Black Diamond Commercial Fin., L. L.C. v. Murray Energy Corp. (In re Murray Energy Holdings Co.)

• Decision Date: 08 November 2021
• Docket Number: Case No. 19-56885 (Jointly Administered),Adv. Pro. No. 19-2143
• Parties: IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors. Black Diamond Commercial Finance, L.L.C., as Administrative Agent, Plaintiff, v. Murray Energy Corp., et al., Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

634 B.R. 951

IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors.

Black Diamond Commercial Finance, L.L.C., as Administrative Agent, Plaintiff,

v.Murray Energy Corp., et al., Defendants.

Case No. 19-56885 (Jointly Administered)

Adv. Pro. No. 19-2143

United States Bankruptcy Court, S.D. Ohio, Western Division.

Signed November 8, 2021

John C. Cannizzaro, Tyson A. Crist, Ice Miller LLP, Columbus, OH, Jack Herman, Ariel Lavinbuk, Lawrence Robbins, William Trunk, Robbins, Russell, Englert, Orseck, Washington, DC, for Plaintiff.

Salvatore M. Daniele, Craig Goldblatt, Andrew N. Goldman, Chris D. Hampson, Benjamin Loveland, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Douglas L. Lutz, Cincinnati, OH, for Defendant GLAS Trust Company LLC.

Robert C. Folland, Kyle Robert Gerlach, Barnes & Thornburg LLP, Columbus, OH, Alessandra Glorioso, Eric Lopez Schnabel, Dorsey & Whitney LLP, New York, NY, for Defendant US Bank, NA.

Kim Martin Lewis, Dinsmore & Shohl LLP, Cincinnati, OH, for Defendant Murray Energy Corporation.

OPINION AND ORDER ON MOTION FOR SUMMARY JUDGMENT (DOC. 143) AND CROSS-MOTIONS FOR SUMMARY JUDGMENT (DOCS. 146 & 149)

John E. Hoffman, Jr., United States Bankruptcy Judge

I. Introduction

This is the second opinion the Court has issued in the adversary proceeding commenced by Black Diamond Commercial Finance, L.L.C. in the Chapter 11 cases of Murray Energy Holdings Co. ("Murray Holdings") and its affiliated debtors and debtors in possession (collectively, the "Debtors"). In the first opinion,¹ the Court granted in part and denied in part the motions to dismiss Black Diamond's amended complaint filed by defendants Murray Holdings, Murray Energy Corporation ("Murray Energy"), GLAS Trust Co. LLC, and U.S. Bank, N.A. (collectively, the "Defendants"). Both sides now seek summary judgment on Black Diamond's remaining claim for relief. The Court concludes that neither Black Diamond nor the Defendants are entitled to summary judgment.

In its prior opinion, the Court dismissed the second and third claims for relief asserted in Black Diamond's three-count amended complaint. See Murray Energy , 616 B.R. at 103. Dismissal was made under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. See id . The Court also dismissed the amended complaint to the extent that Black Diamond sought a declaration that the Term Loan Lenders are the true senior and first lien lenders under the Credit Agreement. See id . That left Black Diamond's request for a declaratory judgment in its First Claim for Relief, which is now the subject of the parties’ competing motions for summary judgment. Black Diamond seeks a judgment declaring that:

(i) the Specified Auction was not a modified Dutch auction; (ii) the Specified Auction violated Section 10.6 of the Credit Agreement; (iii) the Default precipitated by that violation prevented Section 2 of the Third Amendment from becoming effective by its terms; and therefore (iv) the 2018 Transaction was void ab initio .

Plaintiffs’ Motion for Summary Judgment (Doc. 143 at 1–2) (footnote omitted).²

Murray Holdings, Murray Energy and GLAS (collectively, "Murray and GLAS") ask for summary judgment to be declared in their favor on the basis that the Specified Auction was a modified Dutch auction. Doc. 146 at 40.³ Because there is conflicting expert testimony on the question of whether the Specified Auction was a modified Dutch auction as that term is commonly understood in the finance industry, Black Diamond's First Claim for Relief is not ripe for summary judgment.

Murray and GLAS also contend that, even if the Specified Auction was not a modified Dutch auction, they still are entitled to summary judgment because Black Diamond and the Term Loan Lenders engaged in inequitable conduct that bars Black Diamond's claim for a declaratory judgment. For the reasons explained below, the Court concludes—based on the undisputed evidence in the summary judgment record—that neither Black Diamond nor the Term Loan Lenders are guilty of inequitable conduct. The equitable defenses asserted by Murray and GLAS thus fail as a matter of law.

II. Jurisdiction and Constitutional Authority

Jurisdiction is determined at the time of filing of the Amended Complaint. See Bavelis v. Doukas , 835 F. App'x 798, 805 (6th Cir. 2020) (holding that jurisdiction over adversary proceeding was determined as of the time it was commenced). And the Court clearly had subject matter jurisdiction at the time of the filing of the Amended Complaint. The Court's prior opinion adjudicated a core matter in that it made a "determination[ ] of the validity, extent, or priority of liens." 28 U.S.C. § 157(b)(2)(K). See Murray Energy , 616 B.R. at 103 ("[T]o the extent that the Amended Complaint asserts claims for relief that the Term Loan Lenders have priority over the Superpriority Lenders, those claims must be dismissed."). And the First Claim for Relief was a matter related to the Debtors’ bankruptcy cases at the time the Amended Complaint was filed. Related-to jurisdiction over a claim exists if adjudication of the claim "would have a conceivable effect on the administration of the Debtors’ bankruptcy estate." Mich. Emp't Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.) , 930 F.2d 1132, 1142 (6th Cir. 1991) (quoting In re Pacor, Inc. v. Higgins , 743 F.2d 984, 994 (3rd Cir. 1984) ) ("The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."). The First Claim for Relief would have had a conceivable effect on the Debtors’ bankruptcy estates at the time the Amended Complaint was filed because a determination that the 2018 Transaction was void ab initio would have caused the prepetition claims of the Term Loan Lenders to be entitled to pari passu treatment with the prepetition claims of the Superpriority Lenders under the Debtors’ Chapter 11 plan.⁴

Because this matter was a "related to" proceeding at the time the Amended Complaint was filed, the Court has jurisdiction over it and has the authority to finally adjudicate the matter by virtue of the parties’ consent and the District Court's general order of reference. See United States District Court for the Southern District of Ohio, General Order No. 05-02 ("[A]ll cases under ... 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 ... Title 11 of the United States Code shall be referred to the Bankruptcy Judges for this Judicial District ...."), available at https://www.ohsd.uscourts.gov/sites/ohsd/files//05-02% 20Gen% 20Ord% 20Re% 20Bankruptcy% 20Cases.pdf; Highway Equip. Co. v. Alexander Howden Ltd. (In re Highway Equip. Co.) , No. 94-3372, 1995 WL 490125, at *4 & n.6 (6th Cir. Aug. 15, 1995) ("The bankruptcy court noted that ‘[t]his case and proceeding have been referred to this court by the general order of reference of the District Court. This is a non-core proceeding. The parties have, pursuant to 28 U.S.C. § 157(c)(2), consented that the bankruptcy judge hear and determine and enter appropriate orders and judgments, subject to review by appeal."); 28 U.S.C. § 157(c)(2) ("[T]he district court, with the consent of all the parties to the proceeding, may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine and to enter appropriate orders and judgments, subject to review under section 158 of this title.").⁵

Parties may consent to the Court's entry of a final order in a matter related to the bankruptcy case, 28 U.S.C. § 157(c)(2), and the parties have done so here in their joint preliminary pretrial statement. Doc. 75 at 3. In sum, the Court concludes that it has subject matter jurisdiction to hear and determine Black Diamond's First Claim for Relief under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district.

The Court also has the constitutional authority to enter this opinion and order. Parties may consent to the Court's entry of a final order adjudicating this matter, Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015), and they did so here in their joint preliminary pretrial statement.

III. Procedural History

After the Court issued its prior opinion, the Debtors filed a motion to both stay the adversary proceeding and dismiss the Amended Complaint as moot (Doc. 90), and Black Diamond filed a response in opposition to that motion (Doc. 95). Following a hearing, the Court entered an order staying the adversary proceeding "until the earliest of such time as the Court enters an order terminating the stay or the substantial consummation of a chapter 11 plan containing terms consistent with the terms set forth in paragraph 2 of this Order." Doc. 101 at 3. On June 1, 2020, Black Diamond filed a motion to lift the temporary stay (Doc. 107). The Defendants filed an objection to the motion to lift the temporary stay in which they also asked the Court to abstain from hearing the remainder of the adversary proceeding (Doc. 120). The Court determined that it would not abstain, Tr. of August 28, 2020 Hearing (Doc. 133) at 56–57, and it entered an order to that effect (Doc. 122 at 3).

The Court entered an agreed order establishing a pre-trial schedule and providing that the "Defendants shall be deemed to have denied the material factual allegations of the Amended Complaint" and that the "Defendants shall not be required to file an answer to the Amended Complaint and shall not be deemed to have admitted any of the allegations of the Amended Complaint by not doing so." Doc. 139 at 2. The parties then filed an agreed motion to file documents under seal (Doc. 141), and the Court entered an order granting that motion (Doc. 142). The summary judgment motions...