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Blackjewel sues former coal CEO over 'self-dealing' leading to bankruptcy


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Blackjewel sues former coal CEO over 'self-dealing' leading to bankruptcy

West Virginia coal company Blackjewel LLC and affiliates sued former President and CEO Jeffery Hoops, alleging the executive caused the company to engage in "numerous improper, unfair, and unreasonable transactions" with other companies he ran.

Hoops' unauthorized self-dealings benefited himself, family members and associated entities to the detriment of the company and its creditors, the plaintiffs alleged in a complaint filed Dec. 10 in the U.S. Bankruptcy Court for the Southern District of West Virginia. Hoops granted unjustified royalties and surface-grazing rights to affiliated companies, arranged "unfair" business relationships with other related entities and conducted other transactions to his benefit without the board's approval, according to the filing.

Hoops told S&P Global Market Intelligence that he was familiar with the filing but could not provide comment.

The plaintiffs accused Hoops of breaching his fiduciary duties and duty of good faith to his businesses, including Blackjewel and Revelation Energy LLC.

"Hoops' breaches were motivated by his personal financial and familial interests, including his desire to move assets beyond the reach of creditors, and was an intentional, willful, and wanton disregard of his fiduciary duties to plaintiffs," the complaint stated. The executive's conduct was "undertaken maliciously" to strip Blackjewel and related entities of valuable assets to enrich himself and family members, it added.

In previous filings seeking a probe into Hoops' business dealings, unsecured creditors said the company became insolvent due to Hoops' transfer of tens of millions of dollars worth of the debtor's assets over several years.

Challenges at Blackjewel

Blackjewel acquired two Powder River Basin coal mines previously owned by Contura Energy Inc. in 2017 but subsequently sold those mines. Blackjewel and Revelation, which were both headed by Hoops, filed for a Chapter 11 bankruptcy reorganization in the summer of 2019.

Blackjewel immediately hit a snag with a proposed bankruptcy financing package from Hoops, leading the company to close its mines due to a "liquidity crisis." When the company did manage to secure bankruptcy financing, it came with the stipulation of Hoops' resignation.

Employees protested and eventually sued over the company's failure to pay wages in the wake of the bankruptcy. Environmental regulators in various states have struggled with multiple violations from the company and confusion about the transfer of permits and who will ultimately be responsible for certain reclamation obligations.

Hoops faced other legal troubles before the bankruptcy. In May 2019, a federal court in West Virginia ordered Revelation to pay $7.3 million in damages to Fifth Third Bank NA in May 2019 due to the company defaulting on its loan obligations. Before its bankruptcy, Blackjewel entered into a payment plan after failing to satisfy an $8.6 million tax bill in Campbell County, Wyo.

Blackjewel also disclosed a U.S. Department of Justice investigation into the company and its employees or officers. That probe is related to the False Claims Act, a law that imposes liabilities based on fraud involving governmental programs.

Blackjewel seeks damages from Hoops

Hoops recently asked the court to convert Blackjewel's Chapter 11 bankruptcy into a Chapter 7 liquidation. Blackjewel objected to that motion on Dec. 10, calling it "a self-serving, transparent and last-ditch litigation tactic" to weaken the company's ability to pursue legal action against Hoops and related entities. Hoops' filing, Blackjewel wrote, points to deficiencies that are the direct result of Hoops' own actions that "ultimately ran the debtors' business into the ground."

"Hoops and the Hoops parties engaged in myriad self-dealing transactions that were often difficult to unravel, including because of the disorganized and incomplete state of the debtors' prepetition business records," the bankruptcy court filing stated. "Despite the delay and obfuscation tactics employed by the Hoops parties, the debtors' investigation has uncovered significant actionable conduct on the part of Hoops and certain of the Hoops parties that caused real and substantial harm to the debtors, their estates, and their creditors and other stakeholders."

Blackjewel and the related companies are seeking damages of an amount it hopes to prove at trial, including the fair market value of the assets that were allegedly improperly transferred. Blackjewel and other entities suing Hoops added that, because the conduct was "malicious, intentional, willful and wanton," they are entitled to punitive damages as well.