In re Murray Metallurgical Coal Holdings, LLC

Decision Date08 August 2020
Docket NumberCase No. 20-10390
Citation618 B.R. 825
Parties IN RE: MURRAY METALLURGICAL COAL HOLDINGS, LLC, et al., Debtors.
CourtU.S. Bankruptcy Court — Southern District of Ohio

Thomas R Allen, Rick L. Ashton, James A Coutinho, Richard K Stovall, Matthew M Zofchak, Allen Stovall Neuman Fisher & Ashton LLP, Columbus, OH, for Debtor In Possession.

OPINION AND ORDER ON DEBTORS' MOTION TO STRIKE NOTICE OF ELECTION OF BAY POINT CAPITAL PARTNERS II, LP UNDER 11 U.S.C. § 1111(b) (DOC. 561)

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

I. Introduction

This contested matter arises in the Chapter 11 cases of Murray Metallurgical Coal Holdings, LLC ("Met Holdings") and its affiliated debtors and debtors in possession (collectively, the "Debtors"). Bay Point Capital Partners II, LP ("Bay Point") has filed a proof of claim asserting a secured claim in an amount exceeding $13.6 million under an equipment lease with Debtor Murray Oak Grove Coal, LLC ("Murray Oak Grove"). In an adversary proceeding that Murray Oak Grove commenced seeking to recharacterize the equipment lease as a disguised security agreement, Bay Point conceded that the lease is in fact a secured financing arrangement. Bay Point also asserted, and Murray Oak Grove stipulated, that Bay Point has a perfected security interest in certain longwall shields and their fixed electronic controls (the "Collateral"), the value of which establishes the amount of Bay Point's secured claim under § 506(a) of the Bankruptcy Code. The Court concluded in the adversary proceeding that the Collateral's value is $12,682,933, meaning that Bay Point's $13.6 million claim is undersecured.

Seeking to have its claim treated as fully secured, Bay Point filed a notice "elect[ing] the application of 11 U.S.C. § 1111(b)(2) to treat its allowed claim against Murray Oak Grove ... as a fully secured claim." Doc. 479. The Debtors then filed a motion (the "Motion") (Doc. 561) requesting that the Court strike the election. They argue that Bay Point has no right to elect treatment under § 1111(b) because the Debtors' proposed Chapter 11 plan (Doc. 502) (the "Plan") provides for the sale of the Collateral and because § 1111(b) makes the election unavailable if the Collateral is "to be sold under the plan." 11 U.S.C. § 1111(b)(1)(B)(ii).

In its objection to the Motion (the "Objection") (Doc. 574), Bay Point relies on case law holding that a secured creditor may make the § 1111(b) election notwithstanding the sale of the creditor's collateral under a plan if the creditor's right to credit bid on the collateral is not being honored. Obj. at 3–6. And Bay Point takes the position that it had no ability to credit bid on the Collateral because it could not do so without also bidding for substantially all of the assets of Murray Oak Grove. Id. at 8. Bay Point further argues that the proposed sale of substantially all of Murray Oak Grove's assets under the Plan is not a true sale but in reality is a disguised reorganization. Id. at 9. In their reply to the Objection (the "Reply") (Doc. 588), the Debtors dispute this characterization, maintaining that the sale contemplated by the Plan is in fact a true asset sale, not a reorganization masquerading as a sale. Reply at 9–10. They also take issue with Bay Point's reading of § 1111(b) as preserving the right to make the election unless the creditor has the right to credit bid. Id. at 5. Furthermore, the Debtors point out that Bay Point had the right to credit bid on all of Murray Oak Grove's assets, id. at 5–6, and they argue that Bay Point waived any right it had to bid on the Collateral alone without also bidding for Murray Oak Grove's other assets, id. at 7–8.

For the reasons explained below, the Court concludes that the Collateral is being sold under the Plan and that, by entering into an agreed bidding procedures order with the Debtors, Bay Point forfeited any right it otherwise had to make a credit bid for the Collateral separate and apart from Murray Oak Grove's other assets. And based on that forfeiture, Bay Point cannot now argue that it is entitled to make an § 1111(b) election because of the Debtors' purported failure to honor its credit bidding rights. The Debtors accordingly are entitled to the relief requested in the Motion.

II. Jurisdiction and Constitutional Authority

The Court has 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). This is a core proceeding. 28 U.S.C. § 157(b)(2)(A) & (O). Because a dispute over the right to make an election under § 1111(b) "stems from the bankruptcy itself," the Court also has the constitutional authority to enter a final order adjudicating this matter. Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).

III. Background

Met Holdings filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 11, 2020, followed by Murray Oak Grove and the other Debtors on February 12, 2020. The Debtors commenced their cases after entering into a restructuring support agreement (the "RSA") providing for, among other things, the sale of substantially all of the assets of Murray Oak Grove, including the Collateral. Mot. at 3. The RSA also contemplated that the stalking horse bidder for the assets would be formed by MC Southwork LLC and an entity to be identified by Murray Energy Corporation. Id. at 4.

On March 12, 2020, the Debtors filed a motion for approval of bidding procedures for the sale of Murray Oak Grove's assets (the "Bidding Procedures Motion") (Doc. 247). The proposed bidding procedures defined "Qualified Bidder" to mean a bidder who, among other things, "demonstrates the financial capability to consummate the Sale," Bidding Procedures Mot., Ex. 1 to Ex. A at 6, and "Sale" was defined to mean a sale "of substantially all of the assets of Murray Oak Grove," Bidding Procedures Mot. at 1–2. The proposed bidding procedures order further provided that credit bids could be made by "[a]ny Qualified Bidder who has a valid and perfected lien on any Assets." Bidding Procedures Mot., Ex. A ¶ 12. Thus, Bay Point rightly read the Bidding Procedures Motion to mean that only a bidder for substantially all of the assets of Murray Oak Grove could be a Qualified Bidder and that only Qualified Bidders could credit bid.

In its response to the Bidding Procedures Motion (the "Bidding Procedures Response") (Doc. 350), Bay Point argued that the Court should approve the proposed bidding procedures only if the Debtors addressed five issues. First, it asked that the Debtors "be required to provide evidence that the procedures and timeline they have proposed will promote a competitive and robust bid process." Bidding Procedures Resp. at 3. Second, Bay Point requested that the Debtors be required to accept joint bids, to permit bidders to communicate about possible joint bids, and to recognize the rights of secured parties participating in joint bids to credit bid their secured claims. Id. at 3–4. Third, it argued that the Debtors should be required to disclose to Bay Point and other secured creditors the identity of prospective purchasers. Id. at 4. Fourth, it requested that the parties entitled to attend the auction be expanded to include Bay Point and its advisors. Id. And fifth, Bay Point sought clarification regarding the deadline to object to the successful bid while also asking that objections to the ability of the successful bidder to provide adequate assurance of future performance of assigned contracts not be due until after the successful bidder was identified. Id. at 4–5.

Following negotiations over the Bidding Procedures Motion, on April 13, 2020, the Court entered an agreed order approving bidding procedures for the assets of Murray Oak Grove (the "Agreed Bidding Procedures Order") (Doc. 394). The Agreed Bidding Procedures Order approved bidding procedures providing that joint bids that otherwise satisfied the requirements for a Qualified Bid would be considered by the Debtors and that secured parties participating in joint bids would be permitted to credit bid their secured claims. Agreed Bidding Procedures Order, Ex. 1 at 4, 11. Bay Point signed on to the Agreed Bidding Procedures Order, which provided that the bidding procedures "are fair, reasonable and appropriate and represent the best available method for maximizing value for the benefit of the Debtors' estates." Id. at 4.

After an auction held on May 5, 2020, the Debtors designated Hatfield Metallurgical Coal Holdings, LLC ("Hatfield")—the stalking horse bidder formed by MC Southwork LLC and Murray Energy Corporation—as the successful bidder. Doc. 455 (Notice of Designation of Successful Bid and Backup Bid for Oak Grove Assets). The sale of Murray Oak Grove's assets will be made under the Plan. Plan at 34–35.

IV. Legal Analysis
A. The Collateral Is Being Sold Under the Plan.

The Bankruptcy Code affords an undersecured creditor the right to elect to have its entire claim treated as secured. 11 U.S.C. § 1111(b)(2). The election, however, is unavailable if the property securing the claim "is sold under section 363 of [the Bankruptcy Code] or is to be sold under the plan." 11 U.S.C. § 1111(b)(1)(B)(ii). Bay Point attempts to negate the import of this provision by arguing that "the transaction embodied in the Debtors' Plan, although denominated as a sale, is really a reorganization, with the assets being transferred to a new entity owned by Murray Energy Corporation and the Debtors' principal prepetition secured lender, MC Southwork LLC." Obj. at 9. It bases this argument on language in the retention application of the Debtors' investment banker, Evercore Group L.L.C., pointing specifically to Evercore's statement in the application that the "Debtors intend to effectuate a reorganization of their remaining operations, which is premised on the continued and future operation of the Oak Grove mining complex,...

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2 cases
  • In re Murray Metallurgical Coal Holdings, LLC
    • United States
    • U.S. Bankruptcy Court — Southern District of Ohio
    • January 11, 2021
    ...a credit bid for the Shields separate and apart from Murray Oak Grove's other assets. See In re Murray Metallurgical Coal Holdings, LLC , 618 B.R. 825 (Bankr. S.D. Ohio 2020). And based on that forfeiture, the Court found that Bay Point also had forfeited its right to argue that it was enti......
  • In re Midtown Dev.
    • United States
    • U.S. Bankruptcy Court — Northern District of Iowa
    • August 1, 2023
    ...all the assets, then it should not have signed on to the Agreed Bidding Procedures Order." Id. at 830, 832. OSK argues that Murray Metallurgical does not control because OSK never agreed to the auction procedure that was actually used, which prevented OSK from exercising its right to credit......

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