Murray v. Willkie Farr & Gallagher LLP (In re Murray Energy Holdings Co.)
| Docket Number | 19-56885,Adv. Pro. 22-2007 |
| Decision Date | 05 October 2023 |
| Parties | In re: MURRAY ENERGY HOLDINGS CO., et al., Debtors. v. Willkie Farr & Gallagher LLP, et al., Defendants. Brenda L. Murray, et al., Plaintiffs, |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
Attorneys for the Plaintiffs Benjamin R. Ogletree Donald J Tennant, Jr. Kerry Verdi
Attorneys for the Defendants Brad Dennis Brian Drew Harrison Campbell Matthew Donohue Bethany Woodward Kristovich
The plaintiffs in this adversary proceeding sued the defendants in state court for legal malpractice, and the defendants removed that action to this Court. A threshold issue is whether the Court has subject-matter jurisdiction to adjudicate the legal malpractice action. The plaintiffs say no, and they have filed a motion to remand the malpractice action to the state court. They also ask the Court to abstain from hearing this adversary proceeding in favor of arbitration. The defendants agree that the malpractice claim, if it is not heard in this Court, should be arbitrated rather than being heard in state court. But the defendants argue that this Court has subject-matter jurisdiction to hear the malpractice claim, should exercise that jurisdiction and should dismiss the malpractice claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.
Because the enforcement of the second amended Chapter 11 plan ("Chapter 11 Plan") (Doc. 2082-1)[1] of Murray Energy Holdings Co. ("Murray Energy") and its affiliated debtors and debtors in possession ("Debtors") is at issue, the Court has subject-matter jurisdiction and will retain the matter rather than remanding it to state court. And because the plaintiffs' claim is barred by the Chapter 11 Plan's exculpation clause, the Court grants the defendants' motion to dismiss the complaint for failure to state a claim upon which relief can be granted.
For the reasons explained below, the Court has arising-in 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). Given that the Court has arising-in jurisdiction, this is a core proceeding. See Brown v. Harrington (In re Brown), No. 21-11284-GAO, 2022 WL 1200783, at *2 (D. Mass. Apr. 22, 2022), aff'd, 55 F.4th 945 (1st Cir. 2022); S. Canaan Cellular Invs., LLC v. Lackawaxen Telecom, Inc. (In re S. Canaan Cellular Invs., LLC), 427 B.R. 85, 90 (Bankr. E.D. Pa. 2010). And because this dispute "stems from the bankruptcy itself," the Court has the constitutional authority to enter a final order. Stern v. Marshall, 564 U.S. 462, 499 (2011).
The following background is taken from the parties' filings,[2] the Chapter 11 Plan, the disclosure statement for the Chapter 11 Plan ("Disclosure Statement") (Doc. 1155-1), and other documents of record in the Debtors' cases of which the Court may take judicial notice.
Robert E. Murray ("Mr. Murray") founded Murray Energy in 1998. Disclosure Statement, Doc. 1155-1 at 29. Facing difficult market conditions in the thermal coal industry, which led more than 40 coal companies to seek bankruptcy relief since 2001, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in October 2019. See id. at 10. At the time, the Debtors together comprised the largest privately owned coal company in the United States, with 13 active mines in six states and in Columbia, South America and annual revenue of approximately $2.5 billion. See id. at 9.
Less than a year later, the Court confirmed the Chapter 11 Plan by an order entered on August 31, 2020 ("Confirmation Order") (Doc. 2135). Mr. Murray was the Chairman of the Board of Directors of Murray Energy both when the Debtors filed bankruptcy and when their Chapter 11 Plan was confirmed. Disclosure Statement at 29. He also owned all issued and outstanding voting Class A common shares in Murray Energy. Id. at 22.
On the effective date of the Chapter 11 Plan, the Debtors withdrew from the 1974 Plan. Confirmation Order at 22-23 (). The Debtors' withdrawal triggered statutory withdrawal liability allegedly exceeding $6.5 billion under the Employee Retirement Income Security Act of 1974 ("ERISA"). Dismissal Mot., Adv. Doc. 9 at 9-10.
While confirmation of the Chapter 11 Plan released the Debtors' ERISA withdrawal liability, the 1974 Plan contended that Mr. Murray was personally responsible for the withdrawal liability. The 1974 Plan further claimed that entities under Mr. Murray's control, including the Robert E. Murray Trust ("Trust"), also had withdrawal liability. Following Mr. Murray's death in October 2020, Michael J. Shaheen ("Mr. Shaheen") became the trustee of the Trust, and Mr. Murray's wife, Brenda L. Murray ("Mrs. Murray"), became executrix of Mr. Murray's estate ("Estate").
In March 2021, several months after confirmation of the Chapter 11 Plan, "the 1974 Plan sent a letter to Mrs. Murray, as the personal representative of . . . [Mr. Murray's] Estate, demanding payment of over $6.5 billion in ERISA withdrawal liability from the Estate and any related 'trust.'" Compl. ¶ 18, Adv. Doc. 1 at 16. The next day, the 1974 Plan filed a lawsuit in the United States District Court for the District of Columbia. The lawsuit sought payment of more than $6.5 billion from the Estate and entities "under the control of" Mr. Murray. Id. ¶ 19.
It was this potential withdrawal liability to the 1974 Plan that gave rise to the adversary proceeding. In February 2022, Mrs. Murray, as the executrix of the Estate, and Mr. Shaheen as the trustee of the Trust (together with Mrs. Murray, "Plaintiffs"), filed a complaint ("Complaint") in the Belmont County, Ohio Court of Common Pleas ("State Court").[3] The Complaint asserted a single claim for legal malpractice against Willkie Farr & Gallagher LLP, the law firm that represented Mr. Murray and the Trust during the bankruptcy, and two of its partners, Brian Lennon and Matthew Feldman ("Defendants"). The Plaintiffs alleged that the Defendants, in representing Mr. Murray and the Trust during the Debtors' bankruptcy proceedings, committed malpractice by (1) failing to negotiate the Chapter 11 Plan so that the claims of the 1974 Plan against Mr. Murray and the Trust were released and (2) failing to advise Mr. Murray that he and the Trust were not being released from claims of the 1974 Plan.
The Defendants removed the State Court action. They then moved to dismiss this adversary proceeding, arguing the Chapter 11 Plan's exculpation clause barred the Plaintiffs' malpractice action and that the Plaintiffs failed to properly plead causation. Opposing dismissal, the Plaintiffs responded that the Court lacks subject-matter jurisdiction over the claim, that the exculpation clause does not bar the claim, and that they have adequately pleaded causation. The Plaintiffs also filed both a motion to remand and a motion to stay pending the conclusion of arbitration, which the Plaintiffs commenced through JAMS in New York, New York in April 2022-one month after filing their Complaint. Pls.' Arbitration Mot., Adv. Doc. 64 at 1.
The Chapter 11 Plan did not release any of the 1974 Plan's claims against Mr. Murray and the Trust. To the contrary, it stated as follows:
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