Alliance WOR Properties, LLC v. Illinois Methane, LLC, 3 F.4th 912

In 1998 Old Ben conveyed rights to “all of the methane gas” in certain Illinois coal reserves to Illinois Methane, LLC for $2.6 million; the recorded deed included a Delay Rental Obligation described as a covenant running with the land.
The Delay Rental Obligation required the coal owner to pay adjusted rent to Methane if the coal owner opened or expanded mining in areas Methane had not yet exploited.
In 2002 Old Ben (after merging into AEI) filed Chapter 11 and sold substantially all assets, including the Hamilton County coal reserves, in a § 363 sale “free and clear” after notice by publication—no direct notice was given to Methane.
A successor purchaser (in privity with Alliance) later sought to mine; Methane sued in Illinois state court seeking accumulated delay rentals and an equitable lien.
Alliance moved the bankruptcy court to enjoin the state suit as barred by the prior sale and orders; the bankruptcy court (and the district court on appeal) held publication notice was constitutionally insufficient because Methane held a known, vested property interest, and denied the injunction.
The Sixth Circuit affirmed: Methane’s Delay Rental Obligation is a vested covenant running with the land; Methane was a known, reasonably ascertainable party; publication-only notice failed due process; the sale did not extinguish Methane’s interest.

Issue	Methane (Plaintiff)	Alliance (Defendant)	Held
Whether the Delay Rental Obligation is a covenant running with the land (vested property interest)	It is a vested covenant running with the land that affects use, value, and enjoyment	It is a contingent, personal, future claim (not a present property interest)	Vested covenant running with the land under Illinois law
Whether Methane was a "known" party whose interest was reasonably ascertainable	Methane was known and its interest was recorded and discoverable from Old Ben’s records and deed	Methane’s interest was not reasonably ascertainable from debtor records; it had been conveyed out	Methane was a known party and its interest was reasonably ascertainable
Whether notice by publication satisfied constitutional due process	Publication alone was inadequate; direct notice (mail/personal) was practicable and required	Publication was sufficient to bind creditors and clear title via the sale	Publication-only notice was constitutionally deficient; direct notice was required
Whether the § 363 “free and clear” sale and prior bankruptcy orders extinguished Methane’s rights and warranted injunctive relief	Sale cannot extinguish Methane’s vested property interest without constitutional notice; state suit may proceed	Sale cleared encumbrances and prior orders should bar state claims and permit injunction	Sale did not extinguish Methane’s interest; injunction denied and state action may proceed

Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 (1950) (notice must be reasonably calculated to apprise interested parties and permit them to be heard)
Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (1983) (recorded mortgagee is a known party and constructive notice by publication must be supplemented by mailed or personal notice)
Tulsa Prof’l Collection Servs., Inc. v. Pope, 485 U.S. 478 (1988) (distinguishes known vs. unknown parties for adequacy of publication notice)
Jones v. Flowers, 547 U.S. 220 (2006) (publication adequate only when it is not reasonably possible to provide more direct notice)
Shaffer v. Heitner, 433 U.S. 186 (1977) (property cannot be subjected to a court’s judgment absent reasonable efforts to give actual notice)
In re Motors Liquidation Co., 829 F.3d 135 (2d Cir. 2016) (applies known/unknown framework to bankruptcy notice issues)
Chemetron Corp. v. Jones, 72 F.3d 341 (3d Cir. 1995) (analyzes reasonable ascertainability and notice duties in bankruptcy)
Walker v. City of Hutchinson, 352 U.S. 112 (1956) (observing that newspaper publication rarely notifies landowners)