In re Alpha Natural Res., Inc.

• Decision Date: 29 August 2016
• Docket Number: Case No. 15-33896-KRH (Jointly Administered)
• Citation: 556 B.R. 249
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re: Alpha Natural Resources, Inc., et al., Debtors.

556 B.R. 249

In re: Alpha Natural Resources, Inc., et al., Debtors.

Case No. 15-33896-KRH (Jointly Administered)

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

Signed August 29, 2016

Carl E. Black, David G Heiman, Thomas A. Wilson, Jones Day, Cleveland, OH, Tyler P. Brown, Shannon Eileen Daily, Nathan Kramer, Henry Pollard Long, III, Justin F. Paget, Hunton & Williams LLP, Richmond, VA, Jeffrey B. Ellman, Jones Day, Atlanta, GA, Robert W. Hamilton, Jones Day, Columbus, OH, for Debtors.

MEMORANDUM OPINION

Kevin R. Huennekens

, UNITED STATES BANKRUPTCY JUDGE

On August 3, 2015 (the “Petition Date”), Alpha Natural Resources, Inc., and 149¹ of its direct and indirect subsidiaries (the “Debtors”) commenced these bankruptcy cases by each filing a separate voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia.² On August 5, 2015, the Court entered an order authorizing the joint administration of these chapter 11 cases (collectively, the “Bankruptcy Case”).³ On June 2, 2016, following the Court's approval of a disclosure statement in accordance with § 1125 of the Bankruptcy Code

, the Debtors filed solicitation versions of their proposed Second Amended Joint Plan of Reorganization of Debtors and Debtors in Possession (the “Second Amended Plan”) and Second Amended Disclosure Statement .

An evidentiary hearing was conducted on July 7, 2016, to consider confirmation of the Second Amended Plan and approximately 28 objections that had been filed thereto (the “Confirmation Hearing”). The Debtors' Second Amended Plan was universally accepted in accordance with § 1126(c) of the Bankruptcy Code

by all the impaired creditor classes that were entitled to vote.⁴ Class 2 voted to accept the plan—100% in both amount and number.⁵ Class 3 voted to accept the Plan—91% in number and 96% in amount. Class 4 voted to accept the Plan—92% in number and 99% in amount. Class 6A voted to accept the Plan—81% in number and 68% in amount. Class 6B voted to accept the Plan—90% in number and 95% in amount. Finally, Class 6C also voted to accept the Plan—90% in number and 83% in amount.⁶ The Court found that it could confirm the Second Amended Plan under § 1129(b) of the Bankruptcy Code, as it did not “discriminate unfairly” and was “fair and equitable” with respect to the members of Classes 7, 8, 9 and 10 that were deemed to have rejected the Second Amended Plan.⁷ By order entered July 12, 2016 (the “Confirmation Order”), the Court confirmed the Second Amended Plan, as modified (the “Plan”).⁸

Before the Court is the motion of Mar-Bow Value Partners LLC (“Mar-Bow”) asking the Court to stay the effectiveness of the Confirmation Order (the “Motion”). Mar Bow had filed a substantive objection to the confirmation of the Plan on June 29, 2016 (“Mar-Bow's Plan Objection”). The Court overruled Mar-Bow's objection at the Confirmation Hearing. Mar-Bow contends that the Court erred in approving certain release and exculpation provisions in the Confirmation Order with respect to McKinsey Recovery & Transformation Services U.S., LLC (“McKinsey RTS”) in contravention of law and public policy. Mar-Bow now seeks to have the Confirmation Order stayed solely as to the application of the Plan's exculpation and release provisions to McKinsey RTS, pending the adjudication of Mar-Bow's appeal, Case No. 3:16–cv–00613–MHL (the “Appeal”), which is currently pending before the United States District Court for the Eastern District of Virginia (the “District Court”).⁹

Bankruptcy Rule 8007(a) requires parties moving for “a stay of a judgment, order, or decree of the bankruptcy court pending appeal” to move first for such relief in the bankruptcy court. Fed. R. Bankr. P. 8007(a)

. The United States Court of Appeals for the Fourth Circuit has articulated a four-part test to determine whether a motion for stay pending appeal should be granted:

[A] party seeking a stay must show (1) that he will likely prevail on the merits of the appeal, (2) that he will suffer irreparable injury if the stay is denied, (3) that other parties will not be substantially harmed by the stay, and (4) that the public interest will be served by granting the stay.

Long v. Robinson, 432 F.2d 977, 979 (4th Cir.1970)

.

A hearing was conducted on August 25, 2016, to consider Mar-Bow's Motion. Cognizant of the many competing interests in this case, the Court was reluctant to do anything that would disturb the Debtor's Plan, which was predicated on a web of hard fought interconnected settlements. At the conclusion of the hearing, the Court announced that it would deny Mar-Bow's Motion finding that Mar-Bow had failed to satisfy a single element of the four-part test. This Memorandum Opinion sets forth the Court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure

.¹⁰ .

Jurisdiction and Venue

The Court has subject matter jurisdiction over these matters pursuant to 28 U.S.C. §§ 157

and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (L), (O). Venue is appropriate in this Court pursuant to 28 U.S.C. § 1408.

Factual Background

The Debtors are one of the largest domestic producers of coal in the United States. At their height, the Debtors operated 145 mines and employed approximately 14,500 individuals with over $7 billion in annual revenue. As of the Petition Date, the Debtors employed almost 8,000 individuals, had assets totaling $10.1 billion and liabilities of $7.1 billion.¹¹

To assist the Debtors in the reorganization of their business affairs, the Debtors filed an application to employ McKinsey RTS as its turnaround advisor. McKinsey RTS is an affiliate of McKinsey & Company, Inc. (“McKinsey & Company”) a global consulting firm. The Debtors sought to engage McKinsey RTS to support their management team's development of a business plan that would improve the Debtors' financial performance and optimize the Debtors' business operations. The Debtors also sought to engage McKinsey RTS to analyze the Debtors' position in the domestic coal markets. In support of McKinsey RTS' employment application, the Debtors filed the declaration of Kevin Carmody (“Carmody”), a practice leader at McKinsey RTS (the “First Declaration”).

The First Declaration sets forth bases for a finding that McKinsey was a “disinterested party” under § 101(14) of the Bankruptcy Code

and therefore eligible to be employed under § 327 of the Bankruptcy Code. In accordance with Bankruptcy Rule 2014, the First Declaration disclosed a number of connections McKinsey RTS had to interested parties¹² in the Debtors' Bankruptcy Case that were unrelated to their representation of the Debtors. McKinsey RTS chose to disclose its connections not on an individual basis but instead by category of interested party (e.g. “Material Sureties,” “Revolving Facility Lenders,” “Lenders Under A/R Facility,” Major Competitors, Major Unsecured Note holders, Major Customers, etc.).

The First Declaration detailed the process that McKinsey RTS employed to detect potential conflicts among its own clients and among the clients of McKinsey & Company as a whole. McKinsey & Company began its conflict check by cross-referencing the Interested Parties List with McKinsey & Company's global database of clients—which included clients of McKinsey RTS as well as any other McKinsey affiliate. If McKinsey & Company provided services to an entity included on the Interested Parties List or to an entity potentially adverse to any listed entity, McKinsey RTS sent a follow up email to determine the nature of the relationship McKinsey & Company had with the interested party. McKinsey RTS also sent an email to all of the employees of McKinsey RTS and all of its affiliates to determine if any employee had a relationship to the Debtors, the United States Trustee, this Court, or an equity ownership in the Debtors. The First Declaration represents that McKinsey RTS would continue to review its client files in order to ensure no disqualifying conflicts arose during the pendency of the case and that it would make supplemental disclosures as necessary to comply with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. Based on its conflict check, Carmody declared in the First Declaration that he believed McKinsey RTS to be disinterested as defined by § 101(14) of the Bankruptcy Code

and eligible to be employed. No party objected to the employment of McKinsey RTS, or requested the opportunity to cross-examine Carmody based on the First Declaration. By order entered September 17, 2015, the Court found McKinsey RTS was disinterested within the meaning of Bankruptcy Code section 101(14) and authorized the Debtors to retain McKinsey RTS pursuant to the terms of the engagement letter attached to the Debtors' application (the “McKinsey RTS Retention Order”). The McKinsey RTS Retention Order has continuously remained in full force and effect through confirmation of the Debtors' Plan on July 12, 2016.

McKinsey RTS made three additional public disclosures after the disclosures set forth in its First Declaration. On November 9, 2015, McKinsey RTS filed its first supplemental disclosure (the “First Supplemental Disclosure”). The First Supplemental Disclosure identified additional connections that McKinsey RTS had with other entities on the Interested Parties List. The additional connections were once again disclosed not on an individual basis but instead by category. On March 25, 2016, McKinsey RTS filed with the Court its second supplemental declaration (the “Second Supplemental Disclosure”). The Second Declaration disclosed additional connections that McKinsey RTS had with other interested parties. Like the First Declaration and First Supplemental Disclosure, the Second Supplemental Declaration did...