Mesabi Metallics Co. v. B. Riley FBR, Inc. (In re Essar Steel Minn., LLC)

• Decision Date: 25 August 2022
• Docket Number: 20-3002
• Citation: 47 F.4th 193
• Parties: IN RE: ESSAR STEEL MINNESOTA, LLC; ESML Holdings, Inc., Debtors Mesabi Metallics Company, LLC, F/K/A Essar Steel Minnesota, LLC; Chippewa Capital Partners, LLC, Appellants v. B. Riley FBR, Inc., F/K/A B. Riley & Co., LLC
• Court: U.S. Court of Appeals — Third Circuit

47 F.4th 193

IN RE: ESSAR STEEL MINNESOTA, LLC; ESML Holdings, Inc., DebtorsMesabi Metallics Company, LLC, F/K/A Essar Steel Minnesota, LLC; Chippewa Capital Partners, LLC, Appellants

v.B. Riley FBR, Inc., F/K/A B. Riley & Co., LLC

No. 20-3002

United States Court of Appeals, Third Circuit.

Argued September 29, 2021

Opinion filed: August 25, 2022

Jeffrey M. Schlerf, Gray Robinson, 1007 North Orange Street, 4th Floor, Suite 1278, Wilmington, DE 19801, Counsel for Debtor

Joshua A. Berman (Argued), White & Case, 1221 Avenue of the Americas, New York, NY 10020, Jeffrey M. Schlerf, Gray Robinson, 1007 North Orange Street, 4th Floor, Suite 1278, Wilmington, DE 19801, Counsel for Appellant

G. David Dean, Katherine M. Devanney, Andrew J. Roth-Moore, Cole Schotz, 500 Delaware Avenue, Suite 1410, Wilmington, DE 19801, Counsel for Appellee

Joseph M. Pastore, III (Argued), Pastore & Dailey, 100 Summit Lake Drive, Suite 120, Valhalla, NY 06905, Counsel for Appellee

Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge

The scope of a bankruptcy court's jurisdiction narrows after the confirmation of a debtor's restructuring plan. Parties thus often dispute whether bankruptcy jurisdiction extends to their post-confirmation proceedings.

We review such an issue here, where the Delaware Bankruptcy Court dismissed for lack of jurisdiction an adversary proceeding asking it to interpret and enforce a discharge injunction issued in its prior restructuring plan and confirmation order. For the reasons below, we hold that the Bankruptcy Court had jurisdiction over the adversary proceeding, and so reverse its decision and remand for further proceedings.

I. BACKGROUND

A. The Essar Steel/ESML Bankruptcy

ESML Holdings Inc. and Essar Steel Minnesota LLC (together with their debtor-affiliates, "ESML") filed for Chapter 11 bankruptcy in the District of Delaware in July 2016. In re ESML Holdings Inc. , No. 16-11626, ECF No. 1 (Bankr. D. Del. July 8, 2016). Nearly a year later, the Bankruptcy Court confirmed ESML's bankruptcy plan of reorganization. Chippewa Capital Partners, LLC ("Chippewa"), as the plan's sponsor, funded ESML's exit from bankruptcy. Of relevance here, the plan and confirmation order (1) discharged all claims against ESML arising before the plan's effective date and (2) enjoined actions against ESML and Chippewa by holders of those claims. The Court retained jurisdiction over "any matter (a) arising under the Bankruptcy Code, (b) arising in or related to the Chapter 11 [c]ases or the [p]lan, or (c) that relates to" various other matters stemming from the plan or its confirmation order. J.A. at 103–05; see also J.A. at 204. The plan became effective on December 22, 2017, at which time ESML emerged from bankruptcy as Mesabi Metallics Company LLC ("Reorganized Mesabi").

B. The Engagement Agreement with B. Riley

During the bankruptcy case, Chippewa sought to acquire ESML. Its affiliate, ERP Iron Ore ("ERPI"), agreed to engage B. Riley & Co., LLC (now known as B. Riley FBR, Inc.) as its exclusive financial advisor to assist the "Company" (defined as ERPI and its affiliates) with the acquisition; B. Riley would receive a "Restructuring Transaction Fee" if ERPI successfully acquired ESML. The parties later amended the agreement to stipulate, among other things, that B. Riley would "provide additional financial advisory services to the Company" in connection with a financing transaction for which B. Riley would receive a success fee of 3–5% on consummation of certain debt financing transactions.¹ J.A. at 342–43.

On December 21, 2017—a day before the plan's effective date—B. Riley, ERPI, and Chippewa entered a second amendment (as so amended, the "Engagement Agreement"). Most relevant here, that amendment purported to bind ERPI, Chippewa, and the post-effective date Reorganized Mesabi.²

C. The Fee Dispute and Ensuing Litigation

After a debt financing transaction closed in June 2018, B. Riley sought payment from Chippewa and Reorganized Mesabi (for ease of reference, they are jointly referred to hereafter as simply "Mesabi") of more than $16 million as a success fee under the Engagement Agreement. When Mesabi refused to pay, B. Riley brought two actions to collect: (1) a lawsuit in the United States District Court for the District of Minnesota, see B. Riley FBR, Inc. v. Chippewa Cap. Partners LLC , No. 18-cv-2575 (D. Minn.); and (2) an arbitration filed with the Financial Industry Regulatory Authority ("FINRA").³

In response, Mesabi filed in the Bankruptcy Court an adversary complaint for civil contempt, declaratory judgment, and breach of the plan, maintaining the fee had been discharged by the plan and its confirmation order, and B. Riley's actions to collect violated that order. B. Riley moved to dismiss the adversary proceeding, contending, among other things, that its claim was not a pre-effective date claim enjoined by the plan and confirmation order. Mesabi opposed dismissal and asserted that (1) Clarke lacked authority to bind Reorganized Mesabi before the effective date, and (2) even if he had authority, any claim B. Riley may have under the Engagement Agreement arose when the second amendment was entered on December 21, 2017, and so was discharged a day later on the plan's effective date.

The Bankruptcy Court took the matter under advisement and held oral argument, during which subject matter jurisdiction was raised. In a bench ruling the next day, the Court ruled it lacking, thus dismissing the adversary proceeding.

Mesabi appealed to the District Court and requested, with the support of B. Riley, the appeal be certified directly to our Court. The District Court, without ruling on the merits, did so on the following issues:

(1) whether the Bankruptcy Court erred in concluding it lacked subject matter jurisdiction to interpret and implement the Discharge Injunction it issued by prior Confirmation Order and related Plan, and (2) whether the Bankruptcy Court erred in concluding it lacked subject matter jurisdiction to redress contempt of its prior Confirmation Order.

J.A. at 28. We agreed to hear the appeal.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Court's jurisdiction is at issue and is discussed in detail below. The District Court had jurisdiction under 28 U.S.C. § 158(a) to hear bankruptcy appeals "from final judgments, orders, and decrees," and discretionary jurisdiction over appeals "from other interlocutory orders and decrees." Id. § 158(a)(1), (3). We have jurisdiction under 28 U.S.C. § 158(d)(2), as the District Court certified the Bankruptcy Court's order for direct appeal, and we authorized that appeal.

We review a bankruptcy court's dismissal for lack of subject matter jurisdiction anew, or de novo. In re W.R. Grace & Co. , 591 F.3d 164, 170 n.7 (3d Cir. 2009).

III. ANALYSIS

The parties suggest different approaches for determining whether the Bankruptcy Court had jurisdiction over the adversary proceeding. B. Riley urges us to follow the lead of that Court and apply the "close nexus" test from In re Resorts International, Inc. , 372 F.3d 154, 166–68 (3d Cir. 2004). Under that test, as the term sounds, if a post-confirmation proceeding lacks a close connection to the implementation of a plan of reorganization or the underlying bankruptcy case, the bankruptcy court lacks jurisdiction. Id. Mesabi counters that the action was a core proceeding over which bankruptcy courts unequivocally have jurisdiction and to which the close nexus test did not apply. It also contends the Bankruptcy Court's ruling conflicted with the Supreme Court's declaration that a bankruptcy court "plainly ha[s] jurisdiction to interpret and enforce its own prior orders." Travelers Indem. Co. v. Bailey , 557 U.S. 137, 151, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009).

A. The Contours of Statutory Bankruptcy Jurisdiction

Before delving into the substance of the parties' arguments, we ground our discussion in the broader context of bankruptcy jurisdiction. The aim of the Bankruptcy Code, 11 U.S.C. § 101 et seq. , is to sort out, as much as possible, a debtor's financial affairs in one place. See Douglas G. Baird, The Elements of Bankruptcy 24 (7th ed. 2022). That place is a bankruptcy court.

Getting there requires a pass-through, however. Only district courts are directly assigned the authority to rule in bankruptcy matters. Under 28 U.S.C. § 1334(a) – (b), "district courts shall have original and exclusive jurisdiction of all cases under title 11 [in the Bankruptcy Code]," and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." Think of a "case" as the entirety of the process a bankruptcy petition triggers, and a "proceeding" is one of the discrete activities within that process that may include, among other things, contested matters and certain litigated matters (the latter called "adversary proceedings," see Fed. R. Bankr. P. 7001 ). See generally 1 Collier on Bankruptcy ¶ 3.01[2] (16th ed. 2022). Fleshed out, district courts have jurisdiction over four types of title 11 matters (the first of which is not relevant here): "(1) cases under title 11, (2) proceeding[s] arising under title 11, (3) proceedings arising in a case under title 11, and (4) proceedings related to a case under title 11." Resorts , 372 F.3d at 162 (internal quotation marks omitted). As one court recently explained:

A case⁴ ‘arises under’ [the Bankruptcy Code] when the cause of action is based on a right or remedy expressly provided by the Bankruptcy Code. Proceedings ‘arising in’ a case under [the Bankruptcy Code] include matters that, though not explicitly mentioned in the Code, would not exist outside of bankruptcy. Related matters are generally causes of action under state law that are imported into the bankruptcy because of their impact on the size of the debtor's estate, and hence the distribution to the debtor's creditors.

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