Mesabi Metallics Co. v. Cleveland-Cliffs Inc. (In re Essar Steel Minn. LLC)

In re: ESSAR STEEL MINNESOTA LLC

and ESML HOLDINGS INC. Debtors.

MESABI METALLICS COMPANY LLC, Plaintiff, v. CLEVELAND-CLIFFS INC. (F/K/A CLIFFS NATURAL RESOURCES INC.);

CLEVELAND-CLIFFS MINNESOTA LAND DEVELOPMENT LLC;

GLACIER PARK IRON ORE PROPERTIES LLC,

and DOES 1-10 Defendants.

CLEVELAND-CLIFFS INC. (F/K/A CLIFFS NATURAL RESOURCES INC.);

CLEVELAND-CLIFFS MINNESOTA LAND DEVELOPMENT LLC;and GLACIER PARK IRON ORE PROPERTIES LLC, Counterclaim-Plaintiffs, v. MESABI METALLICS COMPANY LLC, Counterclaim-Defendant.

CLEVELAND-CLIFFS INC. (F/K/A CLIFFS NATURAL RESOURCES INC.);

CLEVELAND-CLIFFS MINNESOTA LAND DEVELOPMENT LLC, Third-Party Plaintiffs v. CHIPPEWA CAPITAL PARTNERS, LLC;and THOMAS M. CLARKE, Third-Party Defendants.

Case No. 16-11626 (BLS)

Adv. Proc. No. 17-51210 (BLS)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

December 12, 2018

Chapter 11

Jointly Administered

Re: Docket No. 60

Justin R. Alberto, Esq.

BAYARD, P.A.

600 North King Street Suite 400

Wilmington, DE 19801

Craig Averch, Esq.

WHITE & CASE LLP

555 South Flower Street, Suite 2700

Los Angeles, CA 90071-2433

Attorneys for Mesabi Metallics

Company LLC, Chippewa Capital

Partners, LLC, and Thomas M. Clarke

William P. Bowden, Esq.

ASHBY & GEDDES, P.A.

500 Delaware Avenue, 8^th Floor

Wilmington, DE 19899-1150

Dennis M. Ryan, Esq.

FAEGRE BAKER DANIELS LLP

90 South Seventh Street

Minneapolis, MN 55402-3901

Attorneys for Glacier Park Iron Ore

Properties, LLC

OPINION

Before the Court is a Motion to Dismiss filed by the reorganized debtor Mesabi Metallics Company LLC (f/k/a Essar Steel Minnesota LLC) (hereinafter "Mesabi"). Glacier Park Iron Ore Properties, LLC ("GPIOP") is a Defendant in this adversary and has filed Counterclaims against Mesabi for tortious interference and breach of contract. Mesabi herein seeks dismissal of each of GPIOP's Counterclaims on the ground GPIOP has failed to state a claim upon which relief can be granted.For the reasons stated below, the Motion to Dismiss is GRANTED in part and DENIED in part.

I. Background¹

Plaintiff Mesabi Metallics Company LLC is an iron ore mining and processing company with an operation in the Mesabi Iron Range in Minnesota. In 2006, Mesabi's predecessor entered into a series of mineral leases with the Great Northern Trust, the then-owner of land in the Mesabi Range ("Mineral Leases"). The Mineral Leases provided in relevant part that Mesabi, as lessee, would pay royalties based on the amount of ore it extracted from the premises. They also established a production minimum that gave the Great Northern Trust the right to terminate the Mineral Leases if Mesabi failed to mine the threshold amount of ore ("Production Threshold").

The Mineral Leases remained in effect through 2016, when GPIOP became the lessor under the Mineral Leases and a co-owner of the land with Superior Mineral Resources LLC ("Superior"). By that time, Mesabi's predecessors ESML and ESML Holdings, Inc. (collectively, the "Debtors") had filed petitions for relief under Chapter 11.

Following a dispute over whether Mesabi could assume the Mineral Leases, GPIOP, Mesabi, Superior, and Chippewa Capital Partners, LLC entered into a Settlement Agreement. [Docket No. 1168-1]. Significantly, the SettlementAgreement provided Mesabi's assumption of the Mineral Leases was contingent on its Plan going effective no later than October 31, 2017 ("Assumption Deadline"). See In re Essar Steel Minnesota LLC, 590 B.R. 109 (Bankr. D. Del. 2018).

Mesabi failed to meet the Assumption Deadline. Believing that the Mineral Leases had been rejected, GPIOP soon thereafter conveyed mineral and surface rights (the "Land Agreement") that had been subject to the Mineral Leases to Cleveland-Cliffs Minnesota Land Development LLC ("Cliffs"). In addition, GPIOP filed a proof of claim against Mesabi. The claim encompassed $24,916,666.67 for rejection damages, an unliquidated and contingent claim arising from Debtors' obligation to indemnify GPIOP under the Mineral Leases, and "all other amounts which may be due under the GPIOP Mineral Leases." [Proof of Claim 224]. Cleveland-Cliffs, Inc. then filed a Transfer of Claim that substituted itself as the holder of the claim. [Docket No. 1371] ("Claim Transfer"). The Claim Transfer, to which GPIOP did not object, specifically identified the rejection damages claim, but not the other claims.

Mesabi commenced this adversary proceeding on September 7, 2017. In its original Complaint, Mesabi alleged numerous counts against Cliffs, including purported tortious interference and violations of the Sherman Act. Subsequently, Mesabi filed a Second Amended Complaint [AP Docket No. 18] that named additional defendants, specifically GPIOP and Cleveland-Cliffs Minnesota Land Development LLC ("Cliffs MN"). The Second Amended Complaint alleged claims for breach of contract and tortious interference against GPIOP and Cliffs MN.

In response, GPIOP has filed three Counterclaims against Mesabi. First, GPIOP alleges Mesabi tortiously interfered with the Land Agreement. Second, GPIOP seeks damages for Mesabi's alleged breach of the Mineral Leases when it failed to meet the Production Threshold. Lastly, GPIOP asserts Mesabi rejected the Mineral Leases when it failed to assume them by the Assumption Deadline and therefore seeks rejection damages.

Mesabi then filed the Motion to Dismiss as to each of GPIOP's Counterclaims pursuant to the Federal Rule of Civil Procedure 12(b)(6) (made applicable through Fed. R. Bankr. P. 7012(b)) [AP Docket No. 60] (the "Motion to Dismiss"). GPIOP filed its Response [AP Docket No. 80], Mesabi filed a Reply [AP Docket No. 92], and the Court took the matter under advisement.

While Mesabi's Motion to Dismiss was pending, this Court rendered a ruling in a separate, but related, matter in this adversary proceeding. In that dispute, the Court was asked to determine whether Mesabi could assume the Mineral Leases after the expiration of the Assumption Deadline under the terms of the Settlement Agreement. After the parties had submitted their final briefs in the instant matter, the Court issued its ruling on the status of the Mineral Leases [AP Docket No. 98] ("July 23 Opinion") and found Mesabi could no longer assume the Mineral Leases under the Settlement Agreement. In re Essar Steel Minnesota LLC, 590 B.R. 109 (Bankr. D. Del. 2018). The Court turns now to Mesabi's Motion to Dismiss the Counterclaims filed by GPIOP.

II. Jurisdiction

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (O).²

III. Standard

Mesabi filed its Motion under Fed. R. Civ. P. 12(b)(6) (made applicable through Fed. R. Bankr. P. 7012) for failure to state a claim upon which relief can be granted. "The purpose of a motion to dismiss is to test the sufficiency of a complaint, not to resolve disputed facts or decide the merits of the case." Paul v. Intel Corp. (In re Intel Corp. Microprocessor Antitrust Litig.), 496 F.Supp. 2d 404, 407 (D.Del 2007). When reviewing a motion to dismiss, the Court will construe the complaint "in the light most favorable to the plaintiff." Burtch v. Milberg Factors, Inc., 662 F.3d 212, 220 (3d Cir. 2011).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a plaintiff's obligation to provide the grounds of his entitle[ment] to relief require more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will notdo. Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (internal citations omitted).

IV. The Parties' Positions

Mesabi contends each of GPIOP's counterclaims should be dismissed under Rule 12(b)(6). Mesabi asserts GPIOP has offered only vague factual assertions that fall well short of asserting a cognizable claim for tortious interference. It addition, Mesabi argues GPIOP relinquished any claims it held under the Mineral Leases when it failed to object to the Claim Transfer.

In response, GPIOP argues it has articulated sufficient facts for tortious interference—namely the "threats and actions" that Mesabi allegedly undertook to interfere with the Land Agreement. Moreover, GPIOP maintains that the Claim Transfer to Cliffs applied only to the claim for rejection damages. Therefore, it posits it still holds its remaining claims for other damages that arose under the Mineral Leases.

V. Analysis

GPIOP has asserted three Counterclaims against Mesabi. To survive Mesabi's Motion, GPIOP must have articulated facts that, at a minimum, state a plausible claim for a right to relief for each cause of action. Each of GPIOP's Counterclaims is addressed in turn.

a. Tortious Interference with Contractual Rights

The parties agree that Minnesota law governs GPIOP's claim for tortious interference. Under Minnesota law, there are five elements for a claim of tortious interference with contractual rights. Namely:

(1) the existence a contract;

(2) the alleged wrongdoer's knowledge of the contract;

(3) intentional procurement of the breach of contract;

(4) without justification; and

(5) damages.

Kallok v. Medtronic, Inc., 573 N.W.2d 356, 362 (Minn. 1998). For purposes of Mesabi's Motion, the parties do not dispute that GPIOP's Counterclaim properly alleged the Land Agreement is a valid contract and Mesabi knew about it. The dispute centers on whether GPIOP has alleged facts sufficient to demonstrate an intentional procurement of the breach of contract without justification.

GPIOP's Counterclaim alleges Mesabi undertook "threats and actions" that interfered with the Land Agreement, but...