1994-01-05_GENERAL DOCUMENTS - C1981017

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The DMG's Obiection to Participation by the Debtor in the DMG Litigation 16. The Objection argues that any participation by the Debtor in the DMG Litigation "would not serve the best interests of the estate, " that the Debtor "has an interest and an obligation to its creditors to seek money from other sources to meet its reclamation obligation, " and that the Debtor therefore should be "supportive" of the DMG Litigation. 17 . The premise of the Objection is flawed, as a matter of law. A recovery from third parties will not shift liability from the Debtor's estate, because such parties would be subrogated to the DMG's claim or, alternatively, would submit corresponding claims for indemnification. The identity of the claimants might change, but not the amount of the claims. In the end, the reclamation liability remains a liability of the Debtor as the mining permittee, as the DMG has acknowledged in other pleadings. 18. Of greater concern to Resources is the impact of the DMG Litigation on the Debtor's Chapter 11 plan. The plan seeks to voluntarily subordinate the secured claim of Sanwa Business Credit Corporation ( "Sanwa" ) to costs of reclamation. The rationale for this subordination is that Sanwa's loans are guaranteed and cross- collateralized by the Debtor's corporate affiliates; by providing funds from the Debtor's estate for reclamation, the litigation exposure, if any, of the Debtor's affiliates is minimized. By pursuing the affiliates in the first instance, the DMG undermines the rationale for Sanwa to voluntarily subordinate its claim against the Debtor to reclamation expenses. 19. There are obvious inconsistencies in the DMG's position. On the one hand, the DMG claims that the Debtor is obligated to perform mine reclamation, and that it is entitled to pursue affiliates and employees because the Debtor has not made adequate provision for reclamation expenses. On the other hand, the DMG claims that it should pursue affiliates and employees instead of the Debtor. 20. According to counsel for the defendants in the DMG Litigation, the defendants have asserted or will assert defenses in the DMG Litigation, including waiver, failure to mitigate, and unclean hands, if the DMG does not first apply funds which are being offered from the permittee's estate under the Debtor's plan. 21. Even the DMG's own pleadings suggest some reasons why the Debtor may need to be part of the DMS Litigation: a. In a November 5, 1993 objection tc the Debtor's application to employ other special counsel, which the Debtor later withdrew, the DMG stated that the defendants in the DMG Litigation "should be impleading the debtor as -5-