Opinion
19-56885 Adv. Pro. 22-2007
10-05-2023
In re: MURRAY ENERGY HOLDINGS CO., et al., Debtors. v. Willkie Farr & Gallagher LLP, et al., Defendants. Brenda L. Murray, et al., Plaintiffs,
Attorneys for the Plaintiffs Benjamin R. Ogletree Donald J. Tennant, Jr. Kerry Verdi Attorneys for the Defendants Brad Dennis Brian Drew Harrison Campbell Matthew Donohue Bethany Woodward Kristovich
Attorneys for the Plaintiffs Benjamin R. Ogletree Donald J. Tennant, Jr. Kerry Verdi
Attorneys for the Defendants Brad Dennis Brian Drew Harrison Campbell Matthew Donohue Bethany Woodward Kristovich
MEMORANDUM OPINION AND ORDER
Hoffman Judge
I. Introduction
The plaintiffs in this adversary proceeding sued the defendants in state court for legal malpractice, and the defendants removed that action to this Court. A threshold issue is whether the Court has subject-matter jurisdiction to adjudicate the legal malpractice action. The plaintiffs say no, and they have filed a motion to remand the malpractice action to the state court. They also ask the Court to abstain from hearing this adversary proceeding in favor of arbitration. The defendants agree that the malpractice claim, if it is not heard in this Court, should be arbitrated rather than being heard in state court. But the defendants argue that this Court has subject-matter jurisdiction to hear the malpractice claim, should exercise that jurisdiction and should dismiss the malpractice claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.
Because the enforcement of the second amended Chapter 11 plan ("Chapter 11 Plan") (Doc. 2082-1) of Murray Energy Holdings Co. ("Murray Energy") and its affiliated debtors and debtors in possession ("Debtors") is at issue, the Court has subject-matter jurisdiction and will retain the matter rather than remanding it to state court. And because the plaintiffs' claim is barred by the Chapter 11 Plan's exculpation clause, the Court grants the defendants' motion to dismiss the complaint for failure to state a claim upon which relief can be granted.
References to "Adv. Doc.__" are to docket entries in this adversary proceeding, and references to "Doc.__" are to docket entries in the main bankruptcy case, Case No. 19-56885. When citing documents in the record, the Court will cite the PDF page number.
II. Jurisdiction & Constitutional Authority
For the reasons explained below, the Court has arising-in jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). Given that the Court has arising-in jurisdiction, this is a core proceeding. See Brown v. Harrington (In re Brown), No. 21-11284-GAO, 2022 WL 1200783, at *2 (D. Mass. Apr. 22, 2022), aff'd, 55 F.4th 945 (1st Cir. 2022); S. Canaan Cellular Invs., LLC v. Lackawaxen Telecom, Inc. (In re S. Canaan Cellular Invs., LLC), 427 B.R. 85, 90 (Bankr. E.D. Pa. 2010). And because this dispute "stems from the bankruptcy itself," the Court has the constitutional authority to enter a final order. Stern v. Marshall, 564 U.S. 462, 499 (2011).
III. Background
The following background is taken from the parties' filings, the Chapter 11 Plan, the disclosure statement for the Chapter 11 Plan ("Disclosure Statement") (Doc. 1155-1), and other documents of record in the Debtors' cases of which the Court may take judicial notice.
Several motions, responses and replies are before the Court in this adversary proceeding:
a. Defendants Willkie Farr & Gallagher LLP, Brian S. Lennon, and Matthew Feldman's Joint Motion to Dismiss the Complaint (Adv. Doc. 9) ("Dismissal Motion"); Substitute Plaintiffs' Opposition to Defendants' Joint Motion to Dismiss Complaint ("Opposition to Dismissal Motion") (Adv. Doc. 51); and Defendants' Reply to Plaintiffs' Opposition to Defendants' Joint Motion to Dismiss the Complaint (Adv. Doc. 56);
b. Plaintiffs' Motion for Remand ("Remand Motion") (Adv. Doc. 42); Corrected Memorandum in Support of Plaintiff's Motion for Remand (Adv. Doc. 47) ("Remand Memorandum"); Defendants' Opposition to Plaintiffs' Motion for Remand ("Remand Opposition") (Adv. Doc. 57); and Reply in Response to Defendants' Opposition to Plaintiffs' Motion for Remand (Adv. Doc. 67);
c. Defendants' Re-filed Motion for a Stay Pending Arbitration and a Hearing ("Defendants' Arbitration Motion") (Adv. Doc. 60); Plaintiffs' Partial Opposition to Defendants' Re-filed Motion for Stay Pending Arbitration and a Hearing (Adv. Doc. 70); and Defendants' Reply to Plaintiffs' Opposition to Defendants' Motion for a Stay (Adv. Doc. 72); and
d. Motion to Stay Pending Conclusion of Arbitration ("Plaintiffs' Arbitration Motion") (Adv. Doc. 64); Memorandum in Support of Plaintiffs' Motion to Stay Pending Conclusion of Arbitration ("Plaintiffs' Arbitration Memorandum" (Doc. 64-1), Defendants' Opposition to Plaintiffs' Motion to Stay (Adv. Doc. 71); and Reply in Response to Defendants' Opposition to Plaintiffs' Motion to Stay Pending Conclusion of Arbitration (Adv. Doc. 75).
A. Events Leading to this Adversary Proceeding
Robert E. Murray ("Mr. Murray") founded Murray Energy in 1998. Disclosure Statement, Doc. 1155-1 at 29. Facing difficult market conditions in the thermal coal industry, which led more than 40 coal companies to seek bankruptcy relief since 2001, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in October 2019. See id. at 10. At the time, the Debtors together comprised the largest privately owned coal company in the United States, with 13 active mines in six states and in Columbia, South America and annual revenue of approximately $2.5 billion. See id. at 9.
Less than a year later, the Court confirmed the Chapter 11 Plan by an order entered on August 31, 2020 ("Confirmation Order") (Doc. 2135). Mr. Murray was the Chairman of the Board of Directors of Murray Energy both when the Debtors filed bankruptcy and when their Chapter 11 Plan was confirmed. Disclosure Statement at 29. He also owned all issued and outstanding voting Class A common shares in Murray Energy. Id. at 22.
The United Mine Workers of America 1974 Pension Plan and Pension Trust ("1974 Plan") held the largest claim against the Debtors. The 1974 Plan "is a multi-employer defined benefit pension plan that provided benefits to more than 87,000 retired miners and their spouses." Dismissal Mot., Adv. Doc. 9 at 12. The Debtors withdrew from the 1974 Plan when they rejected their 2016 collective bargaining agreement with the United Mine Workers through the Chapter 11 Plan. See Order (I) Authorizing, But Not Directing, the Debtors to (A) Reject Certain Collective Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement the Terms of the Contingent Arrangement Between the Debtors, the United Mine Workers of America, and the Stalking Horse Bidder and (II) Granting Related Relief (Doc. 1455) ("CBA Order"). The CBA Order provided that
[t]he Debtors' successorship liability and obligations to contribute to the 1974 Pension Plan shall be terminated, and any such obligations shall be deemed rejected upon the Debtors' rejection of the 2016 CBA. For the avoidance of doubt, the termination of the Debtors' obligations with respect to the 1974 Pension Plan shall constitute a withdrawal from the 1974 Pension Plan.Id. at 4.
On the effective date of the Chapter 11 Plan, the Debtors withdrew from the 1974 Plan. Confirmation Order at 22-23 ("In accordance with . . . the [CBA Order] . . . on the Effective Date, the Debtors shall be deemed to have rejected the 2016 CBA and to have modified all retiree benefits . . ., effectuating a complete withdrawal from the 1974 Pension Plan. . . ."). The Debtors' withdrawal triggered statutory withdrawal liability allegedly exceeding $6.5 billion under the Employee Retirement Income Security Act of 1974 ("ERISA"). Dismissal Mot., Adv. Doc. 9 at 9-10.
While confirmation of the Chapter 11 Plan released the Debtors' ERISA withdrawal liability, the 1974 Plan contended that Mr. Murray was personally responsible for the withdrawal liability. The 1974 Plan further claimed that entities under Mr. Murray's control, including the Robert E. Murray Trust ("Trust"), also had withdrawal liability. Following Mr. Murray's death in October 2020, Michael J. Shaheen ("Mr. Shaheen") became the trustee of the Trust, and Mr. Murray's wife, Brenda L. Murray ("Mrs. Murray"), became executrix of Mr. Murray's estate ("Estate").
In March 2021, several months after confirmation of the Chapter 11 Plan, "the 1974 Plan sent a letter to Mrs. Murray, as the personal representative of . . . [Mr. Murray's] Estate, demanding payment of over $6.5 billion in ERISA withdrawal liability from the Estate and any related 'trust.'" Compl. ¶ 18, Adv. Doc. 1 at 16. The next day, the 1974 Plan filed a lawsuit in the United States District Court for the District of Columbia. The lawsuit sought payment of more than $6.5 billion from the Estate and entities "under the control of" Mr. Murray. Id. ¶ 19.
It was this potential withdrawal liability to the 1974 Plan that gave rise to the adversary proceeding. In February 2022, Mrs. Murray, as the executrix of the Estate, and Mr. Shaheen as the trustee of the Trust (together with Mrs. Murray, "Plaintiffs"), filed a complaint ("Complaint") in the Belmont County, Ohio Court of Common Pleas ("State Court"). The Complaint asserted a single claim for legal malpractice against Willkie Farr & Gallagher LLP, the law firm that represented Mr. Murray and the Trust during the bankruptcy, and two of its partners, Brian Lennon and Matthew Feldman ("Defendants"). The Plaintiffs alleged that the Defendants, in representing Mr. Murray and the Trust during the Debtors' bankruptcy proceedings, committed malpractice by (1) failing to negotiate the Chapter 11 Plan so that the claims of the 1974 Plan against Mr. Murray and the Trust were released and (2) failing to advise Mr. Murray that he and the Trust were not being released from claims of the 1974 Plan.
The Complaint is Exhibit A to the Notice of Removal (Adv. Doc. 1) ("Notice").
The Defendants removed the State Court action. They then moved to dismiss this adversary proceeding, arguing the Chapter 11 Plan's exculpation clause barred the Plaintiffs' malpractice action and that the Plaintiffs failed to properly plead causation. Opposing dismissal, the Plaintiffs responded that the Court lacks subject-matter jurisdiction over the claim, that the exculpation clause does not bar the claim, and that they have adequately pleaded causation. The Plaintiffs also filed both a motion to remand and a motion to stay pending the conclusion of arbitration, which the Plaintiffs commenced through JAMS in New York, New York in April 2022-one month after filing their Complaint. Pls.' Arbitration Mot., Adv. Doc. 64 at 1.
B. Relevant Provisions of the Chapter 11 Plan
The Chapter 11 Plan did not release any of the 1974 Plan's claims against Mr. Murray and the Trust. To the contrary, it stated as follows:
G. Treatment of 1974 Plan
Notwithstanding any release, settlement, satisfaction, compromise, discharge, exculpation, enjoining, injunction, or similar provision provided in the [Chapter 11] Plan, [the Chapter 11 Plan] will not enjoin, preclude, or limit the 1974 Plan from pursuing any or all
claims or Causes of Action the 1974 Plan may have against Released Parties other than the Debtors, the Estates, Murray NewCo and all of Murray NewCo's subsidiaries (including the Stalking Horse Bidder), or the Wind-Down Trust arising from or related to the Debtors' withdrawal from the 1974 Plan. . . . For the avoidance of doubt, any and all claims . . . that the 1974 Plan has against any party other than the Debtors, Murray NewCo, and all of Murray NewCo's subsidiaries (including the Stalking Horse Bidder) are preserved and shall be preserved in the Confirmation Order and this paragraph shall preempt any above-referenced release, injunction, settlement, satisfaction, compromise, discharge, exculpation, enjoining, or other similar provision in the [Chapter 11] Plan or Confirmation Order.Chapter 11 Plan at 61; see also Confirmation Order at 50-51.
The Defendants' request for dismissal is based on another provision of the Chapter 11 Plan known as the "Exculpation Clause." It states:
E. Exculpation
[N]o Exculpated Party shall have or incur, and each Exculpated Party is hereby exculpated from, any Cause of Action for any claim related to any act or omission based on the negotiation, execution, and implementation of any transactions approved by the Bankruptcy Court in the Chapter 11 Cases, including the RSA, the Stalking Horse APA, the Disclosure Statement, the [Chapter 11] Plan, the Plan Supplement, the Confirmation Order, or any Restructuring Transaction . . . except for claims related to any act or omission that is determined by Final Order to have constituted actual fraud, willful misconduct, or gross negligence, each solely to the extent as determined by a Final Order of a court of competent jurisdiction[.]Chapter 11 Plan at 59-60.
The Exculpation Clause only applies to an "Exculpated Party." According to the Chapter 11 Plan:
"Exculpated Party" means collectively, and in each case solely in its capacity as such: (a) the Debtors . . . and (s) with respect to each of the foregoing entities, such Entity and its current and former Affiliates, and such Entities' and their current Affiliates' directors, managers, officers, equity holders (regardless of whether such interests are held directly or indirectly), predecessors, participants,
successors, and assigns, subsidiaries, and each of their respective current and former equity holders, officers, directors, managers, principals, members, employees, agents, advisory board members, financial advisors, partners [and] attorneys[.]Id. at 13.
As a director and equity holder of Murray Energy, Mr. Murray was an Exculpated Party under this provision. But the language as to treatment of the 1974 Plan overrode that exculpation and permitted the 1974 Plan to assert its withdrawal claim against him-and now the Estate and the Trust. Id. at 61.
IV. Legal Analysis
A. The Court's Jurisdiction
1. An Overview of Bankruptcy Court Jurisdiction
"Bankruptcy courts . . . derive their jurisdiction from the district courts." Wasserman v. Immormino (In re Granger Garage, Inc.), 921 F.2d 74, 77 (6th Cir. 1990). District courts have original and exclusive jurisdiction over "all cases under title 11" (the Bankruptcy Code). 28 U.S.C. § 1334(a). This is the jurisdiction over the debtor's "bankruptcy case itself." Kirk v. Hendon (In re Heinsohn), 231 B.R. 48, 56 (Bankr.E.D.Tenn. 1999), aff'd, 247 B.R. 237 (E.D. Tenn. 2000). The district courts also have original but not exclusive jurisdiction over civil proceedings "arising under Title 11, or arising in or related to a case under title 11." 28 U.S.C. § 1334(b).
A district court may refer its jurisdiction to the bankruptcy judges for the district, 28 U.S.C. § 157(a), and every district court in the country, including the Southern District of Ohio, has referred bankruptcy cases and proceedings to the bankruptcy courts by issuing a standing order of reference. See General Order No. 05-02 (S.D. Ohio Oct. 24, 2005) ("By virtue of 28 U.S.C. §§ 151 and 157(a) and §104 of Title I of the Bankruptcy Amendments Act of 1984, IT IS HEREBY ORDERED that all cases under the Bankruptcy Act and Title 11 of the United States Code and all actions, matters or proceedings arising under Title 11 of the United States Code or arising in or related to a case under the Bankruptcy Act and Title 11 of the United States Code shall be referred to the Bankruptcy Judges for this Judicial District[.]").
Within a bankruptcy case, parties request relief either through contested matters or adversary proceedings. See Federal Rules of Bankruptcy Procedure 7001 and 9014. District courts, and bankruptcy courts by referral, exercise three categories of jurisdiction over contested matters and adversary proceedings.
The first category is arising-under jurisdiction. "The phrase 'arising under title 11 describes those proceedings that involve a cause of action created or determined by a statutory provision of title 11." Mich. Emp. Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132, 1144 (6th Cir. 1991). Proceedings arising under title 11 include actions brought under §§ 544(b) and 548 to avoid fraudulent transfers or obligations. See Bavelis v. Doukas (In re Bavelis), 453 B.R. 832, 851 (Bankr. S.D. Ohio 2011). Arising-under actions also include proceedings to: (1) have a debt declared nondischargeable under § 523(a) of the Bankruptcy Code, see Heck v. Adamson (In re Adamson), No. 09-00623, 2010 WL 122904, at *2 (Bankr. D.D.C. Jan. 6, 2010) ("The complaint seeks a declaration that a debt is nondischargeable under 11 U.S.C. § 523(a), and jurisdiction thus lies under the "arising under title 11" prong of the bankruptcy jurisdiction statute, 28 U.S.C. § 1334(b)."); (2) object to a debtor's discharge, see Cotton v. Gensler (In re Cotton), No. 06-51580JDW, 2007 WL 951541, at *1 (Bankr. M.D. Ga. Mar. 26, 2007) ("'Arising under' cases are those in which the cause of action is created by the Bankruptcy Code, such as . . . objections to discharge."); and (3) hold a creditor liable for violating the discharge injunction, see Daniels v. Howe Law Firm, P.C. (In re Daniels), No. AP 15-5296, 2019 WL 4253846, at *1 n.1 (Bankr. N.D.Ga. Sept. 5, 2019) ("Plaintiff's claim for sanctions for violations of the discharge injunction arises under the Bankruptcy Code and, therefore, is a core proceeding, over which this Court has subject matter jurisdiction.").
The second category is arising-in jurisdiction. "[A]rising in proceedings are those that, by their very nature, could arise only in bankruptcy cases." Wolverine Radio, 930 F.2d at 1144. An example of a proceeding arising in a bankruptcy case is a motion requesting that a bankruptcy court interpret or enforce its own order. See Sterling Vision, Inc. v. Sterling Optical Corp. (In re Sterling Optical Corp.), 302 B.R. 792, 801 (Bankr. S.D.N.Y. 2003). The Sixth Circuit has applied a "but for" test to determine whether there is arising-in jurisdiction. See Lowenbraun v. Canary (In re Lowenbraun), 453 F.3d 314, 321 (6th Cir. 2006) ("Because [the] claims would not exist but for the bankruptcy proceeding, and because [counsel to the Chapter 7 trustee] filed the Contempt Motion to assist in the administration of the estate, [the] state-law action was a core proceeding[.]"). Matters that arise-under title 11 and arise-in cases under title 11 together comprise "core proceedings," 28 U.S.C. § 157(b)(2), in which bankruptcy courts generally may enter final judgments. Wolverine Radio, 930 F.2d at 1144 ("[S]ection 157 apparently equates core proceedings with the categories of 'arising under' and 'arising in' proceedings.") (quoting Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987)).
Bankruptcy courts lack the constitutional authority to finally adjudicate so-called Stern claims even though the claims are statutorily core under 28 U.S.C. § 157(b)(2). In Stern v. Marshall, 564 U.S. 462 (2011), the Supreme Court held that "even though bankruptcy courts are statutorily authorized to enter final judgment on a class of bankruptcy-related claims, Article III of the Constitution prohibits bankruptcy courts from finally adjudicating [Stern claims]." Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25, 28 (2014). With the consent of all the parties, however, bankruptcy courts may finally adjudicate Stern claims. See Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 673 (2015). No party has contended that the claim asserted here is a Stern claim.
The third category is related-to jurisdiction. Absent consent of the parties, the bankruptcy court may hear proceedings that are related-to a bankruptcy case but must submit proposed findings of fact and conclusions of law to the district court. See 28 U.S.C. § 157(c)(1). With the consent of all the parties to a related-to proceeding, the bankruptcy court may issue final orders in a related-to proceeding. See 28 U.S.C. § 157(c)(2). The seminal case for determining whether a court has related-to jurisdiction is In re Pacor, Inc., 743 F.2d 984, 994 (3d Cir. 1984). Under Pacor, the test for related-to jurisdiction is whether the outcome of the proceeding could have any conceivable effect on the debtor's bankruptcy estate. Pacor, 743 F.2d at 994. The Sixth Circuit has adopted the Pacor test, "albeit with the caveat that situations may arise where an extremely tenuous connection to the estate would not satisfy the jurisdictional requirement." Wolverine Radio, 930 F.2d at 1142 (cleaned up).
After confirmation, some courts apply a "close nexus" test to determine whether they have related-to jurisdiction. Under the close nexus test, jurisdiction lies in the bankruptcy court "only if the claim affect[s] an integral aspect of the bankruptcy process-there must be a close nexus to the bankruptcy plan or proceeding. Such matters would typically include those that affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan." In re HNRC Dissolution Co., 761 Fed.Appx. 553, 561 n.4 (6th Cir. 2019) (cleaned up). The "Sixth Circuit has not yet endorsed the close nexus test for narrowed post-confirmation jurisdiction." Bavelis v. Doukas, 835 Fed.Appx. 798, 805 (6th Cir. 2020) (cleaned up). But the Sixth Circuit BAP has applied the close nexus test without formally adopting it. Thickstun Bros. Equip. Co. v. Encompass Servs. Corp. (In re Thickstun Bros. Equip. Co.), 344 B.R. 515, 522 (B.A.P. 6th Cir. 2006). And, according to the BAP,
[i]t is difficult to imagine a closer nexus to the Debtor's bankruptcy case and the confirmed Plan than this direct request for interpretation and clarification of the Plan's terms. Indeed, even the most restrictive views of post-confirmation jurisdiction acknowledge that the bankruptcy courts retain jurisdiction to interpret and enforce confirmed plans of reorganization.Id. (cleaned up).
2. A Dispute Over the Meaning of Wolverine Radio
The parties' dispute regarding jurisdiction boils down to a disagreement over the meaning of Wolverine Radio. Relying on the Fifth Circuit's decision in Wood, the Sixth Circuit stated in Wolverine Radio that
it is not necessary to distinguish between the three categories under § 1334(b)] (proceedings 'arising under,' 'arising in,' and 'related to' a case under title 11). These references operate conjunctively to define the scope of jurisdiction. Therefore, for purposes of determining section 1334(b) jurisdiction, it is necessary only to determine whether a matter is at least 'related to' the bankruptcy.Wolverine Radio, 930 F.2d at 1141.
The Plaintiffs contend that Wolverine Radio "treated the 'related to' test as outcome-determinative of the § 1334(b) inquiry in remanding legal malpractice lawsuits (like this one) to state court." Reply in Resp. to Defs.' Opp'n to Pls.' Mot. for Remand (Doc. 65 at 9-10). They argue that other Sixth Circuit and lower court decisions have followed the same analytical path. See id. (citing In re Stewart, 62 Fed.Appx. 610 (6th Cir. 2003), Hart v. Logan (In re Hart), No. 05-8001, 2005 WL 1529581 (B.A.P. 6th Cir. 2005) and Spradlin v. Pikeville Energy Grp., LLC, No. CIV. 12-111-ART, 2012 WL 6706188, at *9 (E.D. Ky. Dec. 26, 2012)). Thus, according to the Plaintiffs, because the malpractice claim could not have any conceivable effect on the Debtors' estates, there is no related-to jurisdiction here. And, so the argument goes, under Wolverine Radio and its progeny a lack of related-to jurisdiction over a claim is dispositive as to the issue of whether a court has § 1334(b) jurisdiction. Remand Mem. at 9-10.
For their part, the Defendants (1) contend that the Plaintiffs misinterpret Wolverine Radio and (2) argue that the Remand Motion "rests on an erroneous legal premise-that, the determination of whether the Court has jurisdiction over their claim must be determined solely by reference to the 'related to' test[.]" Remand Opp'n at 6. The Defendants then argue that the Court has arising-in jurisdiction over the Plaintiffs' malpractice action because it is "inextricably bound to, and would not exist but for, the Murray Energy bankruptcy. . . . But for the Willkie Defendants' alleged role in negotiating the Chapter 11 Plan, and the Court's confirmation of that plan of reorganization, Plaintiffs' claim would not exist." Notice at 4. According to the Defendants, "[u]nder Sixth Circuit precedent, this suffices to establish arising in jurisdiction over a proceeding." Id.
3. Analysis
a. Arising-in Jurisdiction Does Not Depend on the Existence of Related-to Jurisdiction
The Court concludes that the Plaintiffs' position-that the Court's arising-in jurisdiction must be predicated on its related-to jurisdiction-is wrong for at least seven reasons.
First, "[t]he plain meaning of legislation should be conclusive, except in the rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989) (cleaned up). The plain meaning of § 1334(b) of the Judicial Code establishes three categories of proceedings over which bankruptcy courts have jurisdiction-those that arise-under, arise-in or relate-to cases under title 11. Under the rule of surplusage, effect should be given to every part of § 1334(b). See, e.g., United States v. Coatoam, 245 F.3d 553, 558 (6th Cir. 2001) (applying the rule of surplusage that "discourages courts from adopting a reading of a statute that renders any part of the statute mere surplusage"). If arising-under and arising-in jurisdiction were predicated on a court's having related-to jurisdiction, there would have been no reason for Congress to have included the arising-under or arising-in categories of jurisdiction in § 1334(b). In other words, a "facial reading of the statute [under which] the three categories were intended to address separate, although perhaps overlapping jurisdictional issues . . . comports with a basic tenet of statutory construction that every word in a statute be given effect." Simmons v. Johnson, Curney & Fields, P.C. (In re Simmons), 205 B.R. 834, 838 (Bankr.W.D.Tex. 1997). As the Simmons court also said, this approach is consistent with § 1334(b)'s plain meaning:
What else, after all, could Congress have meant when it made specific provision for jurisdiction over matters that "arise in" bankruptcy? Recalling our obligation to give meaning and effect, if possible, to every word Congress uses in a given statute . . . . There will be overlap with one or more of the other two "reservoirs" of jurisdiction, to be sure, but the use of three different concepts assures that cases that might otherwise fall beyond the margins of one or both of the other two provisions, but which ought otherwise to fall within the "broad grant of jurisdiction" contemplated by Congress, will in fact be included within the federal court's bankruptcy subject matter jurisdiction.Id. at 840. See also id. at 842, 843 n.21 (explaining that if Wood actually meant that related-to jurisdiction subsumes the other two categories of arising-in and arising-under jurisdiction, they would be "read out of the statute altogether"). Second, the Wolverine Radio court cited with approval legislative history recognizing that there can be arising-in jurisdiction even in closed cases over which there would be no related-to jurisdiction:
Very often, issues will arise after the case is closed, such as over the validity of a purported reaffirmation agreement, proposed 11 U.S.C. § 524(b), the existence of prohibited post-bankruptcy discrimination, proposed 11 U.S.C. § 525 . . . and so on. The bankruptcy courts will be able to hear these proceedings because they arise under title 11.Wolverine Radio, 930 F.2d at 1141 n.14 (quoting H.R. Rep. No. 595, 95th Cong., 2d Sess. 445). "Generally, when a bankruptcy case is closed, there is no longer an estate to be administered, and an action or proceeding cannot have a conceivable effect on an estate that no longer exists," Al-Rayes v. Willingham, No. 3:15-CV-107-J-34JBT, 2016 WL 9527956, at *2 (M.D. Fla. Mar. 11, 2016), meaning that the bankruptcy court would lack related-to jurisdiction. The legislative history that the Sixth Circuit quoted (approvingly) in Wolverine Radio thus recognized that bankruptcy courts can have arising-under jurisdiction over matters even if they lack related-to jurisdiction.
Third, Supreme Court and Sixth Circuit cases would have been decided differently if a lack of related-to jurisdiction meant arising-under or arising-in jurisdiction could not exist. In Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009), the bankruptcy court had entered orders confirming a Chapter 11 plan and approving a related settlement agreement with the debtor's insurers ("1986 Orders"). More than a decade later, the court issued an order clarifying that the 1986 Orders barred actions that had been brought against the insurers. According to the Supreme Court, the only jurisdictional question was whether the bankruptcy court had subject-matter jurisdiction to enter the clarifying order. The Supreme Court held that answering that question was "easy," because "as the Second Circuit recognized, and respondents do not dispute, the Bankruptcy Court plainly had jurisdiction to interpret and enforce its own prior orders." Id. at 151. Although it did not expressly say so, the Supreme Court must have been relying on arising-in jurisdiction. For the bankruptcy court would not have had related-to jurisdiction to enter an order clarifying prior orders entered in connection with a Chapter 11 plan confirmed, and a settlement agreement approved, more than a decade earlier. See In re Cano, 410 B.R. 506, 546 (Bankr.S.D.Tex. 2009) ("In Travelers Indemnity, the Supreme Court held that, post-discharge, a bankruptcy court has jurisdiction to interpret and enforce its own orders even though the bankruptcy case was closed and the claims would not affect the bankruptcy estate.").
Similarly, the Sixth Circuit would have decided Lowenbraun differently if the existence of arising-under or arising-in jurisdiction turned on whether the proceeding in question could have a conceivable effect on the bankruptcy estate. In Lowenbraun, the Sixth Circuit held that the bankruptcy court properly exercised core jurisdiction over a nondebtor's state law claims for libel, slander and abuse of process against a Chapter 7 trustee's counsel. Under the Plaintiffs' conception of bankruptcy court jurisdiction, the bankruptcy court in Lowenbraun would have lacked arising-in jurisdiction and thus could not have adjudicated the nondebtor's claims. Why? Because no matter how they shook out, there would have been no conceivable effect on the estate. But the Sixth Circuit found that the claims, which had been removed from state court, were based on counsel's actions in the underlying bankruptcy case and thus "would not exist but for the bankruptcy." Lowenbraun, 453 F.3d at 321. Because the claims would not exist but for the bankruptcy, the Sixth Circuit found that the bankruptcy court had arising-in-jurisdiction over those claims. That is, the Sixth Circuit held that the bankruptcy court had jurisdiction over state law claims between nondebtors that had been removed from state court, despite the fact that the claims could not have any conceivable effect on the bankruptcy estate and therefore could not have satisfied the test for related-to jurisdiction.
The Plaintiffs make much of the fact that Lowenbraun involved a lawsuit against the bankruptcy trustee's counsel. But nothing in Lowenbraun suggests that the court's core jurisdiction was based on the status of the defendant. Arising-in jurisdiction exists over a malpractice action if it is "intricately related to the bankruptcy process, even if it does not involve a debtor or a court-approved professional." Waleski v. Montgomery, McCracken, Walker & Rhoads, LLP (In re Tronox), 603 B.R. 712, 721 (Bankr. S.D.N.Y. 2019), aff'd, 2022 WL 16753119 (2d Cir. Nov. 8, 2022).
Fourth, if, as Plaintiffs argue, arising-under or arising-in jurisdiction depended on the existence of related-to jurisdiction, then bankruptcy courts would lack jurisdiction over proceedings that they have undisputed authority to finally adjudicate, including actions relating to the discharge in Chapter 7 debtors' cases. "Over 90% of Chapter 7s are no-asset cases that provide no distribution to unsecured creditors." ABI Commission on Consumer Bankruptcy, Final Report of the ABI Commission on Consumer Bankruptcy 2017-2019 at 93. As stated above, the test for related-to jurisdiction is whether the proceeding could have any conceivable effect on the debtor's bankruptcy estate. In no-asset Chapter 7 cases, there is no property of the estate to be distributed to creditors, and related-to jurisdiction therefore cannot exist in those cases. See Wu v. Rhee (In re Rhee), No. 11-35901, 2011 WL 5240152, at *2 (Bankr.S.D.Tex. Oct. 31, 2011) ("The argument that subject matter jurisdiction exists because this adversary proceeding is related to Rhee's bankruptcy case also fails. Rhee filed a 'no-asset' chapter 7 bankruptcy. Even if the court determines Rhee is liable to Wu, the outcome will have no effect on the estate being administered in bankruptcy. The Wus would collect nothing from the estate."). So if related-to jurisdiction had to exist for there to be arising-under or arising-in jurisdiction, bankruptcy courts would lack jurisdiction to adjudicate proceedings-such as nondischargeability actions under § 523(a) of the Bankruptcy Code, contempt proceedings for the violation of the discharge injunction under § 524 and § 105(a), and objections to the debtor's discharge under § 727-over which, as discussed above, they plainly do have arising-under jurisdiction. The outcome of such matters would have no conceivable effect on the bankruptcy estate, meaning there would be no related-to jurisdiction. But bankruptcy courts indisputably still have arising-under jurisdiction to adjudicate these proceedings. As the Simmons court put it, the Plaintiffs' approach "cannot deal with the obvious examples of matters which clearly are within the reach of bankruptcy jurisdiction, but which fall outside the boundaries of 'related to' jurisdiction, as that term has been defined by the courts." Simmons, 205 B.R. at 844 n.22.
Fifth, recognizing the logical fallacy of interpreting Wolverine Radio and Wood the way the Plaintiffs do, most courts deciding the issue have held that bankruptcy courts may have arising-in or arising-under jurisdiction even if they lack related-to jurisdiction. See In re HNRC Dissolution Co., No. 02-14261, 2018 WL 2970722, at *3 (Bankr. E.D. Ky. June 11, 2018), aff'd, 3 F.4th 912 (6th Cir. 2021) ("Methane argues that the Court lacks 'related to' jurisdiction because resolution of the dispute will have no conceivable effect on the administration of the bankruptcy estate. . . . This argument misses the point. The Court has 'arising in' jurisdiction and that is sufficient to adjudicate the . . . issue before the Court."); In re Motors Liquidation Co., 514 B.R. 377, 381 (Bankr. S.D.N.Y. 2014), aff'd, 829 F.3d 135 (2d Cir. 2016) ("'Related to' jurisdiction has nothing to do with the issues here. Bankruptcy courts (and when it matters, district courts) have subject matter jurisdiction to enforce their orders in bankruptcy cases and proceedings under those courts' 'arising in' jurisdiction."); In re Legal Xtranet, Inc., 453 B.R. 699, 705 n.1 (Bankr.W.D.Tex. 2011) (["I]f 'related to' jurisdiction is not found, that does not mean that there can be no bankruptcy subject matter jurisdiction. . . . A matter might, for example, not be 'related to' the bankruptcy case (in the sense of having a conceivable effect on the administration of the estate, the formulation adopted by Wood for "related to" jurisdiction), yet clearly fall within the bankruptcy subject matter jurisdiction of the federal courts, by virtue of either arising under a provision of title 11 (dischargeability actions are an example) or arising in the bankruptcy case (an action to interpret or enforce a sale order post-bankruptcy is an example)."); In re Kaiser Grp. Int'l, Inc., 421 B.R. 1, 14 (Bankr. D.D.C. 2009) ("Although 'related to' jurisdiction is considered the broadest of the jurisdictional inquiries under 28 U.S.C. § 1334(b), it does not encompass all the other categories. Whether 'related to' jurisdiction exists does not determine whether 'arising in' jurisdiction does."); Cano, 410 B.R. at 546 (same); Simmons, 205 B.R. at 841-42 (same).
Simmons is particularly instructive. There, a former Chapter 11 debtor sued the attorneys who represented him during his bankruptcy case for malpractice. The court lacked related-to jurisdiction because Simmons commenced the proceeding nine months after confirmation of his Chapter 11 plan, and there "was thus no further 'estate administration' which could be 'conceivably affected' by the dispute." Id. at 841 n.13. The court also lacked arising-under jurisdiction because the malpractice claim was not based on any provision of the Bankruptcy Code. See id. The court nonetheless held that it had arising-in jurisdiction over the malpractice claim, explaining its reasoning by reference to geometry, logic and theology:
A facial reading of [ 28 U.S.C. § 1334(b)] suggests that the three categories [of arising-under, arising-in and related-to jurisdiction] were intended to address separate, although perhaps overlapping jurisdictional issues. On the theory that a picture is worth a thousand words, one might think of the three interlocking circles that are normally used to represent the concept of the Trinity in Christian theology.
[T]he matter clearly belonged in the federal court, not in one or more state courts. And it just as clearly was a dispute which 'arose in' the bankruptcy case (i.e., that is where it had its genesis). The matter would have fallen outside federal bankruptcy jurisdiction were one to have employed a "concentric circle' model (i.e., a model under which it is assumed that 'related to' jurisdiction is the largest of three concentric circles, subsuming the other two fields.").
[I]f a plan creates a trust and shoehorns all claimants into an exclusive mechanism by which those claimants are to be satisfied for years into the future out of that trust, then future disputes over the interpretation or enforcement of the trust would fall into the bankruptcy court's "arising in" jurisdiction, because such disputes would not have occurred but for the bankruptcy process. [S]uch disputes represent an example of why our "three intersecting circles" operates as a better conceptual model than does the oft-assumed "concentric circle" model. [Such a] matter would have fallen outside federal bankruptcy jurisdiction were one to have employed a "concentric circle" model (i.e., a model under which it is assumed that "related to" jurisdiction is the largest of three concentric circles, subsuming the other two fields).
Or, to put it in logic terms, "[t]hat a finding of 'related to' jurisdiction is sufficient to make a finding of jurisdiction does not
necessarily mean that it is necessary in order to make the finding of jurisdiction.Simmons, 205 B.R. at 838 & n.7, 841 & n.13, 843 n.19.
Rather than saying that the three categories of jurisdiction are concentric, the Fifth Circuit in Wood and Sixth Circuit in Wolverine Radio said that they operate "conjunctively to define the scope of jurisdiction." Conjunctive circles are "conjoining" (joined together) or "connecting" (joined, fastened or linked together), see Webster's Third New International Dictionary at 469, 480, as in the concept of the Trinity referred to by the Simmons court.
The Court finds Simmons persuasive. It is consistent with § 1334(b)'s plain meaning, and it gives effect to the statute's enumeration of three jurisdictional categories. It also ensures that disputes that arise under the Bankruptcy Code (because they are based on a provision of the Code) or arise in a bankruptcy case (because they would not exist but for the bankruptcy) fall within the jurisdiction of the bankruptcy courts even if the disputes could have no conceivable effect on the estate and therefore would not be related to the bankruptcy case.
Sixth, the decisions on which the Plaintiffs rely either do not stand for the proposition cited or were wrongly decided. As with Wolverine Radio, the Sixth Circuit's Stewart decision and the Sixth Circuit BAP's decision in Hart do not hold that arising-under or arising-in jurisdiction can exist only if the court has related-to jurisdiction. In Stewart, the Sixth Circuit held that the bankruptcy court lacked jurisdiction over a state law claim. Relying on the language from Wolverine Radio quoted above, the court focused on whether there was related-to jurisdiction. But the Sixth Circuit also said that it was not "persuaded by the district court's 'core proceeding' analysis, which is explicitly premised on the conclusion that the . . . complaint necessarily implicates the administration of the estate," a conclusion the Sixth Circuit found to be "incorrect." Stewart, 62 Fed.Appx. at 614. Presumably, if there had been a correct conclusion regarding core jurisdiction (arising-under or arising-in jurisdiction) then the bankruptcy court would have had jurisdiction despite the lack of related-to jurisdiction. In Hart, the Sixth Circuit BAP also relied on Wolverine Radio to say that "it need not decide if there was arising-under or arising-in jurisdiction if there was no related-to jurisdiction." Hart, 2005 WL 1529581, at *4. But it then stated that "[a] legal malpractice action does not 'arise under' the Bankruptcy Code," id., which would have been unnecessary to say if arising-under jurisdiction had to be predicated on the existence of related-to jurisdiction.
The only case relied on by the Plaintiffs that clearly held that there cannot be arising-under or arising-in jurisdiction if there is no related-to jurisdiction is Spradlin. There, the court said:
Section 1334(b) identifies four distinct matters that bankruptcy courts have jurisdiction over: (1) "cases under title 11"; (2) "proceedings arising under title 11"; (3) proceedings "arising in" a case under title 11; and (4) proceedings "related to" a case under title 11. 28 U.S.C. § 1334(a), (b); In re Wolverine Radio Co., 930 F.2d at 1141. These four categories define jurisdiction "conjunctively." Id. (citing In re Wood, 825 F.2d 90, 93 (5th Cir.1987)). "Related to" jurisdiction is the most expansive category, covering any proceeding that could have a conceivable effect on the administration of the estate. See id. Because "related to" jurisdiction covers any proceeding that would fall under the other forms, [c]ourts assessing § 1334(b) jurisdiction therefore need only determine whether the matter is "related to" the bankruptcy.
The plaintiffs also dedicate a substantial portion of their brief to arguing that the Bankruptcy Court had "arising in" jurisdiction over the complaint. R. 7 at 28-31 (Br.28-31). The Court need not address this issue. Because the Bankruptcy Court did not have "related to" jurisdiction it logically could not have "arising in" jurisdiction. See In re Wolverine Radio Co., 930 F.2d at 1141 (reasoning that, if a matter is not at least "related to" a bankruptcy proceeding, it cannot arise in or arise under that proceeding).Spradlin, 2012 WL 6706188, at *6, 9 (emphasis added). For all the reasons explained above, Spradlin misconstrued Wolverine Radio and was wrongly decided.
Finally, the language in Wolverine Radio and Wood suggesting that bankruptcy courts must have related-to jurisdiction over a claim to have arising-in or arising-under jurisdiction is dicta, because no party argued that the jurisdictional question hinged on whether the matters arose under the Bankruptcy Code or arose in the bankruptcy case. See In re Alma Energy, LLC, 521 B.R. 1, 25-26 (Bankr. E.D. Ky. 2014) ("Wolverine Radio's statement was dictum. In Wolverine Radio, the Sixth Circuit held that the bankruptcy court below did have related-to jurisdiction over the matter in question. Thus, the proposition that 'for purposes of determining section 1334(b) jurisdiction, it is necessary only' to assess related-to jurisdiction was not tested by Wolverine Radio.").
b. The Court Has Arising-In Jurisdiction Over the Malpractice Claim
The Plaintiffs contend that the Defendants "cannot manufacture 'arising in' jurisdiction by mischaracterizing the allegations in Plaintiffs' Complaint" as relating to the Defendants' negotiation of the Chapter 11 Plan rather than their advice regarding it. Remand Mem. at 9. But for several reasons, the malpractice claim could not have existed "but for" the bankruptcy, and the Court therefore finds that it has arising-in jurisdiction over this action.
First, the dispute would not have existed but for the Debtors' bankruptcy because the Plaintiffs allege harm based on the Defendants' role in negotiations and advice regarding the Chapter 11 Plan. As for negotiations and advice regarding the terms of the Chapter 11 Plan, the Complaint states:
6. Defendants provided legal services and representation to Mr. Murray and the Murray Trust in Ohio, including in the Bankruptcy Proceedings described herein in the U.S. Bankruptcy Court for the Southern District of Ohio.
11. Defendants agreed to and did represent the Client in several bankruptcy proceedings, including a Chapter 11 bankruptcy filed by Murray Energy Holdings Company, Murray Energy Corporation ("Company") and other subsidiaries (collectively, "Murray Entities") in the United States Bankruptcy Court for the Southern District of Ohio, Case No. 19-56885 (Bankr. S.D. Ohio) ("Bankruptcy Proceeding") in October 2019.
14. On September 16, 2020, the Murray Entities emerged from the Bankruptcy Proceeding under the new name American Consolidated Natural Resources through a plan of reorganization. Defendants participated in negotiating the plan of reorganization on behalf of the Client but failed to ensure that Mr. Murray and the Murray Trust were protected from any potential ERISA multiemployer pension plan "withdrawal liability" to the [1974 Plan].
15. Even though Willkie held itself out as experienced in "pension plan withdrawal liability disputes," Defendants never warned or advised Mr. Murray that both he personally and the Murray Trust potentially could be subject to billions of dollars in claims for ERISA withdrawal liability by the 1974 Plan due to the lack of protection against such claims under the plan of reorganization that Defendants negotiated, and which the Bankruptcy Court adopted, in the Bankruptcy Proceeding.
16. Defendants further failed to warn or advise the Client that the plan of reorganization that Defendants negotiated in the Bankruptcy Proceeding created potentially billions of dollars of financial risks that Mr. Murray and the Murray Trust potentially would face in the event of an ERISA withdrawal liability claim.
20. The plan of reorganization in the Bankruptcy Proceeding that Defendants negotiated for Mr. Murray-without informing him of, or protecting him and the Murray Trust against, exposure to billions of dollars in ERISA withdrawal liability claims-has subjected Plaintiffs to the ERISA withdrawal liability claims in the D.C. Litigation.Compl. (Adv. Doc. 1 at 14-17) (emphasis added).
The Plaintiffs characterize the Complaint as only alleging harm from the Defendants' failure to advise Mr. Murray and the Trust properly. But the Complaint alleges harm arising from the Defendants' negotiation of the Chapter 11 Plan. In particular, it states that (1) the "Defendants participated in negotiating the [Chapter 11] [P]lan on behalf of the Client but failed to ensure that Mr. Murray and the Murray Trust were protected from any potential ERISA multiemployer pension plan 'withdrawal liability' to the [1974 Plan]," Compl., Adv. Doc. 1 at 15, and that (2) the Chapter 11 Plan that "Defendants negotiated for Mr. Murray-without informing him of, or protecting him and the Murray Trust against, exposure to billions of dollars in ERISA withdrawal liability claims-has subjected Plaintiffs to the ERISA withdrawal liability claims in the D.C. Litigation." Id. at 17. The allegations concerning the Defendants' advice to Mr. Murray and the Trust, to quote the Chapter 11 Plan, assert a "claim related to any act or omission based on the negotiation [of] the [Chapter 11] Plan." Chapter 11 Plan at 62. "[T]he ordinary meaning of the phrase 'relating to' is a broad one-to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with." United States v. Nelson, 985 F.3d 534, 536 (6th Cir. 2021) (cleaned up). The Plaintiffs' claim clearly stands in some relation to the negotiation of the Chapter 11 Plan. The fine distinction the Plaintiffs seek to draw simply does not hold up: it is impossible to separate the negotiation of the Chapter 11 Plan from the Defendants' advice regarding it. And in any event, "claims of malpractice which originated out of . . . post-petition advi[c]e of counsel concerning the bankruptcy itself are matters that fall within 'arising in' jurisdiction." Simmons, 205 B.R. at 841.
Second, the dispute would not exist but for the Debtors' bankruptcy because the claim involves interpretation and enforcement of the Chapter 11 Plan's Exculpation Clause. Proceedings requiring courts to enforce provisions of Chapter 11 plans arise in bankruptcy. See Mesabi Metallics Co. v. B. Riley FBR, Inc. (In re Essar Steel Minn. LLC), 47 F.4th 193, 199 (3d Cir. 2022) (holding that proceeding requiring the bankruptcy court to interpret and enforce injunctive provisions of Chapter 11 plan is a core proceeding); Instituto Medico del Norte Inc. v. Condado & LLC (In re Instituto Medico del Norte Inc.), No. 21-00046, 2022 WL 1721350, at *2 (Bankr. D.P.R. May 27, 2022) (holding that arising-in jurisdiction existed because the enforcement of a Chapter 11 plan was implicated); In re City of Detroit, Michigan, 614 B.R. 255, 262 (Bankr. E.D. Mich. 2020) (holding that "a proceeding that seeks to enforce the confirmed [plan] . . . is a proceeding 'arising in' a case under title 11, because it is a proceeding that 'by [its] very nature, could arise only in bankruptcy cases.'"); In re Shefa, LLC, 579 B.R. 438, 440-41 (Bankr. E.D. Mich. 2017), aff'd sub nom. City of Southfield v. Shefa, LLC (In re Shefa, LLC), No.18-10073, 2019 WL 911692 (E.D. Mich. Feb. 25, 2019) (same).
The Defendants assert the Exculpation Clause as a defense against the malpractice claim, and a defense may serve as the basis for arising-in jurisdiction. See Elliott v. Gen. Motors, LLC (In re Motors Liquidation Co.), 829 F.3d 135, 153 (2d Cir. 2016). In Motors Liquidation, creditors with product liability claims against General Motors commenced an adversary proceeding against New GM, the company that had purchased substantially all the assets of General Motors through a free-and-clear sale under § 363 of the Bankruptcy Code. The creditors argued that New GM could not use the free-and-clear provision to absolve itself of old GM's defective product claims. But the Second Circuit held that arising-in jurisdiction existed over the dispute because New GM asserted that the free-and-clear provision of the sale order barred the claims against New GM. The Motors Liquidation court further held that "bankruptcy courts have jurisdiction to decide a motion s[eeking] enforcement of a pre-existing injunction issued as part of the bankruptcy court's sale order." Id. at 154 (cleaned up). Similarly, the Defendants here assert that the Chapter 11 Plan's Exculpation Clause bars the Plaintiffs' malpractice claim against them.
Tronox is also highly persuasive. That case involved legal malpractice claims by plaintiffs who had been exposed to chemicals emitted by one of the Chapter 11 debtor's plants. See Tronox, 603 B.R. at 714. Among other things, the plaintiffs argued that their attorneys should have ensured that their recoveries in the bankruptcy case were not diluted by the allowance of claims filed on behalf of persons allegedly injured by another plant's emissions. See id. In particular, the plaintiffs contended that trust distribution procedures incorporated into the debtor's confirmed Chapter 11 plan should have separately classified the plaintiffs' claims and provided their claims with better treatment than the other claimants. See id. at 718. Although the defendants in Tronox "at one point argued that the [malpractice] claims [were] 'related to' the prior bankruptcy cases," they later acknowledged that the "sole jurisdictional argument is that the [malpractice] claims 'arose in' the
Tronox bankruptcy cases." Id. at 719 n.1. The Tronox court held that it had arising-in jurisdiction for, among others, these reasons:
(1)the "alleged acts of malpractice occurred entirely during the bankruptcy case and in the context of the bankruptcy proceedings";
(2)the "alleged misdeeds relate to bankruptcy-specific rights and tasks and could only have arisen in a bankruptcy context,"
(3)"the claims require consideration and interpretation of this Court's prior orders and rulings," and
(4)"the asserted claims directly implicate the integrity of the bankruptcy process" because the "theory of the malpractice claims is that different Court orders would have been issued during the Tronox bankruptcy cases [and] different plan terms would have been approved . . . if only the defendants had acted differently."Id. at 722-23.
So too here. Although the Defendants represented Mr. Murray and the Trust before the Debtors' bankruptcy filing, Compl. ¶ 13, the Defendants' alleged malpractice occurred entirely during the Debtors' bankruptcy case. Compl. ¶¶ 6, 11, 14-16, 20. The malpractice claim relates to bankruptcy-specific rights-release from pension plan withdrawal liability under the Chapter 11 Plan-that could only have arisen in the Debtors' bankruptcy cases. The claims require consideration and interpretation of the Chapter 11 Plan that this Court approved. And the malpractice claim directly implicates the integrity of the bankruptcy process. The Plaintiffs' theory of legal malpractice is that Mr. Murray and the Trust would have been released from ERISA withdrawal liability to the 1974 Plan if only the Defendants had not engaged in malpractice. In other words, according to the Plaintiffs, the Defendants should have represented Mr. Murray in a way that would have resulted in a different Chapter 11 plan being confirmed-one in which, despite the Debtors' withdrawal from the 1974 Plan, Mr. Murray would have had no withdrawal liability. In short, this case closely parallels the facts in Tronox.
For all these reasons, the Court concludes that it has jurisdiction over the Plaintiffs' malpractice claim.
B. Arbitration
After filing the Complaint, the Plaintiffs commenced an arbitration through JAMS. Now, both parties ask the Court to stay the adversary proceeding in favor of arbitration-the Plaintiffs unreservedly, the Defendants only if the Court does not dismiss the adversary proceeding for failure to state a claim. According to the Plaintiffs, the issue of whether the Exculpation Clause bars their claims must be arbitrated. Pls.' Arbitration Mem. at 9. The engagement letter establishing the lawyer-client relationship between the Defendants and Mr. Murray and the Trust contains the following arbitration provision:
In the event any dispute cannot be resolved informally, you agree to resolve any and all disputes with the Firm, or with any of our lawyers or staff arising from or relating to our work for you including but not limited to disputes over fees and charges or disputes relating to the nature and quality of our services, exclusively through private and confidential binding arbitration in New York City before three neutral arbitrators. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. . . . This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.Defs.' Arbitration Mot. at 5.
To determine whether the Court must enforce this provision, it must first determine whether the parties agreed to arbitrate and whether the issues fall within the scope of their arbitration agreement. If so, the Court must then determine whether the proceeding at issue is core or non-core. Finally, if the proceeding is core, the Court must determine, under the Supreme Court's decision in Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220 (1987), whether arbitration would inherently conflict with the Bankruptcy Code's underlying purposes.
1. Arbitration Agreement & Scope
As stated, the Court first must determine whether the parties agreed to arbitrate and whether the issues raised in the Complaint fall within the scope of the arbitration provision. When considering a motion to compel arbitration:
[F]irst, [the court] must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the action are subject to arbitration, it must determine whether to stay the remainder of the proceedings pending arbitration.McGee v. Armstrong, 941 F.3d 859, 865 (6th Cir. 2019) (quoting Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000)).
As for the first and second factors, the parties concur that they agreed to arbitrate and that the scope of the agreement covers the parties' dispute. See Pls.' Arbitration Mem. at 8; Defs.' Arbitration Mot. at 8. The third factor is irrelevant, as neither party asserts a federal statutory claim. The fourth factor does not apply either, as only one claim is at issue. Thus, the parties agree that they have a valid arbitration agreement and their dispute falls within its scope.
2. Core vs. Non-Core Proceeding
The Court must next assess whether this adversary proceeding is a core or a non-core proceeding. In "a non-core proceeding, a court is generally without discretion to preclude the enforcement of [arbitration agreements] and the inquiry ends." In re Patriot Solar Grp., LLC, 569 B.R. 451, 457-58 (Bankr. W.D. Mich. 2017); see also Cooker Rest. Corp. v. Seelbinder (In re Cooker Rest. Corp.), 292 B.R. 308, 312 (S.D. Ohio 2003). But if "the dispute is a core proceeding, the court moves to the next step in the analysis-whether enforcement of such agreement would inherently conflict with the underlying purposes of the Bankruptcy Code." Patriot Solar, 569 B.R. at 457-58.
The Court has already determined that this is a core proceeding. But the "fact that the dispute . . . is a core proceeding is not in and of itself determinative." See Ins. Co. of N. Am. v. NGC Settlement Trust & Asbestos Claims Mgmt. Corp. (In re Nat'l Gypsum Co.), 118 F.3d 1056, 1067 (5th Cir. 1997); see also In re Eber, 687 F.3d 1123, 1130 (9th Cir. 2012) (same). While bankruptcy courts "are more likely to have discretion to refuse to compel arbitration of core bankruptcy matters," they may still be required to enforce arbitration agreements even in core proceedings. MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 108 (2d. Cir. 2006).
3. Application of McMahon's "Inherent Conflict" Standard
In McMahon, the Supreme Court discussed the enforcement of arbitration agreements under the Federal Arbitration Act ("FAA"), which "establishes a federal policy favoring arbitration" and requires courts to "rigorously enforce agreements to arbitrate." McMahon, 482 U.S. at 226 (cleaned up). The Supreme Court held that, "[l]ike any statutory directive, the [FAA]'s mandate may be overridden by a contrary congressional command," which "will be deducible from [the statute's] text or legislative history . . . or from an inherent conflict between arbitration and the statute's underlying purposes." Id. at 227. Thus, under McMahon, the FAA's pro-arbitration policy may be overridden by contrary commands in another statute's text or legislative history, or by an inherent conflict between arbitration and the other statute's underlying purposes. See id. In the bankruptcy context, courts generally jump to an assessment of whether an "inherent conflict" exists, because they find no intent to limit arbitration in the Bankruptcy Code's text or its legislative history. See, e.g., Patriot Solar, 569 B.R. at 457 (citing cases).
Even "in a core proceeding, the McMahon standard must be met," meaning "a bankruptcy court has discretion to decline to enforce an otherwise applicable arbitration provision only if arbitration would conflict with the underlying purposes of the Bankruptcy Code." Eber, 687 F.3d at 1130 (cleaned up). See also Kraken Invs. Ltd. v. Jacobs (In re Salander-O'Reilly Galleries, LLC), 475 B.R. 9, 25 (S.D.N.Y. 2012) ("Even if the Trustee were bound by the arbitration clause, the Bankruptcy Court did not err in denying arbitration due [to] the conflict between arbitration and the policy of the Bankruptcy Code."); Higgs v. Warranty Grp., No. C2-02-1092, 2007 WL 2034376, at *6 n.8 (S.D. Ohio July 11, 2007) ("[I]n analyzing whether Congress intended to preclude arbitration of . . . claims, courts apply the McMahon test and consider . . . whether an inherent conflict exists between arbitration and the purposes of the statute.").
In considering whether arbitration would inherently conflict with the Bankruptcy Code, the relevant purposes of the Code include the "goal of centralized resolution of purely bankruptcy issues, the need to protect creditors and reorganizing debtors from piecemeal litigation, and the undisputed power of a bankruptcy court to enforce its own orders." Nat'l Gypsum, 118 F.3d at 1069 (emphasis added); see also Anderson v. Credit One Bank, N.A. (In re Anderson), 884 F.3d 382, 389 (2d Cir. 2018) ("The objectives of the Bankruptcy Code relevant to [the inherent conflict] inquiry include . . . the undisputed power of a bankruptcy court to enforce its own orders."); Gandy v. Gandy (In re Gandy), 299 F.3d 489, 500 (5th Cir. 2002) (citing the "undisputed power of a bankruptcy court to enforce its own orders" as an underlying purpose when determining whether enforcing an arbitration clause presents an inherent conflict with the Bankruptcy Code); In re Jorge, 568 B.R. 25, 36 (Bankr.N.D.Ohio 2017) ("The parties, whether through a pre-dispute arbitration agreement or any other agreement, cannot strip a court of its inherent power and certainly not the inherent power to enforce its own orders.").
Enforcing the Exculpation Clause of the Chapter 11 Plan is tantamount to enforcing an order of the Court. See In re Cty. of San Mateo v. Peabody Energy Corp. (In re Peabody Energy Corp.), 958 F.3d 717, 721 (8th Cir. 2020) ("[A] confirmed Chapter 11 plan is an order of the bankruptcy court."); CHS, Inc. v. Plaquemines Holdings, L.L.C., 735 F.3d 231, 240 (5th Cir. 2013) (same); McCrary v. Barnett (In re Sea Island Co.), 486 B.R. 559, 566 (S.D. Ga. 2013) (same); In re SS Body Armor I, Inc., No. 10-11255(CSS), 2021 WL 2315177, at *5 (Bankr. D. Del. June 7, 2021) ("As a general rule, courts have the authority to interpret their own orders-which include confirmed plans."). And the FAA does not divest courts of their authority to interpret their own orders. See PRL USA Holdings, Inc. v. United States Polo Ass'n, Inc., No. 14-cv-764 (RJS), 2015 WL 1442487, at *6 (S.D.N.Y. Mar. 27, 2015) (holding that "[f]ederal courts, and federal courts alone, possess the inherent authority to enforce their judgments, and the FAA may not be construed to divest courts of their traditional powers to police their own orders.") (cleaned up).
Further, exculpation clauses are a fundamental protection that the Bankruptcy Code permits Chapter 11 plans to afford. Unlike releases, which "provide for the relinquishment of claims held by the debtor or third parties against certain nondebtor parties," exculpation clauses "establish the standard of care that will trigger liability in future litigation by a non-releasing party against an exculpated party for acts arising out of a debtor's restructuring." In re Murray Metallurgical Coal Holdings, LLC, 623 B.R. 444, 501 (Bankr. S.D. Ohio 2021). Their inclusion in Chapter 11 plans is authorized by § 1123(b)(6) of the Bankruptcy Code, which permits Chapter 11 plans to "include any . . . appropriate provision not inconsistent with the applicable provisions of [the Bankruptcy Code]," 11 U.S.C. § 1123(b)(6), and § 105(a) of the Code, which empowers courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]," 11 U.S.C. § 105(a). They are "a commonplace provision in Chapter 11 plans." Murray Metallurgical, 623 B.R. at 500.
The central role that exculpation provisions play in the Chapter 11 plan process makes it clear that this Court is the forum in which the Exculpation Clause should be enforced. At issue in Nat'l Gypsum, Anderson and Jorge was whether arbitration was the appropriate forum to determine if there had been a violation of the discharge injunction, a concept "fundamental to . . . the practical implementation of a plan of reorganization under Chapter 11." Texaco Inc. v. Sanders (In re Texaco Inc.), 182 B.R. 937, 950 (Bankr. S.D.N.Y. 1995). Like the discharge injunction, exculpation is vitally important to the reorganization of Chapter 11 debtors, as this Court and others have held. See Murray Metallurgical, 623 B.R. at 501 ("'As a policy matter, exculpations are necessary to ensure that capable, skilled individuals are willing to assist in the reorganization efforts in chapter 11 cases.'") (quoting In re Alpha Nat. Res., Inc., 556 B.R. 249, 260 (Bankr. E.D. Va. 2016)); In re Citadel Broad. Corp., No. BKR. 09-17442 (BRL), 2010 WL 2010808, at *8 (Bankr. S.D.N.Y. May 19, 2010) ("The Exculpation . . . was vital to the Plan formulation process"). Just so here. As the Court found when it confirmed the Chapter 11 Plan, the Exculpation Clause "is an essential provision of the Plan" because it "affords protection to those parties who constructively participated in and contributed to the Debtors' chapter 11 process and it is appropriately tailored to protect the Exculpated Parties from inappropriate litigation." Confirmation Order at 17.
The dispute here "present[s] core claims that this Court is uniquely positioned to hear and address under the authority it is granted by the Bankruptcy Code, Bankruptcy Rules, and related jurisdictional statutes." Kiskaden v. LVNV Funding, LLC (In re Kiskaden), 571 B.R. 226, 239-40 (Bankr. E.D. Ky. 2017). Thus, in this case there is "an inherent conflict under McMahon between the underlying purposes of the Bankruptcy Code and the enforcement of the [arbitration agreement]." Kiskaden, 571 B.R. at 239-40. Because enforcing the parties' arbitration agreement would inherently conflict with the Bankruptcy Code's underlying purpose of permitting bankruptcy courts to enforce their orders confirming Chapter 11 plans, the Court declines to stay this adversary proceeding in favor of arbitration. The Plaintiffs' Arbitration Motion is therefore denied.
The Defendants also contend that the Plaintiffs' Arbitration Motion should be denied because the Plaintiffs waived their right to arbitrate by suing in the State Court and "then litigating substantive issues before this Court." Defs.' Opp'n to Pls.' Mot. to Stay, Adv. at 3. Having determined that the Plaintiffs' Arbitration Motion should be denied for the reasons explained above, the Court need not decide whether the Plaintiffs waived their right to arbitrate.
C. Plaintiffs' Motion for Abstention & Remand
1. Mandatory Abstention
The Plaintiffs ask the Court to abstain under the mandatory abstention provision of § 1334(c)(2), which provides that:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.28 U.S.C. § 1334(c)(2) (emphasis added).
Mandatory abstention does not apply to core proceedings. Lindsey v. Dow Chem. Co. (In re Dow Corning Corp.), 113 F.3d 565, 570 (6th Cir. 1997). Because this is a core proceeding, mandatory abstention does not apply here.
2. Permissive Abstention & Equitable Remand
The Plaintiffs also ask the Court to permissively abstain under 28 U.S.C. § 1334(c)(1) and to equitably remand under 28 U.S.C. § 1452(b), the analyses of which are "essentially identical." Meritage Homes Corp. v. JPMorgan Chase Bank, N.A., 474 B.R. 526, 572-73 (Bankr. S.D. Ohio 2012) (quoting Parrett v. Bank One, N.A. (In re Nat'l Century Fin. Enters., Inc., Inv. Litig.), 323 F.Supp.2d 861, 885 (S.D. Ohio 2004)) (cleaned up). Both are within the Court's sound discretion. See Morris Black & Sons, Inc. v. 23S23 Constr., Inc. (In re Carriage House Condos. L.P.), 415 B.R. 133, 146 (Bankr. E.D. Pa. 2009).
"Because federal courts have an obligation to exercise the jurisdiction properly given to them, there is a presumption in favor of the exercise of federal jurisdiction and against abstention. And [t]he movant bears the burden of establishing that permissive abstention is warranted." Molner v. Reed Smith, LLP (In re Aramid Ent. Fund, LLC), 628 B.R. 584, 594 (Bankr. S.D.N.Y. 2021) (cleaned up).
Section 1334(c)(1) of the Judicial Code governs permissive abstention. It provides in pertinent part: "[N]othing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11." 28 U.S.C. § 1334(c)(1).
In a prior opinion, the Court laid out the factors courts consider when deciding whether to exercise permissive abstention, including:
(1) the effect or lack of effect on the efficient administration of the estate if a court abstains, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable state law, (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6)
the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than form of an asserted core proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden on this court's docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, (12) the presence in the proceeding of nondebtor parties and (13) any unusual or other significant factors.Meritage Homes Corp., 474 B.R. at 573.
In that same opinion, this Court enumerated the factors courts consider when deciding whether to equitably remand a case:
(1) Duplicative and uneconomical use of judicial resources in two forums, (2) prejudice to the involuntarily removed parties, (3) forum non conveniens, (4) the state court's ability to handle a suit involving questions of state law, (5) comity considerations, (6) lessened possibility of an inconsistent result and (7) the expertise of the court in which the matter was originally pending.Id. (cleaned up).
"Courts assessing possible permissive abstention have considered one or more of these factors, and not necessarily all [of them]. A court thus need not . . . discuss[] . . . each factor in the laundry lists developed in prior decisions." George Washington Bridge Bus Station & Infrastructure Dev. Fund, LLC v. Port Auth. (In re George Washington Bridge Bus Station Dev. Venture LLC), No. 21-1200 (DSJ), 2022 WL 1714176, at *6 (Bankr. S.D.N.Y. May 25, 2022) (cleaned up); Tronox, 603 B.R. at 726 (holding that "[t]he factors largely ask the Court to balance the federal interest in efficient bankruptcy administration against the interest of comity between state and federal courts" and that "[t]he analysis is not a mechanical or mathematical exercise and the court need not plod through a discussion of each factor in the laundry lists developed in prior decisions.") (cleaned up).
"As shown by the language of the statute . . . permissive abstention is driven in large part by comity principles." In re Tres Hermanos Dairy, LLC, No. 11-10-14240-TR, 2014 WL 176772, at *4 (Bankr. D.N.M. Jan. 16, 2014). Just as the bankruptcy court in Tres Hermanos Dairy concluded,
[t]he Court [here] does not believe the state court would be offended in the slightest if the Court were to interpret the Confirmation Order. If the tables were turned and a state court elected to interpret one of its orders that was relevant in a bankruptcy case, this Court would welcome the assistance.Id. Here, "[p]rinciples of comity are not offended by declining to remand or abstain from this action[.]" KeyBank Nat'l Ass'n v. Franklin Advisers, Inc., 600 B.R. 214, 233 (S.D.N.Y. 2019).
The core nature of this dispute favors retaining it. See IRS v. Luongo (In re Luongo), 259 F.3d 323, 331 (5th Cir. 2001) ("Another touchstone of the abstention inquiry is the substantive law governing the material issues. When bankruptcy issues are at the core of a dispute, it would be absurd for a bankruptcy court to abstain from deciding those matters over which it has particular expertise."). "A core proceeding is 'precisely the kind of issue that falls within the expertise of the bankruptcy court, and there is a strong preference for resolving core proceedings in the bankruptcy court.'" Tres Hermanos Dairy, 2014 WL 176772, at *3 (quoting Solis v. Wahl (In re Wahl), No. 12-01038-R, 2012 WL 5199630, at *3 (N.D. Okla. Oct. 22, 2012)).
According to the Plaintiffs, abstention is warranted because "Plaintiffs' Complaint demands a jury trial . . . and [the] Plaintiffs respectfully will not consent to a jury trial in the bankruptcy court pursuant to 28 U.S.C. § 157(e) or Fed.R.Bankr.P. 9015(b)[.]" Mot. for Remand, Doc. 42 at 26. But the fact that the Plaintiffs seek a jury trial does not weigh in favor of abstention. See Stoner v. Keirns (In re Keirns), 628 B.R. 911, 922 (Bankr. S.D. Ohio 2021) ("[W]hile the Defendant has a right to a jury trial, he is perfectly free to exercise that right in this Court."); Official Comm. of Unsecured Creditors of Schlotzsky's, Inc. v. Grant Thornton LLP (In re Schlotzsky's, Inc.), 351 B.R. 430, 437 (Bankr.W.D.Tex. 2006) ("Nor ought we to institute a rule of decision that in effect rewards the party seeking abstention if that party insists on being as obstructionist as possible by refusing to consent either to the entry of final judgment by the bankruptcy judge or the conduct of a jury trial by that court."); cf. Cipollone v. Virginia True Corp., No. 1:20-CV-972-FB, 2021 WL 2109205, at *3 (E.D.N.Y. May 25, 2021) (holding in the context of withdrawal of the reference that "[t]he Cipollones' potential entitlement to a jury trial in several months' time does not justify removing this case from the bankruptcy court today, especially where, as here, the bankruptcy court has already overseen a number of matters related to the bankrupt estate and acquired what one court describes as a 'wealth of knowledge' about its affairs.").
What's more, it is well established that the right to a jury trial does not prevent a court from granting a motion to dismiss for failure to state a claim. See Lumpkins v. Off. of Cmty. Dev., 621 Fed.Appx. 264, 270 (5th Cir. 2015) ("Nor was her Seventh Amendment right to trial by jury violated, because "[d]ismissal of [a] claim[ ] pursuant to a valid 12(b)(6) motion does not violate [a party's] right to a jury trial under the Seventh Amendment."); Sears v. Sears (In re AFY, Inc.), 571 B.R. 825, 835 (B.A.P. 8th Cir. 2017), aff'd, 902 F.3d 884 (8th Cir. 2018) ("The defendant's right to a jury trial has no bearing on the bankruptcy court's authority to enter a final order on a motion to dismiss. It is the very nature of dismissal that results in the loss of any plaintiffs' right to a jury trial, in any court."); Gong v. Westlend Fin., Inc., No. 2:20-cv-05026 MCS (AGRx), 2020 WL 10964606, at *6 (C.D. Cal. Dec. 18, 2020) ("Courts frequently grant motions to dismiss under Fed.R.Civ.P. 12(b)(6) even though a party requests a jury trial.").
The degree of relatedness or remoteness of this adversary proceeding to the Debtors' bankruptcy cases also favors retaining it. This lawsuit directly implicates the Exculpation Clause, and as explained above, is a core proceeding, which cuts against abstention or equitable remand. See Christensen v. Tucson Ests., Inc. (In re Tucson Ests., Inc.), 912 F.2d 1162, 1167 (9th Cir. 1990) (noting that "[t]he bankruptcy court in this case chose not to abstain because . . . the case is a core proceeding in which the bankruptcy court should enter the final order"); Tubbs v. Agspring Miss. Region, L.L.C., No. CV 3:21-03268, 2022 WL 1164803, at *10 (W.D. La. Apr. 4, 2022), report and recommendation adopted, No. CV 3:21-03268, 2022 WL 1164014 (W.D. La. Apr. 19, 2022) ("[T]he expertise of the Delaware Bankruptcy Court in handling disputes such as this supports maintenance of this suit in federal court and transfer to the Delaware Bankruptcy Court."); Moelis & Co. v. Wilmington Tr. FSB (In re Gen. Growth Props., Inc.), 460 B.R. 592, 603 (Bankr. S.D.N.Y. 2011) (declining to exercise permissive abstention or equitable remand where the "crux of the dispute involves bankruptcy issues, and the Plan in particular."). As another bankruptcy court said in declining to abstain from hearing a malpractice claim, "[i]t defies logic that a court less acquainted with bankruptcy law will better address issues of alleged malpractice in a bankruptcy context than a bankruptcy court." Woodard v. Sanders (In re SPI Commc'ns & Mktg., Inc.), 112 B.R. 507, 512 (Bankr. N.D.N.Y. 1990). In short, this Court confirmed the Chapter 11 Plan, and now is in the best position to interpret and enforce that Plan's provisions.
For the foregoing reasons, the Court will neither abstain from hearing this adversary proceeding nor equitably remand it to the State Court.
D. The Dismissal Motion
In the Dismissal Motion, the Defendants contend that the Plaintiffs' malpractice claim should be dismissed under Rule 12(b)(6) of the Federal Rules of Civil Procedure for two reasons: (1)because it is barred by the Exculpation Clause, Dismissal Mot., Adv. Doc. 9 at 19-23, and (2)because the Plaintiffs do not adequately plead causation, id. at 23-25. While it would not be appropriate to decide the issue of causation on a motion to dismiss, dismissal based on the Exculpation Clause is warranted.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (cleaned up). "On a motion to dismiss, [the Court] must construe the complaint in the light most favorable to the plaintiff and accept all allegations as true." Taylor v. City of Saginaw, 922 F.3d 328, 331 (6th Cir. 2019) (cleaned up). For the purposes of this analysis, the Court therefore accepts as true the allegation that the Defendants failed to warn Mr. Murray and the Trust of their potential ERISA withdrawal liability to the 1974 Plan.
While recognizing that, in the context of a Rule 12(b)(6) dismissal motion, the Court must accept the Complaint's allegations as true, the Defendants have stated that they "did advise [Mr.] Murray that the 1974 Plan's withdrawal liability claim against him and his family would be carved out from the Chapter 11 Plan's releases, including in an email sent to [him] . . . before he executed the Murray Family Settlement[.]" Dismissal Mot. at 10 n.1.
1. The Exculpation Clause
Exculpation clauses constitute affirmative defenses, which can form the basis for a motion to dismiss for failure to state a claim if "the undisputed facts conclusively establish [the] affirmative defense as a matter of law." Est. of Barney v. PNC Bank, Nat'l Ass'n, 714 F.3d 920, 926 (6th Cir. 2013) (quoting Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 613 (6th Cir. 2009)); see also Blixseth v. Cushman & Wakefield of Colorado, Inc., 2013 WL 5446791, at *10 (D. Colo. Sept. 30, 2013) (holding that breach of contract claim was subject to dismissal for failure to state a claim because it was barred by the Chapter 11 plan's exculpation clause); Holmes v. Air Line Pilots Ass'n, Int'l, 745 F.Supp.2d 176, 198 (E.D.N.Y. 2010) ("Exculpation clauses are properly considered in a Rule 12(b)(6) motion to dismiss.").
Under the right circumstances, when deciding a motion to dismiss for failure to state a claim, a court may consider facts beyond those provided in a complaint. See Chavis v. Fuerst, 62 Fed.Appx. 116, 117 (6th Cir. 2003). In Chavis, the district court dismissed the plaintiff's civil rights complaint sua sponte for failure to state a claim. On appeal, the plaintiff argued that the district court improperly dismissed his complaint because, among other things, the court considered matters outside the complaint. The Sixth Circuit affirmed the district court, holding that the plaintiff's "claim that the district court considered matters outside his complaint lacks merit because the district court merely recited facts plainly gleaned from state court opinions, duly cited by the district court, rendered in [the plaintiff's] cases." Id. at 117.
Here, the Court considers the Chapter 11 Plan and its provisions, including the Exculpation Clause, in deciding the Dismissal Motion. That is, the availability of the Exculpation Clause as an affirmative defense may be "plainly gleaned" from the Chapter 11 Plan. The Defendants are Exculpated Parties under the Chapter 11 Plan because they were attorneys for Mr. Murray, who was one of Murray Energy's directors and equity holders. See Chapter 11 Plan at 15 (defining Exculpated Party to mean "the Debtors . . . and . . . such Entities' . . . directors, managers, officers, [and] equity holders . . . and each of their respective current and former . . . attorneys . . . ."). And the Exculpation Clause states in pertinent part:
[N]o Exculpated Party shall have or incur, and each Exculpated Party is hereby exculpated from, any Cause of Action for any claim related to any act or omission based on the negotiation, execution, and implementation of any transactions approved by the Bankruptcy Court in the Chapter 11 Cases, including . . . the [Chapter 11] Plan . . . except for claims related to any act or omission that is
determined by Final Order to have constituted actual fraud, willful misconduct, or gross negligence[.]
Chapter 11 Plan at 61-62.
According to the Defendants, the Exculpation Clause protects them because the Plaintiffs' malpractice claim relates to an act or omission stemming from the negotiation of the Chapter 11 Plan. For their part, the Plaintiffs contend that the Exculpation Clause does not bar their malpractice claim because it is based on the Defendants' actions in advising the Plaintiffs, not negotiating the Chapter 11 Plan.
The Exculpation Clause applies for two reasons. First, as discussed above, and contrary to the Plaintiffs' characterizations, the Complaint alleges harm arising from the Defendants' negotiation of the Chapter 11 Plan. Second, the Exculpation Clause applies because, as discussed above: (1) the Plaintiffs' malpractice allegations assert a claim "related to any act or omission based on the [Chapter 11 Plan's] negotiation," Chapter 11 Plan at 59; (2) the phrase "relating to" means to stand in some relation to; and (3) the Plaintiffs' claim clearly stands in some relation to the negotiation of the Chapter 11 Plan.
The Confirmation Order states that the Exculpation Clause "is appropriate under applicable law because it was proposed in good faith, was formulated following extensive, good-faith, arm's length negotiations with the Debtors and the Exculpated Parties, and was agreed upon in return for the Exculpated Parties providing benefits to the Debtors." Confirmation Order at 17. From this, the Plaintiffs contend that to invoke the Exculpation Clause's protections, the Defendants must show that they negotiated "with Mr. Murray for the exculpation of claims" and further provided benefits to the Plaintiffs in exchange for exculpation. Opp'n to Dismissal Mot. at 9-10. This misconstrues the Confirmation Order. The finding the Plaintiffs rely on refers to negotiations with the Debtors and Exculpated Parties-not with parties such as the Plaintiffs, who assert a claim subject to exculpation under the Exculpation Clause. And the provision refers to benefits to the Debtors, not benefits to parties such as the Plaintiffs.
The Exculpation Clause raises the standard of the Defendants' liability for the Plaintiffs' claim to actual fraud, willful misconduct or gross negligence. The Plaintiffs neither allege in their Complaint nor argue in their objection to the Dismissal Motion that the Defendants engaged in actual fraud or willful misconduct. They also do not allege gross negligence in the Complaint. Rather, they argue in their objection to the Dismissal Motion, Opp'n to Dismissal Mot. at 10, that alleging in their Complaint that "Defendants' actions constitute actual malice and entitle [the] Plaintiffs to an award of punitive damages," Compl. at 19, is equivalent to alleging gross negligence:
Here, the Complaint ¶ 28 alleges that Defendants' malpractice constituted "actual malice" to warrant punitive damages.
. . . .
Despite Defendants' breezy disregard of Plaintiffs' malice averment as "conclusory" (Mot. at 14 n.3), the Complaint pleads other facts that Defendants ignore in establishing Defendants' "conscious disregard" and risk of "substantial harm." To be sure, the Complaint alleges that Defendants were aware of the harm that potential ERISA withdrawal liability posed to Plaintiffs because Defendants hold themselves out as among "'the world's foremost practitioners' in [ERISA] '[m]ultiemployer pension plan withdrawal liability disputes.'" (Compl. ¶ 28.). In fact, Defendants' Motion readily acknowledges that Defendants knew of the danger to Plaintiffs of billions of dollars in potential withdrawal liability claims by the 1974 Plan (but simply blames Mr. Murray for not having figured that out for himself). (See, e.g., Mot. at 9-10; 13-14.). In addition, there is no denying that Defendants' failure to warn or advise Plaintiffs of this danger and how to avoid it threatened substantial harm by exposing Plaintiffs to potential withdrawal liability claims in excess of $6.5 billion. (Compl. ¶ 28.). Although Defendants may not like them, these allegations meet the plausibility test and must be accepted as true. Thus, even if the Exculpation Clause applied, Plaintiffs' allegations of malice more than suffice to bring Plaintiffs' malpractice cause of action within
the Clause's exemption for claims rising at least to the level of gross negligence. Opp'n to Dismissal Mot. at 10-11.
There are several problems with the Plaintiffs' argument. First, their contention that the Defendants' actions constituted "actual malice" is a legal conclusion, not an allegation of fact, and is therefore entitled to no weight. See Ashcroft, 556 U.S. at 678; Viet v. Le, 951 F.3d 818, 823 (6th Cir. 2020) ("[A] plaintiff may not rely on conclusory allegations to proceed past the pleading stage[.]"); Stuart v. Lowe's Home Ctrs., LLC, 737 Fed.Appx. 278, 281 (6th Cir. 2018) (finding a conclusory statement insufficient when complaint merely recited the elements of the claims plaintiffs brought against defendant); Rivera v. NYP Holdings, Inc., No. 114858/06, 2007 WL 2284607, at *4 (N.Y. Sup. Ct. Aug. 2, 2007), aff'd sub nom. Rivera v. Time Warner Inc., 56 A.D.3d 298, 867 N.Y.S.2d 405 (2008) ("Contrary to plaintiff's assertion, merely amending the complaint to insert the words 'actual malice' will not cure the defect since there are no allegations presented in the complaint that fall within the definition of actual malice. There is nothing magical about the bare recitation of the words 'actual malice.'").
The Plaintiffs face another hurdle. "[A]ctual malice, necessary for an award of punitive damages, is (1) that state of mind under which a person's conduct is characterized by hatred, ill will or a spirit of revenge, or (2) a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm." Preston v. Murty, 512 N.E.2d 1174, 1176 (Ohio 1987). The Plaintiffs say they rely on something more than a mere allegation of actual malice. But the contentions they rely on-that the Defendants (1) were aware of the risk that potential ERISA withdrawal liability posed to Plaintiffs and (2) failed to warn the Plaintiffs of this risk, Opp'n to Dismissal Mot. at 11-do not add up to actual malice. Nowhere in the Complaint do the Plaintiffs contend that the Defendants' acted with hatred, ill will, or a spirit of revenge, or that they engaged in extremely reckless behavior revealing a conscious disregard for a great and obvious harm.
Nor do the Plaintiffs allege anything approaching gross negligence. Gross negligence has been defined as the "failure to exercise any or very slight care." Thompson Elec. v. Bank One, Akron, N.A., 525 N.E.2d 761, 768 (Ohio 1988). As the Sixth Circuit has pointed out, "[n]egligence does not become gross just by saying so." Menuskin v. Williams, 145 F.3d 755, 767 (6th Cir. 1998) (cleaned up); see also Wells v. Walker, 852 F.2d 368, 371 (8th Cir. 1988) ("[T]he descriptions of defendants' conduct in the complaint belie their characterization as anything other than ordinary negligence[.]"). "If the courts are to make any sense of the distinction between gross negligence and simple negligence, we must ensure that gross negligence is something more than simple negligence with the addition of a vituperative epithet." Jones v. Sherrill, 827 F.2d 1102, 1106 (6th Cir. 1987) (cleaned up).
Rather than asserting a gross negligence claim, the Plaintiffs assert a garden-variety legal malpractice claim. "[T]he requirements to establish a cause of action for legal malpractice relating to civil matters . . . are: (1) an attorney-client relationship giving rise to a duty, (2) a breach of that duty, and (3) damages proximately caused by the breach." Krahn v. Kinney, 538 N.E.2d 1058, 1060 (Ohio 1989). The Plaintiffs allege precisely that:
Defendants breached their duties and obligations to Plaintiffs, including professional standards, duties of care, and fiduciary duties, when they failed to warn the Client of the ramifications of the plan of reorganization that Defendants negotiated as their legal counsel in the Bankruptcy Proceeding. In particular, Defendants were required to provide competent legal advice informing the Client of the significant risk that the plan of reorganization would expose them to a claim for billions of dollars in ERISA withdrawal liability.
Defendants breached their duties to Plaintiffs, including professional standards, duties of care, and fiduciary duties, by failing to provide proper and appropriate legal advice to the Client
regarding potential withdrawal liability claims by the 1974 Plan, by failing to warn or advise Mr. Murray to protect himself and the Murray Trust from potential claims for billions of dollars in ERISA withdrawal liability by the 1974 Plan, and by failing to obtain Mr. Murray's informed consent about the impact that the plan of organization could have on Mr. Murray and the Murray Trust.Compl. at 17-18. In their opposition to the Dismissal Motion, the Plaintiffs themselves describe the Complaint as "plainly stat[ing] a facially plausible claim for legal malpractice[.] Opp'n to Dismissal Mot.
Third, even if the Plaintiffs had asserted a gross negligence claim, there is a question whether the State Court would dismiss the claim as being duplicative of the malpractice claim. While the highest courts of both Ohio and New York have yet to address this question, authority from those states' intermediate appellate courts suggests that the answer would be yes. In this circumstance, "[b]ecause the [highest appellate court] has not yet addressed the precise issue presented [here], the Court must predict how the [highest court] would rule." Terlecky v. Nat'l City Mtg. Co. (In re Doutt), No. 10-2198, 2012 WL 3838767, at *3 (Bankr. S.D. Ohio Aug. 31, 2012). In making this prediction, the Court must follow decisions of a state's intermediate appellate courts to the extent that they are in accord:
The Court need not decide whether the law of Ohio (where the malpractice action was filed) or the law of New York (which governs the engagement letter between the Defendants and Mr. Murray and the Trust) applies, because the result is the same under the law of both states.
[T]he Supreme Court has . . . made no decision on the particular question involved in the present case. On the other hand, the Court of Appeals . . . appears to have supplied a controlling answer to the question here in issue. That being so, we are bound by it, until or unless the Supreme Court of Ohio gives a contrary answer. In these circumstances, it is not for us to exercise our independent judgment, to look to other jurisdictions, or to speculate as to what the Supreme Court of Ohio might some day decide.Gettins v. U.S. Life Ins. Co., 221 F.2d 782, 785 (6th Cir.1955) (citing West v. Am. Tel. & Tel. Co., 311 U.S. 223 (1940)).
Based on its review of the decisions cited below, the Court concludes that the Supreme Court of Ohio and the New York Court of Appeals would hold that a gross negligence claim is duplicative of a malpractice claim and therefore should be dismissed on that basis. See Hillman v. Edwards, No. 08AP-1063, 2009 WL 3087360, at *5 (Ohio Ct. App. Sept. 17, 2009); Hoffenberg v. Meyers, 73 Fed.Appx. 515, 517 (2d Cir. 2003); Palmeri v. Willkie Farr & Gallagher LLP, 69 N.Y.S.3d 267, 271 (N.Y.App.Div. 2017); Mecca v. Shang, 685 N.Y.S.2d 458, 460 (N.Y.App.Div. 1999).
In Hillman, the plaintiff brought claims for fraudulent misrepresentation, breach of contract and gross negligence. The trial court construed those claims as, in essence, asserting a legal malpractice claim. According to the court of appeals, the trial court correctly ruled that "a client's claims that arise out of the manner in which an attorney represents the client within that attorney-client relationship, regardless of the names affixed to the theories of recovery or causes of action, are claims for legal malpractice." Hillman, 2009 WL 3087360, at *5. The Ohio court of appeals held that the "trial court therefore properly construed the plaintiff's complaint as alleging legal malpractice where the gist of the complaint sounds in malpractice, regardless of the labels given to the causes of actions." Id. (cleaned up). Numerous other Ohio cases agree with Hillman. See Svete v. Cherneskey Heyman & Kress, No. 3:07cv00197, 2009 WL 8435668, at *10 (S.D. Ohio Nov. 24, 2009), report and recommendation adopted sub nom. Svete v. Cherneskey, Heyman & Kress, P.L.L., No. 3:07cv197, 2011 WL 4461323 (S.D. Ohio Sept. 26, 2011) ("Malpractice by any other name still constitutes malpractice. . . . Because each of Svete's claims is based on Defendants' alleged acts or omissions during the LifeTime litigation, his attempt to recast them into something other than a legal malpractice claim lacks merit.") (cleaned up); Silveous v. 5 Starr Salon & Spa, LLC, No. 22AP-456, 2023 WL 2533106, at *10 (Ohio Ct. App. Mar. 16, 2023) ("A claim against an attorney for actions taken in his professional capacity is a claim sounding in legal malpractice no matter how artfully the pleadings attempt to raise some other claim.") (cleaned up); Buckeye Ret. Co., LLC v. Busch, 82 N.E.3d 66, 82 (Ohio Ct. App. 2017) ("An action against one's attorney for damages resulting from the manner in which the attorney represented the client constitutes an action for malpractice, regardless of whether predicated upon contract or tort or whether for indemnification or for direct damages.") (cleaned up); Omega Riggers & Erectors, Inc. v. Koverman, 65 N.E.3d 210, 219 (Ohio Ct. App. 2016) (same).
In Hoffenberg, a former client brought claims against his criminal defense attorney for legal malpractice and gross negligence. The district court dismissed the former client's gross negligence claim as being duplicative of his legal malpractice claim, and the Second Circuit held that the district court "properly dismissed [the client's] claim for gross negligence as redundant of his legal malpractice claim." Hoffenberg, 73 Fed.Appx. at 517. And in Palmeri, the New York appellate court held that the trial court "properly dismissed plaintiff's claims for gross negligence, breach of contract, and breach of the implied covenant of good faith and fair dealing as duplicative of his legal malpractice claim, given that they are all based on the same facts and seek the same relief." Palmeri, 69 N.Y.S.3d at 271. Finally, in Mecca, the New York appellate court held that the lower court "should have . . . dismissed Dr. Mecca's negligent misrepresentation and gross negligence causes of action, since these claims similarly arise from the same facts as his legal malpractice claim and are duplicative of that cause of action." Mecca, 685 N.Y.S.2d at 460.
Based on the foregoing, the Court concludes that the Supreme Court of Ohio and the New York Court of Appeals would hold that a gross negligence claim would be dismissed (and thus the
Defendants would never be found grossly negligent by any court) because the claim against the Defendants sounds in malpractice, and a gross negligence claim is duplicative of the malpractice claim. Indeed, the Ohio and New York intermediate appellate courts that have addressed the issue are all in accord, and this Court is required to follow their lead in the absence of other persuasive data that the highest court of the state would decide otherwise. Gettins, 221 F.2d at 785. Thus, despite the Plaintiffs' conclusory allegation that the Defendants acted with actual malice, the claim-which they pleaded only as a "Legal Malpractice/Professional Negligence Claim," Compl. at 5, falls within the type of claims covered by the Exculpation Clause.
2. Causation
The Defendants also move to dismiss this adversary proceeding on the ground that the Plaintiffs failed to adequately plead causation. Again, "the requirements to establish a cause of action for legal malpractice relating to civil matters . . . are: (1) an attorney-client relationship giving rise to a duty, (2) a breach of that duty, and (3) damages proximately caused by the breach." Krahn, 538 N.E.2d at 1060.
Proximate causation is more appropriately decided on a motion for summary judgment than a motion to dismiss for failure to state a claim. See, e.g., Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 615 (6th Cir. 2004) (holding that the "traditional proximate-cause problem[s]" of a "weak or insubstantial causal link, a lack of foreseeability, or a speculative or illogical theory of damages" will "more often be fodder for a summary-judgment motion under Rule 56 than a motion to dismiss under Rule 12(b)(6)."). This is because "[u]nder the familiar rules of notice pleading in federal courts, a complaint should include merely 'a short and plain statement of the claim,' Fed.R.Civ.P. 8(a)(2), and a district court may dismiss a complaint for failure to state a claim 'only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Id. The Sixth Circuit has held that, in applying these rules, courts should "presume that general allegations embrace those specific facts . . . necessary to support the claim." Id. The relevant allegations of the Complaint are that:
As a result of Defendants' negligence and malpractice, Plaintiffs proximately suffered financial harm attributable to Defendants in the form of: (1) attorneys' fees, costs, and expenses incurred to defend against the 1974 Plan's claims for ERISA withdrawal liability in the D.C. Litigation, all of which could have been avoided if Defendants properly had advised the Client in the Bankruptcy Proceeding; (2) attorneys' fees and costs of obtaining legal advice and representation in dealing with other consequences of Defendants' negligence and malpractice; (3) any damages or settlement funds paid as a result of the D.C. Litigation; and (4) other damages, including additional special and compensatory damages, in an amount to be ascertained.Compl. at 18, 19 (emphasis added). The Plaintiffs further allege that "Defendants disregarded their obligation to inform the Client of this substantial liability and to further advise the Client on how to avoid it." Id. at 19.
In short, the Complaint implies that there would have been a way for Mr. Murray to avoid ERISA withdrawal liability if only he had received different advice from the Defendants. And that implication is entirely speculative. But as in Trollinger, given the "unadorned allegations in the complaint and "the requirement that we must assume plaintiffs will be able to prove them," the Court should not grant the motion to dismiss based on a failure to adequately plead causation. Id. at 619; see also Gorsuch v. OneWest Bank, FSB, No. 3:14 CV 152, 2015 WL 2384110, at *7 (N.D. Ohio May 19, 2015).
In Gorsuch, the court found that it was "at least plausible that, had Gorsuch known [certain facts] . . . events would have played out differently [but] [f]act-based issues like these should not be resolved on a motion to dismiss." Id. (citing Trollinger) (cleaned up). As in Gorsuch, the Complaint here raises the issue of whether, had Mr. Murray been warned that he was subject to ERISA withdrawal liability, events would have played out differently. The Plaintiffs do not say how different advice from the Defendants would have changed anything, but given their allegation of proximate cause, their intimation that Mr. Murray could have avoided withdrawal liability, and given that the Court should presume that "general allegations embrace those specific facts . . . necessary to support the claim," Trollinger, 370 F.3d at 615, they have done enough to survive a motion to dismiss based on proximate causation. The Court therefore does not find that failure to properly plead proximate causation is a ground for its dismissal of this adversary proceeding; rather, it bases dismissal solely on the Exculpation Clause.
The Court points out, however, that had this case proceeded to summary judgment, the Plaintiffs would have had an uphill battle in attempting to establish proximate causation. The suggestion that Mr. Murray was unaware of his potential withdrawal liability "taxes the credulity of the credulous." Maryland v. King, 569 U.S. 435, 466 (2013) (Scalia, J., dissenting). After all, he was the Chairman of Murray Energy's board of directors and the owner of 100% of the issued and outstanding voting shares of Murray Energy. UCC Mot. at 7; Disclosure Statement at 21. As such, he was the target of several allegations during the Debtors' cases that were addressed in a way that should have made it clear that the 1974 Plan was reserving its rights to pursue claims against him based on the Debtors' withdrawal from the 1974 Plan. On April 15, 2020, the 1974 Plan filed an objection to the Disclosure Statement in which it stated that it had claims for withdrawal liability against Mr. Murray, members of his immediate family, and any entities or trusts owned by him or any member of his immediate family. See Objection of the UMWA 1974 Pension Plan and Trust, UMWA 1992 Benefit Plan, and UMWA 1993 Benefit Plan to the Debtors' Motion to Approve the Disclosure Statement (Doc. 1274) at 13. Then, on May 1, 2020, the Official Committee of Unsecured Creditors ("Committee") filed the Motion of the Official Committee of Unsecured Creditors for (I) Leave, Standing, and Authority to Prosecute Certain Claims and Causes of Action on behalf of the Debtors' Estates and (II) Exclusive Rights to Settlement ("UCC Motion") (Doc. 1426). In the UCC Motion, the Committee alleged that:
Between 2016 and 2019, with the Debtors' bankruptcy on the horizon, [Mr.] Murray and Rob Moore [Mr. Murray's nephew, who became the CEO of Murray Energy when Mr. Murray stepped down from that position shortly before the Debtors' bankruptcy filing] paid themselves at least $70 million (and potentially as much as $100 million) in excessive "executive compensation" and, together with the other Proposed Defendants, caused the Debtors to make millions of dollars of other transfers for their own benefit. These transfers unfairly and personally enriched the Proposed Defendants to the detriment of the Debtors' estates and their creditors, and were made with the knowledge and agreement of the Debtors' Board of Directors and senior management team, which at all relevant times included [Mr.] Murray and Rob Moore. These actions give rise to claims against the Proposed Defendants for avoidance and recovery of constructively fraudulent transfers and for breaches of fiduciary duties, all of which are set forth in further detail in this Motion.UCC Mot. at 7-8.
On July 29, 2020, the Debtors filed a Motion for Entry of an Order (I) Approving the Debtors' Continued Solicitation of the Amended Plan and the Adequacy of the Supplemental Disclosure in Connection Therewith, and (II) Granting Related Relief (Doc. 1886). This motion sought approval of the Supplemental Disclosure Statement for the Debtors' Second Amended Joint Plan Pursuant to Chapter 11 of the Bankruptcy Code ("Disclosure Statement Supplement"). Among other things, the Disclosure Statement Supplement addressed the settlements of the claims against Mr. Murray and others in the "Murray Family Settlement" and the "UCC Settlement." The Murray Family Settlement was a settlement between the Debtors and Mr. Murray "along with his family and related trusts" ("Murray Family Entities"), under which the Murray Family Entities and Robert Moore were defined as "Murray Insiders." The Disclosure Statement Supplement expressly stated:
Among other things, the Murray Family Settlement and the UCC Settlement provide for:
. . . .
[T]he preservation of the 1974 Plan's right to pursue litigation arising from or related to the Debtors' withdrawal from the 1974 Plan against Murray Insiders and certain other non-Debtors after the conclusion of these cases on account of their potential direct (but not derivative) claims, including any claim that is peculiar and/or personal to the 1974 Plan. Claims that the 1974 Plan has against the Murray Insiders and other non-Debtors are preserved under the Amended Plan pursuant to the 1974 Carve-Out.
Disclosure Statement Suppl. at 15. Mr. Murray was a party to the Murray Family Settlement, so it seems highly unlikely he would not have known that the 1974 Plan was preserving its rights to "pursue litigation arising from or related to the Debtors' withdrawal from the 1974 Plan against [him and the other] Murray Insiders."
On August 7, 2020, the Court approved the Disclosure Statement Supplement. See Order (I) Approving the Debtors' Continued Solicitation of the Amended Plan and the Adequacy of the Supplemental Disclosure in Connection Therewith, and (II) Granting Related Relief (Doc. 1939).
Another reason that the Plaintiffs likely would have had a formidable challenge in establishing proximate causation is that the 1974 Plan's withdrawal liability claim is a statutory obligation that arose under ERISA based on Murray Energy's withdrawal from the 1974 Plan as of the effective date of the Chapter 11 Plan. See Trs. of Operating Engineers Loc. 324 Pension Fund v. Bourdow Contracting, Inc., 919 F.3d 368, 373 & n.2 (6th Cir. 2019) ("Withdrawal liability is a statutory obligation[.]"); Irigaray Dairy v. Dairy Emps. Union Loc. No. 17 Christian Lab. Ass'n of the United States of Am. Pension Tr., 153 F.Supp.3d 1217, 1246 (E.D. Cal. 2015) ("[W]ithdrawal liability is a statutory obligation that is imposed because the employer no longer has a contractual obligation to contribute.") (cleaned up). Nothing in the Complaint nor the Plaintiffs' Opposition to the Dismissal Motion even hints at how Mr. Murray and the Trust could have been released from ERISA withdrawal liability.
The Plaintiffs do not allege that there was anything the Defendants could have done to keep the Debtors from withdrawing from the 1974 Plan, nor that different legal advice would have allowed Mr. Murray and the Trust to avoid withdrawal liability, or that a third-party release would have been available to them. Nonconsensual third-party releases can only be approved when "unusual circumstances" are present. Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 658 (6th Cir. 2002). The Sixth Circuit has held that seven factors must be present for a non-consensual third-party release to be approved:
• There is an identity of interests between the debtor and the third party, usually an indemnity relationship, such that a suit against the non-debtor is, in essence, a suit against the debtor or will deplete the assets of the estate;
• The non-debtor has contributed substantial assets to the reorganization;
• The injunction is essential to reorganization, namely, the reorganization hinges on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor;
• The impacted class, or classes, has overwhelmingly voted to accept the plan;
• The plan provides a mechanism to pay for all, or substantially all, of the class or classes affected by the injunction;
• The plan provides an opportunity for those claimants who choose not to settle to recover in full and;
• The bankruptcy court made a record of specific factual findings that support its conclusions.Id.
It seems unlikely that the Plaintiffs could establish the existence of all seven factors in the Debtors' cases. For one, it is unlikely the Plaintiffs can show either that (1) there "is an identity of interests between the debtor and the third party, usually an indemnity relationship, such that a suit against the non-debtor is, in essence, a suit against the debtor or will deplete the assets of the estate," or (2) Mr. Murray "contributed substantial assets to [the Debtors'] reorganization." Id. Nor can they establish that "the reorganization hinges on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor." Id. After all, the Chapter 11 Plan was confirmed without any releases of Mr. Murray and the Trust of withdrawal liability to the 1974 Plan. How then could the Chapter 11 Plan have "hinge[d] on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor[?] Id. Further, the Chapter 11 Plan, which provides for the repayment of unsecured creditors in the range of 0-1% of their claims, does not "provide[] an opportunity for those claimants who choose not to settle to recover in full." Id.
For all these reasons, it appears unlikely that, had this litigation proceeded to summary judgment, the Plaintiffs could have established proximate causation.
E. Dismissal with Prejudice
In a footnote in their response to the Dismissal Motion, the Plaintiffs request, "[i]n the unlikely event that the Court enters an order granting [the Dismissal] Motion, . . . that it be without prejudice so that Plaintiffs may have an opportunity to file a motion for leave to amend and a proposed amended Complaint." Opp'n to Dismissal Mot. at 18 n.4. Because the Plaintiffs have not filed a motion to amend their complaint or a proposed amended complaint, dismissal will be with prejudice. In fact, the only case the Plaintiffs rely on for dismissal without prejudice, see id., actually undercuts their position. See CNH Am. LLC v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am. (UAW), 645 F.3d 785, 795 (6th Cir. 2011) (holding that "if a party does not file a motion to amend or a proposed amended complaint, it is not an abuse of discretion for the district court to dismiss the claims with prejudice"). See also Jamison v. Stuart Lippman & Assocs., No. 1:21-cv-00050, 2022 WL 896779, at *2 n.2 (S.D. Ohio Mar. 28, 2022), aff'd, No. 22-3310, 2023 WL 3194906 (6th Cir. Jan. 26, 2023) ("Dismissal with prejudice is proper as Plaintiff has not filed a motion to amend his Complaint.").
The Sixth Circuit has held that a district court did not abuse its discretion in rejecting a request to amend a complaint made in response to a motion to dismiss where the party seeking to amend her complaint did not "file a formal motion [to amend], provide a proposed amended complaint, or explain how an amendment could save her claims," but instead "simply requested leave in the event the court granted [the] motion [to dismiss]." Forrester v. Am. Sec. & Prot. Serv. LLC, No. 21-5870, 2022 WL 1514905, at *4 (6th Cir. May 13, 2022). Under those circumstances, the Sixth Circuit held that the district court properly denied the plaintiff's request for leave to amend her complaint. Id. Other courts have also rejected such "throwaway requests for amendment related to motion[s] to dismiss." Culy Constr. & Excavating, Inc. v. Laney Directional Drilling Co., No. 2:12-cv-4, 2012 WL 12942602, at *1 (S.D. Ohio Aug. 13, 2012); see also In re Porsche Cars N. Am., Inc., 880 F.Supp.2d 801, 882 (S.D. Ohio 2012) ("Plaintiffs' general request for leave to amend their Complaint, in the alternative to their request that this Court deny PCNA's motion [to dismiss], is nothing more than an attempt to use the Court's decision as an advisory opinion enabling them to cure any deficiencies in their Complaint."). Like the plaintiffs in Forrester and these other cases, the Plaintiffs have not moved to amend the Complaint, provided a proposed amended complaint, or explained how an amendment could save their claim. Dismissal of the Complaint with prejudice is therefore appropriate.
V. Conclusion
For all these reasons, (1) the Remand Motion, the Defendants' Arbitration Motion and the Plaintiffs' Arbitration Motion are DENIED, and (2) the Dismissal Motion is GRANTED WITH PREJUDICE.
IT IS SO ORDERED.