheld the judgment. It has requested a re-hearing.

“I consider them con men,” said Ned Pillersdorf, a Prestonsburg attorney who represented Slone and helped represent miners who went unpaid for months in the bankruptcy of Blackjewel LLC. “They’re a cancer on the coal industry.”

American Resources has had other battles with landholders and leaseholders in Eastern Kentucky.

Midway Resources, a leaseholder for mineral rights in Letcher County, operated by Jimmy Keith Hall, filed suit in December 2018 against American Resources, several of its related entities and its leadership for allegedly failing to pay more than $400,000 for coal the company mined on Midway’s lease.

That suit ended in an agreed dismissal, the details of which were not made public.

In Knott County, a mineral-holder named Larry Honeycutt sued Samuel Coal Company, which was operated by ARC’s leadership, after the company allegedly breached his lease agreement. Honeycutt filed a motion to declare the lease void, and a judge ruled in his favor in April 2019.

The company’s leadership, including CEO Mark Jensen, often spent weekends living in a small house on Honeycutt’s land while the two did business together, according to Honeycutt. His wife would often cook Jensen and other company representatives dinner.

Honeycutt said the meals his wife made for Jensen and other ARC officials left him feeling personally betrayed. He cautioned others from going into business with the company.

“I feel stolen from,” he said.

This story was originally published January 22, 2020 at 12:00 PM.