In re Murray Energy Holdings Co.

658 B.R. 133

IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors.

Case No. 19-56885 (Jointly Administered)

United States Bankruptcy Court, S.D. Ohio, Western Division

Signed February 23, 2024

Kara E. Casteel, Gary D. Underdahl, Ask LLP, Eagan, MN, Joe Graham, Kirkland & Ellis LLP, Chicago, IL, Alexandra Siebler Horwitz, Dinsmore & Shohl, Cincinnati, OH, for Debtors.

Jeremy Shane Flannery, Benjamin A. Sales, Office of the United States Trustee, Columbus, OH, Monica V. Kindt, John W. Peck Federal Building, Cincinnati, OH, for U.S. Trustee.

MEMORANDUM OPINION AND ORDER DENYING PLAN ADMINISTRATOR'S RECONSIDERATION MOTION (DOC. 3182)

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

I. Introduction

This dispute involves secured proofs of claim filed in the Chapter 11 cases of Murray Energy Holdings Co. and its affiliated debtors and debtors in possession (collectively, "Debtors"). Drivetrain, LLC ("Drivetrain"), the plan administrator appointed under the Debtors' Chapter 11 plan, seeks to reclassify the claims as unsecured. It does so based on an argument that was not made in the objection to the claims, but rather was made for the first time in Drivetrain's motion for reconsideration of the Court's order holding that the claims could not be reclassified as unsecured. Because an argument not made in a claim objection but instead made for the first time in a motion for reconsideration is waived, and because judicial estoppel bars the argument on which Drivetrain relies, the motion is denied.

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). The allowance or disallowance of claims against the estate is a core proceeding. 28 U.S.C. § 157(b)(2)(B). Because the dispute "stems from the bankruptcy itself," the Court also has the constitutional authority to enter a final order. Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). See also Waldman v. Stone, 698 F.3d 910, 920 (6th Cir. 2012) ("[D]isallowance [of] claims [is] part and parcel of the claims-allowance process in bankruptcy. Under Stern, therefore, the bankruptcy court was authorized to enter final judgment as to these claims.") (cleaned up).

III. Background

The claimant asserting the proofs of claim at issue is Pillar Innovations, LLC ("Pillar"). The claims, denominated as claim numbers 1106, 1107, 1114, 1117 and 1123 ("Pillar Claims"),¹ are based on Pillar's mechanic's liens ("West Virginia Liens") on property located in West Virginia that the Debtors sold as part of their confirmed Chapter 11 plan ("Plan") (Doc. 2082, Ex. 1). Pillar asserted secured claims against the five Debtor entities (collectively, "West Virginia Debtors") listed below:

• The Harrison County Coal Company (Claim No. 1106);

• The Marshall County Coal Company (Claim No. 1107);

• The Ohio County Coal Company (Claim No. 1114);

• The Monongalia County Coal Company (Claim No. 1117); and

• The Marion County Coal Company (Claim No. 1123).

Before confirmation of the Plan, the Debtors filed an objection to the Pillar Claims and other mechanic's lien claims ("Objection") (Doc. 1749). The Objection is now being prosecuted by Drivetrain.

In the Objection, the Debtors argued that the liens granted to the lenders who extended the superpriority term loans ("Superpriority Term Loans") were first-in-time and therefore had priority over the West Virginia Liens and other mechanic's liens. See Obj. at 6. They also asserted that the total amount owed the Superpriority Term Loan lenders was so great that the collateral securing the associated liens ("Superpriority Liens") was not of sufficient value—with value being measured by the successful credit bid for substantially all of the Debtors' assets made by Murray Newco²—for the Pillar Claims or the other mechanic's lien claims to be secured. See Reply in Supp. of Obj., Doc. 2068 at 16 ("[T]he winning bid for the purchase of substantially all of the Debtors' assets came in the form of a credit bid purchase price of $1.2 billion of the approximately $1.7 billion in outstanding Superpriority Term Loans.").

In other words, when the Debtors objected to the secured status of Pillar's Pillar Claims, they argued that: (1) the Superpriority Liens had priority over the West Virginia Liens; and (2) the credit bid for substantially all of the Debtors' assets was insufficient to fully satisfy the funded debt claims held by the Superpriority Term Loan lenders, meaning that there was no value left over to secure the Pillar Claims. See id. Importantly, the Debtors did not argue that if the West Virginia Liens had priority over the Superpriority Liens, then the collateral specifically securing the Pillar Claims ("Pillar Collateral")—which would be the assets of the West Virginia Debtors rather than substantially all the Debtors' assets—would have to be valued before Pillar's claims could be classified as fully secured ("Collateral-Valuation Argument").

As it turns out, this Court found that the West Virginia Liens indeed had priority over the Superpriority Liens. This is because the Debtors that granted the Superpriority Liens "held only title to the subsurface estates and the right to use the surface for mining purposes and did not hold title to the surface estates[.]" In re Murray Energy Holdings Co., 638 B.R. 588, 590 (Bankr. S.D. Ohio 2022) ("Murray I"). "Title to the surface estates was held either by a non-debtor or another Debtor that did not grant a mortgage to the lenders." Id. To attempt to get around the fact that the Debtors that granted the Superpriority Liens lacked title to the surface estates of the relevant properties, Drivetrain sought summary judgment on the Objection based on its "bundle of sticks" argument. See id. That argument was, in short, that an entity that owns a subsurface estate, and has the right to use the surface for mining purposes, has enough "sticks" in its bundle of property rights to afford it the right to mortgage the surface estate. See id. at 593-94. Drivetrain and Pillar stipulated that the bundle of sticks argument applied to the Pillar Claims. Joint Stipulation Regarding the "Bundle of Sticks" Argument, Doc. 2850 at 6-7.

The Court rejected the bundle of sticks argument and denied Drivetrain's motion for summary judgment to the extent it sought to reclassify mechanic's lien claims as unsecured based on that theory. Murray I, 638 B.R. at 590. In a later opinion based on its rejection of the bundle of sticks argument, the Court granted summary judgment for Pillar, holding that the Pillar Claims "may not be reclassified as general, unsecured claims," and "shall retain their priority over the claims of the [Superpriority] Lenders, secured to the extent of the value available upon exercise of Pillar's foreclosure remedies against the [Pillar Collateral]." In re Murray Energy Holdings Co., 654 B.R. 110, 122, 135 (Bankr. S.D. Ohio 2023) ("Murray II").

Drivetrain then filed a motion for reconsideration of Murray II ("Reconsideration Motion") (Doc. 3182), in which it asserted the Collateral-Valuation Argument for the first time.

IV. Legal Analysis

A. The Law Governing Reconsideration Motions

Motions for reconsideration "[are] not recognized under the Federal Rules of Civil Procedure." Hogan v. Dicicco (In re Hogan), 79 Fed. Appx. 846, 848 (6th Cir. 2003). But they have consistently been treated as motions to alter or amend a judgment under Rule 59(e). See Raveling v. HarperCollins Publishers Inc., No. 04-2963, 2005 WL 900232, at *7 (7th Cir. Mar. 4, 2005). Rule 59(e) is made applicable here by Rule 9023 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rule(s)"). "A court may grant a motion to alter or amend a judgment under Fed. R. Civ. P. 59(e) where there is "(1) a clear error of law; (2) newly discovered evidence; (3) an intervening change in controlling law; or (4) a need to prevent manifest injustice." Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir. 2005). Drivetrain contends that the Court committed a clear error of law in Murray II and the decision results in manifest injustice. Mem. in Supp. of Recons. Mot., Doc. 3182-1 at 5. Drivetrain is wrong on both counts.

B. The Collateral-Valuation Argument Was Waived.

The Debtors' Objection was an "omnibus claim objection"—an objection to the claims of multiple creditors. Bankruptcy Rule 3007(d) enumerates the grounds on which omnibus claim objections may be based. Reclassifying a secured proof of claim as unsecured is not one of the enumerated grounds.³ But the Debtors sought and obtained an order approving omnibus claim objection procedures, Doc. 1457, Ex. 1 ("Omnibus Claim Objection Procedures"), that expanded the grounds on which omnibus claim objections could be based. Those additional grounds include, among others, the reclassification of claims:

Grounds for Omnibus Objections. In addition to those grounds expressly set forth in Bankruptcy Rule 3007(d), the Debtors may file omnibus objections (each, an "Omnibus Objection") to Claims on the grounds that such Claims, in part or in whole:

a. are inconsistent with the Debtors' books and records;

b. fail to specify the asserted Claim amount (or only list the Claim amount as "unliquidated");

c. fail to sufficiently specify the basis for the Claim or provide sufficient supporting documentation in support of such Claim;

d. seek recovery of amounts for which the Debtors are not liable;

e. are to be satisfied by payment in full on account of such Claim from a party that is not a Debtor;

f. have been satisfied by a party other than the Debtors (including one or more of the Debtors' insurers);

g. are incorrectly or improperly classified;

h. have been formally withdrawn by the claimant through the filing of a pleading or through the entry of a Court order indicating withdrawal of the Claim;

i. are filed against non-Debtors or are filed against multiple

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