In re Pegasus Gold Corp.
| Decision Date | 29 March 2002 |
| Docket Number | Adversary No. 00-3070.,Bankruptcy No. 98-30088. |
| Citation | 275 B.R. 902 |
| Parties | In re PEGASUS GOLD CORPORATION, Debtor. Harrison J. Goldin, in his capacity as Liquidating Trustee for the Pegasus Gold Corporation Liquidating Trust, and Reclamation Services Corporation, Plaintiffs, v. The State of Montana; the State of Montana Department of Environmental Quality; the State of Montana Department of Administration, Risk Management Division; the Attorney General of the State of Montana; Spectrum Engineering, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Nevada |
Armstrong-Miller, LLP, Sally B. Armstrong, Edmond" Buddy" Miller, Reno, NV, Doney, Crowley, Bloomquist & Uda, P.C., Michael J. Uda, Helena, MT, Mayer, Brown & Platt, Michael P. Richman, David M. Hillman, New York City, for Plaintiffs.
Timothy A. Lukas, Robert C. Vohl, Hale, Lane, Peek, Dennison, Howard and Anderson, Reno, NV, Michael F. McMahon, Hughes, Kellner, Sullivan & Alke, Helena, MT, G. Martin Tuttle, Special Ass't Attorney General, Montana Department of Environmental Quality, Helena, MT, Clay Smith, Ed Nolde, Assistant Attorney General, Office of the Attorney General, Helena, MT, for Defendants.
ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS AMENDED COMPLAINT
The State of Montana, State of Montana Department of Environmental Quality, State of Montana Department of Administration, Risk Management Division, the Attorney General of the State of Montana ("Montana Defendants"), and Spectrum Engineering, Inc. ("Spectrum") (or collectively "Defendants") filed Motions to Dismiss Plaintiffs' Adversary Complaint that was filed March 7, 2000, by plaintiffs Harrison Goldin, Liquidating Trustee for the Pegasus Gold Corporation Liquidating Trust ("PGC Trustee") and Reclamation Services Corporation ("RSC") (or collectively " Plaintiffs"). An Amended Complaint was filed June 30, 2000, pursuant to which the only remaining Montana Defendants were the State of Montana and the Montana Department of Environmental Quality ("DEQ"). Appearing on behalf of Plaintiffs were Michael Richman, Esq., and David Hillman, Esq., of Mayer, Brown & Platt, and Edmond Miller, Esq., of Armstrong Miller. Appearing on behalf of Defendants were Montana Solicitor General Clay Smith, Esq., and Timothy Lukas, Esq., of Hale, Lane, Peek, Dennison, Howard and Anderson.
Plaintiffs seek to recover compensatory and punitive damages from Defendants for the alleged breach of various agreements and plan of reorganization provisions regarding reclamation and water treatment issues. Defendants' motions challenge Plaintiffs' jurisdictional basis for bringing the Adversary Proceeding in the Nevada bankruptcy court on Eleventh Amendment and other grounds.
Following the filing of opposing, reply and supplemental memoranda of points and authorities, declarations and exhibits, the court conducted a hearing on October 2, 2000. While under advisement, the court and the parties knew of cases that had just been decided at various levels of the federal judicial system that involved the significant issues raised by Defendants' motions. Subsequent to oral argument, the parties submitted additional memoranda of law regarding decisions by trial courts, district court appeals, and circuit courts that dealt squarely with the issues before this court. Specifically, in In re Lazar, 237 F.3d 967 (9th Cir.2001), certiorari was requested. Since the rationale and holding of that opinion were critical to the analysis in this case, this court waited to see how the U.S. Supreme Court would treat In re Lazar. Certiorari was denied on October 29, 2001.
On January 16, 1998, PGC and eighteen of its affiliates (collectively "Debtors") commenced voluntary Chapter 11 proceedings. As part of the bankruptcy cases, the DEQ filed certain proofs of claim against Debtors. The DEQ was a very active and principal participant throughout the course of the bankruptcy proceedings, including objecting to Debtors' disclosure statement and participating in numerous evidentiary hearings and arguments regarding various complex settlements and, ultimately, Debtors' plans of reorganization.
Debtors and the DEQ participated extensively in the lengthy and extensive negotiations regarding the financial responsibility for reclamation and water treatment work at two mines in Montana ("Zortman Sites"). These negotiations involved not only Debtors and the DEQ, but the Official Committee of Unsecured Creditors, the various surety entities, the United States Department of Justice and other parties in interest. The negotiations involved both judicial and non-judicial settlement conferences, objections to the proposed disclosure statement and amendments thereto, negotiations with sureties, and objections to and active participation in the plan confirmation process. After months of exhaustive negotiations, Debtors and the DEQ reached an agreement ("Zortman Agreement"), which was approved by this court on December 22, 1998, shortly before the Second Amended Joint Liquidation Plan of Reorganization of Pegasus Gold Corporation et al ("Plan") was confirmed on December 28, 1998.
The Zortman Agreement and Plan provide that Debtors would create a new entity, Reclamation Services Corp. ("RSC"), which would use Debtors' employees to perform the reclamation and water treatment services at the Zortman Sites on an interim basis after plan confirmation. RSC was formed pre-confirmation on December 17, 1998, and was specifically incorporated into the Plan. The use of RSC for the interim reclamation and water treatment work was to benefit the overall Plan goal of maintaining employment of Debtors' employees and thus maximizing the possibility of creditor recovery. As part of the agreement, the DEQ required that Debtors and the Official Committee of Unsecured Creditors pay the DEQ $1,050,000 to fund the interim work. The DEQ also made it clear that it would submit the work out for a competitive bid, for which RSC would have the opportunity to compete.
Though the exact length of the interim period was never firmly established, in reality it was short. By mid-June 1999, less than six months after Plan confirmation, billing disputes began to arise and on June 24, 1999, the DEQ terminated RSC and hired a new company, Spectrum, to perform the reclamation work. RSC went out of business shortly thereafter.
Plaintiffs commenced this adversary proceeding on March 7, 2000, and the Amended Complaint alleges eleven claims for relief ("Claims"), including, breach of the Plan and related agreements; breach of the covenant of good faith and fair dealing; fraud in the inducement; unjust enrichment; estoppel; tortious interference with third party relations; intentional interference with prospective economic advantage; conversion; and defamation. Defendants seek to dismiss the complaint pursuant to Fed. R. Bankr.P. 7012(b)(1) and (6), which incorporate Fed.R.Civ.P. 12(b)(1) and (6), contending this court no longer has subject matter jurisdiction, that the DEQ is protected by sovereign immunity under the Eleventh Amendment to the U.S. Constitution and that the allegations have not been pleaded with particularity as required by Fed. R. Bankr.P. 7009(b).
Defendants argue this court does not have jurisdiction over the claims asserted by RSC on the basis that once the Plan was confirmed, this court was divested of subject matter jurisdiction and that any jurisdictional powers this court may yet retain are inapplicable to the claims of RSC. Spectrum further contends that since all of Spectrum's alleged misconduct occurred post-confirmation, Spectrum has no relationship with this bankruptcy case whatsoever. Both defendants argue that RSC's claims do not fall under the "related to" jurisdiction afforded to bankruptcy courts by 28 U.S.C. § 1334(b), and that the supplemental jurisdiction provided for in 28 U.S.C. § 1367 may not be employed by a bankruptcy court.
RSC argues this court has jurisdiction over Claims One and Two as either "arising under" or "related to" the bankruptcy case under § 1334(b) and § 157(b)(2); over Claims Three through Eight by its "related to" jurisdiction; and over Claims Nine through Eleven pursuant to § 1367 supplemental jurisdiction.
"The jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in, and limited by, statute." Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995); see also Falise v. American Tobacco Co., 241 B.R. 48, 56 (E.D.N.Y.1999). This court's subject matter jurisdiction is governed by 28 U.S.C. § 1334. Section 1334(b) grants jurisdiction to the district court over three broad types of bankruptcy-related proceedings: (1) those "arising under" Title 11; (2) those "arising in" a bankruptcy case; and (3) those "related to" a bankruptcy case. This jurisdiction can be referred to the bankruptcy court under 28 U.S.C. § 157(a), which states that "[e]ach district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." The District Court of Nevada has referred to this court its jurisdiction under § 1334, as provided by LR 1001(b)(2).
RSC asserts this court has jurisdiction over its first and second claims for relief because they require resolution of matters "arising in" bankruptcy or, in the alternative, because the claims are "related to" the bankruptcy case. Because this court has at least "related to" jurisdiction over Claims One through Eight, it is not necessary to determine whether or not claims One and Two are matters "arising in" bankruptcy....
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...prevent interference with the execution of a plan and to otherwise aid in a plan's operation and compliance." In re Pegasus Gold Corporation, 275 B.R. 902, 911 (Bankr.D.Nev.2002)(citing Falise v. American Tobacco Co. 241 B.R. 48, 57 Accordingly: IT IS ORDERED that: 1. The Motion of Traveler......