A federal district court judge issued a temporary restraining order Friday afternoon to prevent bankrupt coal producer Blackjewel LLC and a marketing company from moving thousands of tons of coal in Southwest Virginia that U.S. Department of Labor officials say were produced by unpaid employees in violation of the law.

The federal government and Blackjewel are at odds over whether an existing halt can be lifted on coal at three sites in Raven, Honaker and Appalachia, Virginia. The order — issued by James P. Jones, a U.S. District Court judge Abingdon — comes as Blackjewel’s bankruptcy proceedings play out in a separate federal court in West Virginia.

The halted coal was the central focus of a hearing in a Charleston, West Virginia, courtroom Friday morning, before Jones issued his order.

Blackjewel logo

Bankruptcy judge Frank W. Volk ordered the scheduling of an evidentiary hearing related to questions surrounding the halted coal within the next 10-14 days. Jones took that into account for his district court ruling later in the day, setting the temporary restraining order to expire at the conclusion of the bankruptcy court’s evidentiary hearing, the date of which was not immediately available Friday evening.

“We have a melting ice cube here,” Stephen Lerner, an attorney for Blackjewel, told the bankruptcy court Friday morning.

Blackjewel attorneys argue that the company that purchased the coal should be able to take ownership of it before it degrades from oxidation, while the Department of Labor asked the district court in Virginia this week for a temporary restraining order and a preliminary injunction to prevent any movement of the coal.

Many of the company’s employees reported that Blackjewel failed to pay them for work completed in the weeks leading up to July 1, when the company filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court for the Southern District of West Virginia. State data shows the company employed about 480 people in Virginia, although the company also had operations in Kentucky, West Virginia and Wyoming.

The federal government maintains that the coal these employees helped produce are “hot goods” made in violation of the Fair Labor Standards Act, which prohibits the transportation of goods made in violation of minimum wage and overtime requirements.

Earlier this month, the Department of Labor, Blackjewel LLC and a company called Blackjewel Marketing and Sales Holdings entered into stipulations filed with the bankruptcy court agreeing to halt the movement of coal at the three Virginia sites, until the issue of uncompensated work could be resolved.

All of the court proceedings related to issues surrounding Blackjewel’s bankruptcy had taken place in the bankruptcy court until Tuesday, when the Department of Labor filed its complaint in the federal court in Abingdon.

Federal attorneys raised similar issues about “hot goods” in the Virginia complaint as they did in previous filings with the bankruptcy court.

In a preliminary response filed with the court in Virginia, Blackjewel’s attorneys said the relief a restraining order would provide was already achieved in the stipulations agreed on and filed with the bankruptcy court.

Blackjewel argues the district court in Virginia lacks jurisdiction because of an automatic stay that temporarily protects entities going through bankruptcy from having additional judicial proceedings brought against them. But the federal government claims it is exercising its regulatory powers and should be exempt from automatic stay requirements.

In a filing Thursday with the bankruptcy court in West Virginia, Blackjewel attorneys asked the judge in that case to allow the “immediate release” of the “hot goods” to Blackjewel Marketing and Sales Holdings, an entity formed by Blackjewel, Javelin Global Commodities and Uniper SE that marketed Blackjewel’s coal. BJMS is not considered a debtor in the bankruptcy case, and the court previously approved a settlement where the marketing company would pay $1.4 million to Blackjewel for the coal.

The coal company fears it won’t receive the $1.4 million payment if the coal continues to sit at the sites and degrade because BJMS may not be able to sell that coal. Blackjewel attorneys have proposed that the $1.4 million be held in a separate bank account until an agreement could be reached with federal officials over how much of that amount would be paid to employees.

Volk, the bankruptcy judge, heard arguments related to these issues Friday.

“If we don’t get the money, everybody loses,” Lerner, representing Blackjewel, told the court. “The employees will be injured if we can’t bring the $1.4 million into the estate.”

Department of Labor attorneys estimated employees are owed about $4 million for uncompensated work. They said “hot goods” need to be “cooled” — meaning employees are paid for their work — before the coal can move in interstate commerce. They also said district courts are appropriate venues to deal with adjudicating whether violations of the Fair Labor Standards Act occurred and determining what damages may be owed.

An attorney representing BJMS said the company had no knowledge or involvement with the nonpayment of workers when the coal was produced.

Volk did not rule on any specific issues and said he wanted to hold an evidentiary hearing in the next 10-14 days. A date was not finalized at the hearing.

“It is unfortunate that we have to enter into another time-consuming and expensive inquiry, but I know that each party sort of dug in on their respective position,” Volk said.

He added that he’s not preventing any district courts from proceeding with cases.

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tdodson@bristolnews.com | 276-645-2567 | Twitter: @Tim_Dodson

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