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`UNITED STATES BANKRUPTCY COURT
`DISTRICT OF DELAWARE
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`In Re:
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`EMERGE ENERGY SERVICES LP, et al.,
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`Debtors.1
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`) Chapter 11
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`) Case No. 19-11563 (KBO)
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`) Jointly Administered
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`) Hearing Date: Sep. 24, 2019 at 2:00 p.m. (ET)
`) Obj. Deadline: Sep. 17, 2019 at 4:00 p.m. (ET)
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`MOTION OF IRON MOUNTAIN TRAP ROCK
`COMPANY TO CONFIRM AUTOMATIC STAY DOES NOT
`APPLY TO NONDEBTOR PROPERTY, OR, IN THE ALTERNATIVE,
`FOR RELIEF FROM, OR ANNULMENT OF, THE AUTOMATIC STAY
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`Iron Mountain Trap Rock Company (“IMTR”), a creditor and party-in-interest in the above
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`bankruptcy case, moves the Court under sections 105 and 362 of title 11 of the United States Code
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`(the “Bankruptcy Code”) and F.R.B.P. 4001 and 9014 for the entry of an order confirming that the
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`automatic stay does not apply to property in which Debtor Superior Silica Sands LLC (“SSS”) has
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`never held any legal or equitable interest, and as to which SSS holds no good-faith or colorable
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`possessory interest. In the alternative, IMTR requests an order modifying or annulling the
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`automatic stay of Section 362(a) of the Bankruptcy Code to permit IMTR to recover its property
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`that SSS has, without any right or cause, improperly barred IMTR from accessing, using or
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`recovering. In support, IMTR states as follows:
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`JURISDICTION AND STATUTORY PREDICATES
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`1.
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`Debtor SSS and the other Debtors are debtors under the provisions of chapter 11 of
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`the Bankruptcy Code, having filed voluntary petitions on July 15, 2019 (the “Petition Date”) with
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`1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are:
`Emerge Energy Services LP (2937), Emerge Energy Services GP LLC (4683), Emerge Energy Services Operating
`LLC (2511), Superior Silica Sands LLC (9889), and Emerge Energy Services Finance Corporation (9875). The
`Debtors’ address is 5600 Clearfork Main Street, Suite 400, Fort Worth, Texas 76109.
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 2 of 12
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`the United States Bankruptcy Court for the District of Delaware (the “Court”). Debtors’ cases
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`have been procedurally consolidated and jointly administered under the case of Emerge Energy
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`Services LP, Case No. 19-11563 [Docket No. 54].
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`2.
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`This Court has jurisdiction of the parties and the subject matter of this motion under
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`11 U.S.C. Section 101, et. seq., 28 U.S.C. Section 157(b)(2)(A) and (G). Venue over this matter
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`is appropriate under 28 U.S.C. Sections 1408 and 1409. The relief sought is appropriate under
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`sections 105 and 362(d)(1) - (2) of the Bankruptcy Code.
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`PERTINENT FACTS
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`3.
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`IMTR brings this motion because SSS has taken postpetition action to bar and
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`preclude IMTR from recovering personal property – property as to which SSS has never had any
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`legal, equitable or possessory interest, either prior to or after the Petition Date. Without any right
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`or good-faith claim to the subject property, SSS has locked IMTR’s property behind a gate and is
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`refusing to allow IMTR access to its own property. Adding to the unauthorized nature of SSS’s
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`acts, SSS is acting contrary to an Order of this Court – an Order that SSS itself requested and
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`obtained that authorized SSS to abandon SSS’s own property at the subject location. Because SSS
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`now refuses to acknowledge IMTR as the owner of IMTR’s own property (not to mention the
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`property SSS abandoned) and has taken control of the property without any right or permission
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`whatsoever, IMTR is now forced to seek relief from this Court.
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`4.
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`Among other things, IMTR provides services that consist in part of stripping,
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`drilling, shooting and mining sand and wet plant processing of silica sand.
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`5.
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`IMTR (through its predecessor Fred Weber, Inc.) and SSS entered into a Wet Sand
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`Services Agreement dated April 7, 2011, which was followed by four amendments (collectively,
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`the “Agreement”; a copy of the Wet Sands Services Agreement and the four amendments
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`(“Amendments”) are attached as Exhibit A). Under the Agreement, IMTR agreed to provide its
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 3 of 12
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`mining services to SSS at a quarry site located in Chippewa Falls, Wisconsin (the “Quarry Site”).
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`SSS does not own the Quarry Site but rather leases it from various owners under certain lease and
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`royalty agreements.
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`6.
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`Under the specific terms of the Agreement, IMTR was required to build, at its own
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`expense, a fixed wash plant (the “Wash Plant”) and deliver to the Quarry Site all parts and
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`equipment necessary to produce the sand contemplated by the Agreement (the “Contractor
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`Equipment”), as well as other rolling stock and non-permanent equipment (the “Non-Permanent
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`Contractor Equipment”).
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`7.
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`Also under the Agreement, SSS was required to deliver the equipment listed on
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`Exhibit D of the Agreement (the “SSS Equipment”) to the Quarry Site, “and transfer title to the
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`SSS Equipment to [IMTR], free and clear of all liens.” See Agreement, Article 1.1(h). The Wash
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`Plant, the Contractor Equipment and the SSS Equipment are referred to as the “Plant and
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`Equipment.”
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`8.
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`The Agreement specifically contemplated the status of title to the Plant and
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`Equipment during the Term (as defined in the Agreement). SSS agreed that during the Term
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`(including the extensions as provided under the Amendments), “the Plant and Equipment and all
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`other materials, temporary buildings and other items placed or installed upon the Quarry Site by
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`[IMTR] (i) are, and will at all times remain, the property of [IMTR], and, (ii) upon a termination
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`of this Agreement pursuant to Section 11.2 hereof, may be removed from the Quarry Site by
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`[IMTR] within one hundred twenty (120) days after the termination date…” (emphasis added).
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`This provision is subject to SSS’s right to acquire certain property (the “Handover Assets”) for a
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`stipulated price if the Agreement terminates for certain limited reasons, primarily, the natural
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`conclusion of the full duration of the Term (Article 1.4(a)(i)), or the early termination of the
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 4 of 12
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`Agreement due to a default by IMTR (Article 1.4(a)(ii)). Neither of these conditions occurred and
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`are not applicable here. As explained further below, SSS rejected the Agreement and the Court
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`approved the rejection, resulting in a breach by SSS of the Agreement. SSS has never asserted any
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`breach by IMTR under the Agreement.
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`9.
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`SSS further specifically agreed that other than as set forth in Section 1.4 of the
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`Agreement, “SSS has no right, title, or interest in or to the Plant and Equipment or any other
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`materials, temporary buildings and other items placed or installed upon the Quarry Site by
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`[IMTR].” See Agreement, Article 1.3(b) (emphasis added). As noted above, conditions for the
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`exceptions under Article 1.4 for SSS to acquire any interest in the Handover Assets never arose.
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`Therefore, at all times relevant here, all right, title and interest in the Plant and Equipment and
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`other property described in Article 1.3(b) has resided, and continues to reside, exclusively with
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`IMTR.
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`10.
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`The Agreement further confirms IMTR’s right, title and interest in the Plant,
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`Equipment and related property if and when the Agreement terminates. Section 1.4 of the
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`Agreement governed the title to the Plant and Equipment upon expiration of the Term under
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`various circumstances. Though the Term has not expired, and IMTR has not terminated the
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`Agreement notwithstanding SSS’s breach, the subsection that would apply here upon IMTR’s
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`termination of the Agreement is subsection 1.4(a)(iii):
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`To the extent that the Term has ended early as a result of a termination by [IMTR]
`following SSS’s default under Section 11.12, [IMTR] shall have the right (but not the
`obligation) to require that SSS acquire the Handover Assets for the Buy Out Price and
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`2 Section 11.1 of the Agreement applies when SSS defaults in payment, performance or observance of any material
`covenant, agreement, term or provision of the Agreement (Section 11.1(a)), or SSS institutes bankruptcy proceedings
`that are not dismissed within 60 days (Section 11.1(b)). Regardless of the enforceability of the bankruptcy default
`provision, SSS defaulted in payment obligations under the Agreement beginning in December 6, 2018, and as of the
`Petition Date, SSS owed IMTR $1,179,507. Moreover, SSS’s rejection, as approved by this Court, resulted in SSS’s
`default under the Agreement.
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 5 of 12
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`[IMTR] shall undertake such transfer.
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`(emphasis added)
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`11.
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`Consistent with the terms of the Agreement and with its ownership of the Plant,
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`Equipment and other property at the Quarry Site, IMTR pays all taxes, costs and maintenance
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`related to this property, submits annual personal property tax declarations to the local assessor’s
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`office, and pays all insurance related to the Plant. SSS has never paid any such amounts related to
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`the Plant, Equipment or other property of IMTR. In addition, IMTR obtained and maintained all
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`spare parts for use in connection with the Plant while it was operating. In short, SSS has never
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`demonstrated any claim or incident of ownership with respect to the Plant or any other equipment
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`at the Quarry Site.
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`12.
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`IMTR also has the right to access the Quarry Site. Under the Agreement, SSS
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`granted to IMTR, its subcontractors and their respective personnel “an exclusive, unrestricted
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`license for ingress and egress to the Quarry Site and across the Quarry Site to the Plant Site and
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`any other areas of the Quarry Site where the Plant and Equipment or other materials, temporary
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`buildings or other items are located…” See Agreement, Article 2.2. This license exists during the
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`Term of the Agreement. The Term of the Agreement remains in effect; IMTR has not terminated
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`the Agreement, notwithstanding SSS’s breach of the Agreement. Consequently, IMTR continues
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`to have the right for unrestricted ingress and egress to the Quarry Site. (The Agreement makes
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`such rights subject to any terms or conditions of SSS’s leases with the landlords for the subject
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`Quarry Site; however, no terms or conditions of the leases (which may have been rejected by SSS)
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`prohibit the license that IMTR continues to hold, nor did the license terminate upon SSS’s rejection
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`of the Agreement.)
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`13.
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`Consequently, all right, title and interest in the Plant and Equipment has remained
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`with IMTR, and all such right, title and interest remains vested solely in IMTR today. The
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 6 of 12
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`Agreement does not accord SSS any right to obtain any interest in the Plant, Equipment or any
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`other assets of IMTR under the circumstances that existed as of the Petition Date or currently, nor
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`does it allow SSS the right to prevent IMTR from recovering this property.
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`14.
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`Further underscoring SSS’s lack of any interest in IMTR’s Plant and Equipment is
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`the Order of this Court approving SSS’s rejection of the Agreement. At the inception of these
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`cases, Debtors requested and obtained from this Court authority to reject the Agreement and
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`abandon all associated assets of SSS at the Quarry Site. See Debtors’ First Omnibus Motion for
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`Entry of an Order Authorizing the Debtors to (I) Reject Certain Executory Contracts and
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`Unexpired Leases Nunc Pro Tunc to the Petition Date and (II) Abandon Any Remaining Personal
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`Property in Connection Therewith [Docket No. 10] (the “Rejection Motion”). Notably, in the
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`Rejection Motion SSS stated that the “Debtors have determined in their reasonable business
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`judgment that the costs associated with the continued storage of certain inventory and personal
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`property or other remaining assets, which might include silica sand … located or stored at the
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`surrendered storage, transloading, and terminal facilities or rail cars will exceed any projected
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`proceeds that could be realized from the sale thereof, or may have low prospects for resale.” See
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`Rejection Motion ¶ 8 (emphasis added).
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`15.
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`Debtors specifically included the Agreement and all Amendments on Exhibit 1 to
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`the Rejection Motion and described various “Mining and Processing Agreements” in the motion
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`itself. Debtors did not seek to exclude any “personal property or remaining assets” from the
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`definition of “Abandoned Property” in the Rejection Motion or Rejection Order. See Order
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`Authorizing the Debtors to (I) Reject Certain Executory Contracts and Unexpired Leases Nunc
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`Pro Tunc to the Petition Date and (II) Abandon Any Remaining Personal Property in Connection
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`Therewith. [Docket No. 207] (the “Rejection Order”). The Rejection Order therefore authorized
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 7 of 12
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`SSS to abandon the inventory, personal property and other remaining assets (including silica sand),
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`located or stored at the Quarry Site. See Rejection Order, ¶ 8. To the extent that Debtors ever had
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`any claim to IMTR’s Plant, Equipment or other property (which Debtors did not), Debtors have
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`abandoned all such property by virtue of the Rejection Order. Moreover, SSS not only had no
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`interest in IMTR’s property at the Quarry Site, but SSS abandoned its own property at the Quarry
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`Site. SSS has no basis to exclude IMTR from recovering any property from the Quarry Site.
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`16.
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`Notwithstanding SSS’s lack of interest in any assets at the Quarry Site, and in direct
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`contravention of the Court’s Rejection Order, SSS is now actively barricading both its abandoned
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`assets and IMTR’s Plant behind lock and key, thereby prohibiting IMTR from retrieving its own
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`Plant and associated property from the site.
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`17.
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`In particular regarding SSS’s seizure of IMTR’s Plant, after the Petition Date, SSS
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`unilaterally locked IMTR out of the Quarry Site and has physically prohibited IMTR from
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`retrieving IMTR’s property, primarily the Plant, from the Quarry Site, including not only locking
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`the sole access gate but blocking all access with vehicles and other items. SSS has done this even
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`though IMTR maintained the Quarry Site, the Plant, Equipment and all other property at the site
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`since the inception of the project in 2011. As noted, IMTR pays all costs, insurance, maintenance
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`and taxes related to the Plant, Equipment and other property at the site. IMTR ran all operations
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`at the site, and even the silica sand (in which SSS actually did have an interest) would be hauled
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`by third-party movers, not by SSS itself. SSS itself never exhibited any presence or control over
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`the site, other than occasional efforts to control stormwater runoff, which SSS was required to do
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 8 of 12
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`under its applicable mining permit.3 But as to the Plant and Equipment itself, SSS had no
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`possession or control at any time, prior to or after the Petition Date.
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`18.
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`IMTR has informed SSS that IMTR seeks only to recover IMTR’s property from
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`the site – primarily the Plant. But SSS, without explanation or basis, continues to refuse to allow
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`IMTR any access to IMTR’s Plant and maintains its blockade against IMTR.
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`RELIEF REQUESTED
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`19.
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`Because SSS continues to deprive IMTR of possession of IMTR’s Plant, IMTR has
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`been forced to bring this Motion, seeking an order from this Court directing SSS to cease and
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`desist from restraining IMTR from recovering its own property. In the alternative, to the extent
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`SSS asserts some possessory interest in IMTR’s Plant, however improper such possessory interest
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`would be, IMTR seeks relief from, or annulment of, the automatic stay to recover the Plant.
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`20.
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`Section 362 of the Bankruptcy Code provides for an automatic stay applicable to
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`all entities against “any act to obtain possession of property of the estate or of property from the
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`estate or to exercise control over property of the estate.” 11 U.S.C. § 362(a)(3). The Bankruptcy
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`Code defines “property of the estate” as “all legal or equitable interest of the debtor in property as
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`of the commencement of the case.” 11 U.S.C. § 541(a)(1); see In re Majestic Star Casino, LLC
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`716 F.3d 736, 759 (3d Cir. 2016) (noting that such interest must be an interest “of the debtor”).
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`The Third Circuit has noted that the legislative history of section 541 demonstrates that this section
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`was “not intended to expand debtor’s rights against others more than they exist at the
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`commencement of the case.” Id.
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`3 Upon information and belief, the county has revoked SSS’s mining permit for the Quarry Site because SSS failed to
`post the required supplemental reclamation bond and/or provide sufficient management of stormwater runoff.
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 9 of 12
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`21.
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`Section 362(d)(1)-(2) of the Bankruptcy Code requires the Bankruptcy Court to
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`modify the automatic stay for “cause,” including lack of adequate protection and a debtor’s lack
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`of equity in the property. Section 362(d)(2) of the Bankruptcy Code requires that the if the
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`bankruptcy estate has no equity in an asset and the asset is not necessary for a debtor’s
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`reorganization, then relief from the automatic stay should be granted.
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`22.
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`Here, as set forth above, Debtors’ bankruptcy estates have no equity in the Plant
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`and Equipment, and SSS has rejected the Agreement and abandoned all personal property at the
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`Quarry Site. Moreover, the Plant and Equipment are not necessary to an effective reorganization
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`because SSS and the other Debtors have no interest whatsoever in them. As a result, the automatic
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`stay of section 362(a) of the Bankruptcy Code should be modified or annulled under section
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`362(d)(2) of the Bankruptcy Code to permit IMTR to exercise its rights, remedies, and privileges
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`with respect to the Plant and Equipment.
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`23.
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`To the extent SSS tries to avoid this necessary relief by claiming that SSS has a
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`possessory interest in the Plant, Equipment or other assets of IMTR, SSS is mistaken. At no time,
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`before or after the Petition Date, has SSS had any right to hold, control or possess this property.
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`The Agreement is clear on this point, not to mention the express vesting of title to this property
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`exclusively in IMTR.
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`24.
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`SSS, however, may try to claim that it has some possessory interest in IMTR’s Plant
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`or other property sufficient to invoke the automatic stay. See In re Atlantic Business and
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`Community Corp., 901 F.2d 325, 328 (3d Cir. 1990) (holding that a possessory interest in real
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`property is property of the estate under section 541 and that the automatic stay protects such an
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`interest in real property). A debtor’s possessory interest protected under the Atlantic Business case
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`and its progeny, however, is a possessory interest in real property. See In re Majestic Star Casino,
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 10 of 12
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`LLC, 716 F.3d 736, 762 (3d Cir. 2013) (“First, the holding in Atlantic Business & Community
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`Corp. was, by its own terms, limited to possessory interests in real property.”). Moreover, the
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`Third Circuit has clarified that the Atlantic Business case “does not support the broad principle
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`that any interest that ‘benefits’ the debtor or that ‘the corporation possesses and enjoys’… is
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`necessarily property of the estate rather than property of a non-debtor.” Id. And for any possessory
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`interest to apply in the first place, the debtor must have possession of the subject property with
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`permission from the property’s owner. Atlantic Business, 901 F.2d at 328 (“the debtor was
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`effectively in possession of the radio station and transmitter with [owner’s] permission, and
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`therefore had an interest in property protected by section 362(a)(3).”); cf. In re Atlantic Medical
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`Management Services, Inc., 387 B.R. 654 (Bankr. E.D.Pa. 2008) (applying the Atlantic Business
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`holding to personal property owned by non-debtor but which debtor initially purchased for use by
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`the owner).
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`25.
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`If, however, a debtor asserts a possessory interest without any colorable legal
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`claim to the property, any such possessory interest is not protected by the automatic stay. See In
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`re Flabeg Solar US Corp., 499 B.R. 475, 482 (Bankr. W.D.Pa. 2013) (“a debtor’s interest in
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`property, which was akin to a squatter’s, was insufficient to invoke the protection of the automatic
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`stay.”); In re St. Clair, 251 B.R. 660, 666 (D.N.J. 2000) (“Therefore, we hold that ‘property of the
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`estate’ encompasses property in the possession or control of the trustee or the debtor-in-possession,
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`but only to the extent the trustee or debtor-in-possession has a good-faith, colorable claim to
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`possession or control of the property.”); see also In re Perl, 811 F.3d 1120, 1130 (9th Cir. 2016)
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`(automatic stay does not apply to a debtor’s unlawful possession of property in which debtor had
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`no legal or equitable interest).
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`{00026385. }
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`Case 19-11563-KBO Doc 349 Filed 09/10/19 Page 11 of 12
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`26.
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`SSS does not, and has never had, any good-faith, colorable interest in the Plant or
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`Equipment, nor has SSS had any right to possession or control of the Plant and Equipment. Without
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`any legal, equitable or good-faith possessory interest in the Plant, Equipment or other property at
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`the Quarry Site, the automatic stay has no application to such property. IMTR should be granted
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`unfettered access to its Plant and associated property and the right to recover it from the Quarry
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`Site, without interference from SSS. In the alternative, the automatic stay should be annulled and
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`IMTR should be granted the requested access to the Plant and be allowed to remove the Plant.
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`WHEREFORE, IMTR respectfully requests that this Court enter an order, substantially
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`in the form attached hereto as Exhibit B, granting this Motion and confirming that the automatic
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`stay of section 362 of the Bankruptcy Code does not apply to the Plant, Equipment, Handover
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`Assets or any other personal property located at the Quarry Site, and directing SSS and the other
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`Debtors to cease and desist from interfering with IMTR’s efforts to retrieve the Plant and
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`associated property from the Quarry Site; or, in the alternative, enter an order granting relief from
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`the stay, or annulling the automatic stay, as of the Petition Date and directing SSS and the other
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`Debtors to cease and desist from interfering with IMTR’s efforts to retrieve the Plant and
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`associated property from the Quarry Site; and grant such other and further relief as the Court deems
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`just and proper.
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`[Remainder of Page Intentionally Left Blank]
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`{00026385. }
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`Dated: September 10, 2019
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`Wilmington, Delaware
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`Respectfully submitted,
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`THE ROSNER LAW GROUP LLC
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`By: /s/ Jason A. Gibson
`Frederick B. Rosner (DE 3995)
`Jason A. Gibson (DE 6091)
`824 N. Market Street, Suite 810
`Wilmington, DE 19801
`(302) 777-1111
`rosner@teamrosner.com
`gibson@teamrosner.com
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`and
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`LEWIS RICE LLC
`John J. Hall, #41419
`600 Washington Avenue, Suite 2500
`St. Louis, Missouri 63101
`Telephone: (314) 444-7600
`Facsimile: (314) 612-7635
`jhall@lewisrice.com
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`Counsel for Iron Mountain Trap Rock
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`{00026385. }
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