Case KRH Doc 2771 Filed 06/24/16 Entered 06/24/16 18:09:01 Desc Main Document Page 1 of 12

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1 Document Page 1 of 12 JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio Telephone: (216) Facsimile: (216) David G. Heiman (admitted pro hac vice) Carl E. Black (admitted pro hac vice) Thomas A. Wilson (admitted pro hac vice) Attorneys for Debtors and Debtors in Possession HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) Tyler P. Brown (VSB No ) J.R. Smith (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: Alpha Natural Resources, Inc., et al., Debtors. Chapter 11 Case No (KRH) (Jointly Administered) DEBTORS' OBJECTION TO MOTION TO RECONSIDER ORDER (A) APPROVING TERMINATION OF SUPPLEMENTAL BENEFIT PLANS, (B) DIRECTING RETURN OF TRUST FUNDS TO THE ESTATES, (C) REJECTING TRUST AGREEMENTS AND (D) GRANTING CERTAIN RELATED RELIEF Alpha Natural Resources, Inc. ("ANR") and certain of its direct and indirect subsidiaries, as debtors and debtors in possession (collectively, the "Debtors"), hereby submit this objection to the Motion to Reconsider Order (A) Approving Termination of Supplemental Benefit Plans, (B) Directing Return of Trust Funds to the Estates, (C) Rejecting Trust Agreements and (D) Granting Certain Related Relief (Docket No. 2629) (the "Motion to Reconsider") filed by Frank Matras, Vaughn Groves, and Gregory Blankenship (collectively, the "Deferred Compensation Participants") and respectfully represent as follows: NAI v5

2 Document Page 2 of 12 Relevant Background 1. On May 13, 2016, the Debtors filed the Motion of the Debtors for an Order (A) Approving Termination of Supplemental Benefit Plans, (B) Directing Return of Trust Funds to the Estates, (C) Rejecting Trust Agreements and (D) Granting Certain Related Relief (Docket No. 2417) (the "Motion") The Motion sought the entry of an order: (a) authorizing the termination of (i) three nonqualified deferred compensation plans (collectively, the "Deferred Compensation Plans") and (ii) two supplemental employee retirement plans (collectively with the Deferred Compensation Plans, the "Plans"); (b) authorizing and directing Bank of America, N.A. as trustee (the "Trustee") to release to Debtor ANR, on behalf of all Debtors who contributed to the Plans (collectively, the "Contributing Debtors"), the assets (the "Trust Funds") currently held in certain grantor trusts (the "Rabbi Trusts") by the Trustee pursuant to the terms of the Plans and the agreements governing such Trust Funds (the "Trust Agreements"); (c) granting the Debtors authority to reject the Trust Agreements upon the return of the Trust Funds; and (d) confirming that any distributions with respect to the Plans shall not be subject to certain adverse tax consequences to Plan participants, including the Deferred Compensation Participants. Motion, at 4. The Debtors developed the Motion and the proposed Order (as defined below) in consultation with the Trustee to provide the Trustee with the necessary authority and protections to release the Trust Funds back to the Debtors in accordance with applicable tax law. 3. On May 27, 2016, the Deferred Compensation Participants who are the former Vice President (Operations), a former General Manager and a former Executive Vice President and General Counsel of the Debtors, all of whom participated in one of the Deferred 1 Capitalized terms not otherwise defined herein have the meanings given to them in the Motion. NAI v5-2-

3 Document Page 3 of 12 Compensation Plans identified in the Motion filed the Objection to Motion of the Debtors for an Order (A) Approving Termination of Supplemental Benefit Plans, (B) Directing Return of Trust Funds to the Estate, (C) Rejecting Trust Agreements and (D) Granting Certain Related Relief (Docket No. 2560) (the "Objection"). 4. On May 30, 2016, the Debtors filed their Reply in Support of Motion of the Debtors for an Order (A) Approving Termination of Supplemental Benefit Plans, (B) Directing Return of Trust Funds to the Estates, (C) Rejecting Trust Agreements and (D) Granting Certain Related Relief (Docket No. 2565) (the "Reply") responding to the arguments raised by the Deferred Compensation Participants in the Objection. Both the Motion and the Reply were supported by declarations of Gary Banbury, Executive Vice President and Chief Administrative Officer of ANR. See Motion, at Ex. B; Reply, at Ex. A. 5. A hearing on the Motion (the "Hearing") occurred, as scheduled, on May 31, 2016, and notice of the Motion and the Hearing was sent to parties in interest in accordance with the case management procedures approved by the Court pursuant to the Order Establishing Certain Notice, Case Management and Administrative Procedures (Docket No. 111) (the "Case Management Order"). Counsel to the Deferred Compensation Participants presented arguments at the Hearing, and Mr. Banbury was available for examination regarding his declarations and the details of the Plans and the Trust Agreements established in the declarations attached to the Motion and the Reply (together, the "Declarations"). Although the Court provided the Deferred Compensation Participants with the opportunity to question Mr. Banbury under oath during the Hearing, they declined to do so. See Transcript of Hearing at 17:24-18:2, In re Alpha Natural Resources, Inc., No (Bankr. E.D. Va. May 31, 2016) (hereinafter, "Transcript"). NAI v5-3-

4 Document Page 4 of Following the arguments of counsel, the Court granted the relief requested at the Hearing and, on June 1, 2016, the Court entered the Order (A) Approving Termination of Supplemental Benefit Plans, (B) Directing Return of Trust Funds to the Estates, (C) Rejecting Trust Agreements and (D) Granting Certain Related Relief (Docket No. 2587) (the "Order"). 7. On June 9, 2016, the Deferred Compensation Participants filed the Motion to Reconsider. Response 8. In the Motion to Reconsider, the Deferred Compensation Participants argue that the Court should reconsider the Order because the Order directs the return of the Trust Funds to ANR outside of an adversary proceeding, allegedly in violation of Rule 7001 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). See Motion to Reconsider, at A. The Deferred Compensation Participants further argue that the Court may reconsider the Order (a) pursuant to Bankruptcy Rule 9023 because the Order is based on a manifest error of law and (b) pursuant to Bankruptcy Rule 9024 because (i) the Order is void and (ii) the Deferred Compensation Participants "did not get the due process protections provided by the adversary proceeding process." Motion to Reconsider, at B. 9. As established in the Motion and the Reply and at the Hearing, the routine relief requested in the Motion and granted in the Order merely implements the provisions of the governing agreements and is consistent in all respects with the terms of the Deferred Compensation Participants' voluntary participation in the Plans and the tax advantages that provided them. The Deferred Compensation Participants waived their argument that references in the Motion to section 542 of the Bankruptcy Code necessitated an adversary proceeding by not timely asserting it. In any event, the Motion was not a turnover action that might require an adversary proceeding, and the Order was a valid exercise of the Court's authority. Moreover, any NAI v5-4-

5 Document Page 5 of 12 procedural infirmity asserted by the Deferred Compensation Participants is not sufficient to cause the Order to be void. The Deferred Compensation Participants received adequate due process with respect to the relief requested in the Motion and granted in the Order. The Deferred Compensation Participants Waived Any Argument that References to Section 542(a) of the Bankruptcy Code in the Motion Necessitated an Adversary Proceeding 10. Because the Deferred Compensation Participants failed to raise their argument that the Motion's references to section 542(a) of the Bankruptcy Code triggered the requirement of an adversary proceeding at or before the Hearing, the Deferred Compensation Participants have waived that argument. See In re Cobb, No WHD, 2006 WL , at *1 (Bankr. N.D. Ga. June 1, 2006) ("The Court need not determine whether the [d]ebtor is required to file a complaint to obtain the requested relief because, even if [the counterparty] is entitled to be sued by complaint, the Court hereby concludes that [it] waived this right by appearing before the Court to argue the merits of the Motion without raising the issue."); CIT Grp./Bus. Credit Inc. v. Official Comm. of Unsecured Creditors of E-Z Serve Convenience Stores, Inc. (In re E-Z Serve Convenience Stores, Inc.), 318 B.R. 631, 636 (M.D.N.C. 2004) ("A party may waive its right to protest the lack of an adversary proceeding."); In re Wlodarski, 115 B.R. 53, 56 (Bankr. S.D.N.Y. 1990) ("Bankruptcy Rule 7001 provides that [a proceeding to discharge liens] should be brought as an adversary proceeding. However, since there has been no objection to the form of the proceeding, the interests of justice will be more readily served by the expeditious resolution of this matter without further delay."). 11. "Waiver occurs when a party knowingly fails to litigate a Rule 7001 issue that they had the opportunity to litigate." E-Z Serve Convenience Stores, 318 B.R. at 636 (citing In re Banks, 299 F.3d 296 (4th Cir. 2002), abrogated on other grounds by United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010)). Here, the Deferred Compensation Participants do NAI v5-5-

6 Document Page 6 of 12 not contest that they received ample notice of the Motion consistent with the Case Management Order and participated in the proceedings by filing the Objection and attending the Hearing. Despite such notice and participation, however, the Deferred Compensation Participants did not argue at any time that the Motion's reference to section 542 of the Bankruptcy Code triggered the requirement of an adversary proceeding. Although, at the Hearing, the Deferred Compensation Participants generally requested that the Court: (a) continue the hearing, "possibly converting it to an adversary proceeding"; and (b) allow for discovery, the Deferred Compensation Participants did not provide any legal basis for such request or indicate that an adversary proceeding was necessary to release the Trust Funds to the Debtors' estates. Transcript, at 17: Therefore, the Deferred Compensation Participants have "forfeited [their] arguments regarding the adequacy of the [ ] Court's procedures by failing to raise a timely objection." United Student Aid Funds, 559 U.S. at 275 (holding that a creditor waived its right to object to the lack of a required adversary procedure by not timely objecting despite adequate notice). The Order Is a Valid Exercise of Court Authority 12. Even if the Deferred Compensation Participants had not waived their arguments that references to section 542 of the Bankruptcy Code in the Motion necessitated an adversary proceeding, the Court had full authority to grant the relief requested in the Motion. The Motion sought authority, to the extent necessary, to terminate the Plans as contemplated by the terms of the Plans and the Trust Agreements, and as required by applicable tax law as a condition of the tax advantages that participants received. The Motion requested this authority pursuant to section 363 of the Bankruptcy Code. The release of the Trust Funds to the Contributing Debtors' estates was merely a necessary corollary of the termination of the Plans. NAI v5-6-

7 Document Page 7 of No adversary proceeding was necessary to establish the Trustee's obligation to return the Trust Funds to the Contributing Debtors' estates. Section 542(a) of the Bankruptcy Code unequivocally states that an entity "in possession, custody, or control" of property of the debtor's estate "shall deliver" such property to the trustee or debtor-in-possession. 11 U.S.C. 542(a). 2 Section 542(a) of the Bankruptcy Code clearly imposes a duty to proactively turn over estate funds. Although a debtor may initiate an adversary proceeding to compel an entity to turn over assets pursuant to Bankruptcy Rule 7001, there is no indication that an entity need not comply with the requirements of section 542 unless and until it is sued. Because section 542 of the Bankruptcy Code requires the return of estate assets to the applicable debtor's estate, the Debtors appropriately cited section 542 of the Bankruptcy Code to demonstrate that the relief requested in the Order is consistent with the provisions of the Bankruptcy Code. 14. The Motion was not, and was not intended to initiate, a turnover action. As noted above, the Debtors sought the relief granted by the Order, including the release of the Trust Funds to ANR, in collaboration with the Trustee, who would presumably be the adverse party to the adversary proceeding that the Deferred Compensation Participants contemplate. The Debtors anticipated that the Trustee would require a court order confirming its authority and obligation to release the Trust Funds to the Debtors' estates and consulted with the Trustee in advance of filing the Motion. Consistent with the Debtors' expectations, the Trustee requested 2 Section 542(a) of the Bankruptcy Code provides: Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate. 11 U.S.C. 542(a). NAI v5-7-

8 Document Page 8 of 12 that certain language be included in the proposed Order providing the Trustee and related parties with customary releases and protections from any claims that might arise from the release of the Trust Funds. See Order, at 4. At no time did the Trustee assert that the Trust Funds are not property of the Debtors' estates or otherwise object to the relief requested in the Motion. In fact, as stated above, the Trustee collaborated with the Debtors on the terms of the proposed Order, which merely provided the necessary instructions and protections to enable the Trustee to voluntarily satisfy its obligation under section 542(a) of the Bankruptcy Code. Because the interests of the Trustee and the Debtors were fully aligned, there was no need for an adversary proceeding. See United Student Aid Funds, 559 U.S. at 278 (establishing that parties may stipulate to certain findings that otherwise must be established through an adversary proceeding and may waive service of a summons and complaint). 15. Because the release of the Trust Funds was expressly provided for under their governing documents, and the interest of the Debtors' estates in the Trust Funds was never in dispute, the commencement of an adversary proceeding was not necessary and would have been a waste of valuable estate resources. 3 For this reason, courts in this and other Districts routinely direct trustees to return rabbi trust assets to the applicable debtor's estate in connection with the termination of supplemental benefit plans without requiring the initiation of an adversary proceeding. See, e.g., In re S&K Famous Brands, Inc., No (Bankr. E.D. Va. Feb. 18, 2009) (ordering the return of rabbi trust assets to the debtor's estate upon a motion of the debtor); In re Heilig-Meyers Co., No (Bankr. E.D. Va. Feb. 21, 2002) (same); see also In re Dana Corporation, No (Bankr. S.D.N.Y. June 27, 2007) (same). 3 In addition, "the lack of [an adversary] proceeding will be deemed 'harmless error' in the event that the failure to provide an adversary proceeding does not result in demonstrable prejudice." E-Z Serve Convenience Stores, 318 B.R. at 636. NAI v5-8-

9 Document Page 9 of 12 The Deferred Compensation Participants Received Adequate Due Process 16. The Deferred Compensation Participants received adequate and appropriate due process with respect to the relief requested in the Motion, including: (a) notice of the Motion and the Hearing in compliance with the Case Management Order; (b) the opportunity, which they exercised, to present objections to the relief sought; and (c) the opportunity, which they declined to exercise, to examine the Debtors' witness. 17. The Deferred Compensation Participants suggest that they did not receive adequate due process because they were not provided with the opportunity to conduct discovery. Motion to Reconsider, at B.2. The Deferred Compensation Participants made no effort to seek discovery prior to the Hearing, however, or even to request complete copies of the operative documents, which the Debtors offered to provide in the Motion. See Motion, at n.1 ("Copies of these documents will be made available to the Court at or prior to the hearing on this Motion, and to other parties upon request made to Debtors' counsel."). Additionally, the Deferred Compensation Participants did not seek to depose Mr. Banbury, the Debtors' declarant, or anyone else regarding the Plans and the Trust Funds prior to the Hearing and declined to examine Mr. Banbury at the Hearing. See Transcript, at 17:24 18:2. Moreover, the absence of discovery caused the Deferred Compensation Participants no prejudice. The Motion provided the necessary support for the relief requested, including the relevant terms of the Plans and Trust Agreements that make the Trust Funds available to the Debtors' creditors. See, e.g., Motion, at 11, 12, 34. Additional documents responsive to the Objection were also made available to the Deferred Compensation Participants in the Reply. Reply, at Ex. A, Annexes I-VI. Because the Deferred Compensation Participants (a) failed to seek discovery with respect to the Motion until NAI v5-9-

10 Document Page 10 of 12 the Hearing and (b) declined to examine the Debtors' witness at the Hearing, they should not now be heard to complain that they received an inadequate opportunity to conduct discovery. 18. The Deferred Compensation Participants assert that the Debtors did not provide information demonstrating that the Plans were "top-hat plans" exempt from many of the requirements of ERISA until the day prior to the Hearing. Motion to Reconsider, at 2-3. This argument is irrelevant, however, because the Court agreed with the Debtors that exemption from ERISA was not at issue. See Transcript, at 26:25-27:1 ("The Court agrees with Mr. Merrett. This is not an ERISA issue "). Rather, the requirements of applicable tax law and the contract provisions cited in the Motion determine the treatment of the Trust Funds. See id. ("This is a tax issue. In order for these salaries to be deferred and nontaxable, they had to be subject to the claims of creditors."). Nonetheless, as an alternative response to the arguments raised in the Objection, which was filed one business day before the Hearing, the Debtors were justified in including in the Reply their thorough demonstration that the Plan in issue is indeed a top-hat plan. The fact that the Debtors elected to provide this additional showing should not give rise to due process concerns. 19. The allegation that the Debtors did not serve the Trustee with a summons and complaint, see Motion to Reconsider, at B.2, is also irrelevant because, for all of the reasons previously stated, no adversary proceeding was required. Moreover, the Deferred Compensation Participants lack standing to assert the due process rights of the Trustee. To establish such third party standing, the Deferred Compensation Participants must show that (a) they have a "close relationship" with the Trustee and (b) there is a "hindrance" to the Trustee's ability to protect its own interests. Kowalski v. Tesmer, 543 U.S. 125, 130 (2004) (establishing the requirements of third party standing). Here, the Deferred Compensation NAI v5-10-

11 Document Page 11 of 12 Participants are merely the beneficiaries of the Trusts administered by the Trustee. The Trustee is quite able to assert its interests as a sophisticated party with (a) legal counsel and (b) motivation to avoid potential liability. In fact, as noted above, the Debtors developed the Motion and Order in consultation with the Trustee. The Trustee also received actual notice of the Motion in time to assert any and all objections to the Motion. See United Student Aid Funds, 559 U.S. at 272 (finding actual notice sufficient to meet due process requirements). Thus, the Trustee received adequate notice of the Motion and worked directly with the Debtors to ensure that its rights and interests were protected in the Order. 20. In addition, the failure to serve a summons and complaint to commence an adversary proceeding, if required, is not a violation of due process where the party received actual notice of the debtor's filing. See United Student Aid Funds, 559 U.S. at 272 (ruling that the failure to provide notice consistent with the requirements of an adversary proceeding, where such a proceeding was required, (a) did not give rise to a lack of due process and (b) was not a basis to void the lower court's order granting the requested relief). Notice was therefore adequate as to all parties and this argument provides no basis for voiding the Order. Id. at 273 (noting that Rule 60(b)(4) of the Federal Rules of Civil Procedure, which is incorporated into Bankruptcy Rule 9023, "strikes a balance between the need for finality of judgments and the importance of ensuring that litigants have a full and fair opportunity to litigate a dispute"). 21. For the foregoing reasons, the Debtors request that the Court deny the Motion to Reconsider. NAI v5-11-

12 Document Page 12 of 12 Dated: June 24, 2016 Richmond, Virginia Respectfully submitted, /s/ Henry P. (Toby) Long, III Tyler P. Brown (VSB No ) J.R. Smith (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) David G. Heiman (admitted pro hac vice) Carl E. Black (admitted pro hac vice) Thomas A. Wilson (admitted pro hac vice) JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio Telephone: (216) Facsimile: (216) ATTORNEYS FOR DEBTORS AND DEBTORS IN POSSESSION NAI v5-12-