In a Chapter 11 case, the Court sustained the debtors' objection to the claim of a creditor and reclassified that claim from a secured claim to an unsecured claim.  The creditor claimed that an asset purchase agreement relating to a mining lease provided for a security interest in certain assets of one of the debtors.  The Court found that the creditor’s claim did not comply with Rule 3001(c)(1) and was not entitled to prima facie validity under Rule 3001(f).  Therefore, the burden remained on the creditor to prove the validity of a security interest purportedly granted by that agreement by a preponderance of the evidence.  The Court held that the clear intent of the parties to the agreement was specifically not to create any type of security interest.  The “right of reentry” language relied upon by the creditor could not grant it a security interest as the terms of the agreement were clear.  Further, under West Virginia law, the creditor did not hold legal title to the property and was not entitled to immediate possession of the property; thus is could not meet its burden of proof that a security interest existed.  Moreover, the Court found that, even if the purported security interest did exist, the creditor failed to perfect that security interest as required by Rule 3001(d).

The Court also denied the creditor's motion for relief under Section 362(d)(1) after the court determined that the creditor did not have any security interest in the assets of the debtors.