Mar-Bow Value Partners, LLC v. McKinsey Recovery & Transformation Servs. U.S., LLC

• Decision Date: 25 June 2020
• Docket Number: Civil No. 3:19cv552 (DJN)
• Citation: 469 F.Supp.3d 505
• Court: U.S. District Court — Eastern District of Virginia
• Parties: MAR-BOW VALUE PARTNERS, LLC, Appellant, v. MCKINSEY RECOVERY & TRANSFORMATION SERVICES U.S., LLC, et al., Appellees.

469 F.Supp.3d 505

MAR-BOW VALUE PARTNERS, LLC, Appellant,

v.MCKINSEY RECOVERY & TRANSFORMATION SERVICES U.S., LLC, et al., Appellees.

Civil No. 3:19cv552 (DJN)

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

Signed June 25, 2020

David Richard Ruby, William Daniel Prince, IV, Thompson McMullan PC, Richmond, VA, Judith Klaswick Fitzgerald, Pro Hac Vice, Tucker Arensberg PC, Pittsburgh, PA, Justin James Henderson, Pro Hac Vice, Susan Maud Freeman, Pro Hac Vice, Lewis Roca Rothgerber Christie LLP, Phoenix, AZ, Sheldon Samuel Toll, Pro Hac Vice, Law Office of Sheldon S. Toll PLLC, Southfield, MI, for Appellant.

Christopher Lawrence Perkins, LeClairRyan PLLC, Richmond, VA, Roy Theodore Englert, Jr., Pro Hac Vice, Robbins Russell Englert Orseck Untereiner & Sauber LLP, Washington, DC, for Appellee McKinsey Recovery & Transformation Services U.S., LLC.

Tyler Perry Brown, Hunton Andrews Kurth LLP, Richmond, VA, for Appellee Old ANR, LLC.

Robert Breen Van Arsdale, Office of the U.S. Trustee, Richmond, VA, for Appellee Office of the U.S. Trustee.

MEMORANDUM OPINION

David J. Novak, United States District Judge This matter comes before the Court on Appellant Mar-Bow Value Partners, LLC's ("Mar-Bow") appeal from several orders of the United States Bankruptcy Court for the Eastern District of Virginia (the "Bankruptcy Court"). (ECF No. 1.) The orders from which Mar-Bow seeks relief through its Rule 60(d) Motion have little to do with the merits of the bankruptcy action itself and more to do with Mar-Bow's objections to the required disclosures of its competitor, McKinsey Recovery & Transformation Services U.S., LLC ("McKinsey").¹ Before Mar-Bow filed the instant Rule 60(d) Motion, the Bankruptcy Court had previously rejected Mar-Bow's objections, this Court had dismissed Mar-Bow's appeals of the Bankruptcy Court's rejections for lack of bankruptcy appellate standing, the Fourth Circuit affirmed this Court's dismissal of those appeals, and the United States Supreme Court denied certiorari. Undeterred, Mar-Bow asked the Bankruptcy Court to revisit those decisions in its Rule 60(d) Motion. The Bankruptcy Court denied Mar-Bow's Rule 60(d) Motion for lack of standing, and Mar-Bow has filed the instant appeal. However, a party must qualify as a "person aggrieved" to appeal a bankruptcy order, meaning that it has a pecuniary interest in the outcome of the appeal. But, like Mar-Bow's previous appeals, Mar-Bow has no pecuniary interest in the outcome of this appeal and, therefore, lacks bankruptcy appellate standing. Accordingly, Mar-Bow's appeal will be dismissed.

I. BACKGROUND

This appeal arises out of a chapter 11 bankruptcy, but the underlying disputes stem from Mar-Bow's objections to McKinsey's compliance with Federal Rule of Bankruptcy Procedure 2014. Federal Rule of Bankruptcy Procedure 2014(a) requires that any application for employment of professionals:

be accompanied by a verified statement of the person to be employed setting forth the person's connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee.

Fed. R. Bankr. P. 2014(a).

From the time that it bought its way into the bankruptcy proceedings, Mar-Bow has objected strenuously to McKinsey's Rule 2014 disclosures. The parties have litigated Mar-Bow's objections in various procedural postures. Accordingly, the Court need not provide substantial detail regarding the parties and the underlying bankruptcy case. However, the history with respect to the litigation of Mar-Bow's objections — and the arguments raised and rejected at each stage — warrants a more detailed review.

A. The Relevant Parties

On August 3, 2015, Alpha Natural Resources, Inc. ("ANR") and 149 direct and indirect subsidiaries (collectively, the "Debtors") each filed voluntary petitions under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the Bankruptcy Court, which the Bankruptcy Court consolidated into the Bankruptcy Case. (App. 133-34.) The Debtors operate as one of the largest suppliers of coal in the United States. The Debtors sought and obtained approval to obtain McKinsey as their turnaround advisor. (App. 134; (("Retention Order") (Bankr. ECF No. 476) at 2).) McKinsey advises struggling businesses on how to improve their profitability and helps businesses implement the changes that it suggests. No party timely objected to the employment of McKinsey and the Retention Order, entered on September 17, 2015, became a final order. (App. 134.)

Jay Alix beneficially owns and funds Mar-Bow. (App. 134.) Jay Alix also founded AlixPartners, a worldwide consulting firm that competes with McKinsey in the turnaround consulting business. (Id. ) Mar-Bow has similarly purchased claims in other bankruptcy proceedings and objected to McKinsey's disclosures.² On March 23, 2016, Mar-Bow entered the Bankruptcy Case by filing a proof of claim in the amount of "$1.25 million of ANR 7.5% second lien notes, due August 1, 2020." (App. 134.) Upon purchasing the debt, Mar-Bow held 0.025% of the Debtors’ pre-petition debt. (App. 146.)

B. The Underlying Bankruptcy Case

On August 3, 2015, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, which allows for reorganization of a bankruptcy estate. (App. 133-34.) For procedural purposes only, the Bankruptcy Court consolidated all of the petitions into a single chapter 11 bankruptcy action. (Id. )

On August 25, 2015, the Debtors filed an application requesting permission to employ McKinsey "as their turnaround advisor ... to assist the Debtors with the development and refinement of their strategic business plan." (the "Retention Application" (App. 1244).) As turnaround advisor, McKinsey served to help the Debtors save money and become more profitable, which would increase the bankruptcy estate and the recovery for the Debtors’ creditors. (App. 1246.) The Debtors attached to their Retention Application an Amended and Restated Agreement (the "Engagement Letter" (App. 1262)), detailing the proposed terms of McKinsey's employment as turnaround advisor and the proposed fee arrangement. The Debtors requested approval of McKinsey's employment as of August 3, 2015 (the date that the Debtors filed for bankruptcy), because McKinsey began working with the Debtors on June 29, 2015, before the Debtors filed for bankruptcy. (App. 1244-61.)

The Debtors attached the first set of McKinsey's Rule 2014 disclosures to the Retention Application, including a "Disclosure Regarding Disinterestedness." (App. 1282-90.) The disclosure explained the process McKinsey used to identify any connections it had with the Debtors, the United States Trustee and the Bankruptcy Court, and any parties on the interested parties list (the "Interested Parties"). (Id. ) It also outlined McKinsey's connections with the Interested Parties. (Id. )

No party opposed the Retention Application. (App. 134.) After reviewing McKinsey's Rule 2014 disclosures, the Bankruptcy Court found that McKinsey qualified as "a ‘disinterested person’ as such term is defined under section 101(14) of the Bankruptcy Code." (Retention Order at 2.) On September 17, 2015, the Bankruptcy Court granted the Retention Application and authorized the Debtors to retain McKinsey as turnaround advisor on the terms in the Engagement Letter. (Id. ) On November 9, 2015 and March 25, 2016, before any objections had been lodged to its initial disclosures, McKinsey filed subsequent Rule 2014 disclosures to provide additional information. Mar-Bow Value Partners, LLC v. McKinsey Recovery & Transformation Services US, LLC , 578 B.R. 325, 333 (E.D. Va. Sep. 30, 2017) (" Mar-Bow I "). In these supplemental disclosures, McKinsey swore that it continued to monitor the Interested Parties List against its own client records. ( Id. )

On May 25, 2016, the Debtors filed the Second Amended Joint Plan of Reorganization of Debtors and Debtors in Possession (the "Plan"). 578 B.R. at 339. On June 29, 2016, Mar-Bow filed its objection to the Plan. (App. 2114). Specifically, Mar-Bow objected to the Plan based on its contentions that McKinsey's disclosures did not comply with Rule 2014. (App. 2117.) It also objected to the provisions of the Plan releasing McKinsey from liability for actions taken in connection with the restructuring, "given that McKinsey has not disclosed all of its connections as required by Rule 2014." ( Id. ) Mar-Bow did not object to the classification or treatment of its own claim.

On July 7, 2016, the Bankruptcy Court held a four-and-a-half-hour long evidentiary hearing on the Plan. (App. 2145-2381; 578 B.R. at 340.) During this hearing, the Bankruptcy Court heard argument on Mar-Bow's objection to the Plan. ( Id. ) On July 12, 2016, following a lengthy evidentiary hearing, the Bankruptcy Court entered an Order confirming the Plan. (App. 2382.) The Plan "incorporated a delicate balance of interrelated settlements involving numerous parties." (App. 135.) All impaired creditor classes entitled to vote, including the class that contained Mar-Bow's claim, universally accepted the Plan in accordance with section 1126(c) of the Bankruptcy Code. ( Id. ) Under the Plan, Mar-Bow had the right to elect to have its Claim classified in either Class 3 or Class 6B. ( Id. ) Mar-Bow declined to exercise its right to participate in Class 3 and, as such, remained a Class 6B claimant. ( Id. ) As of confirmation, Mar-Bow's recovery under the Plan became fixed. ( Id. ) To the extent that any excess cash enters the bankruptcy estate in the future, the Plan provides for that money to be distributed to the holders of "Allowed Secured First Lien Lender Claims." ( Id. ) In no event will Class 6B claims be entitled to any such funds that enter the estate. ( Id. ) Indeed, each Class 6B claimant has "received its full and final distribution in accordance with the Plan." ( Id. )...