Murray v. Dinsmore & Shohl, L (In re Murray Energy Holdings Co.)

1

In re: MURRAY ENERGY HOLDINGS CO., et al., Debtors.

Brenda L. Murray, et al., Plaintiffs, v. Dinsmore & Shohl, LLP, et al., Defendants.

No. 19-56885

Adv. Pro. No. 24-2028

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

August 30, 2024

Chapter

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

MEMORANDUM OPINION AND ORDER ON PLAINTIFFS' MOTION FOR REMAND (DOC. 33)

John E. Hoffman, Jr. United States Bankruptcy Judge

I. Introduction

This dispute arises in the Chapter 11 cases of Murray Energy Holdings Co. ("Murray Energy") and its affiliated debtors and debtors in possession ("Debtors"). Before the Court is another adversary proceeding in which the plaintiffs first brought a lawsuit in state court against a law firm and certain of its partners for legal malpractice they allegedly committed while negotiating and seeking confirmation of the Debtors' second amended Chapter 11 plan ("Chapter 11 Plan") (Doc. 2135-1).^[1] Once again, the defendants have removed the state court lawsuit to this Court. And once again, the plaintiffs are asking the Court to remand the lawsuit back to the state court for lack of subject-matter jurisdiction.

The Court's ruling in the prior adversary proceeding is reported at Murray v. Willkie Farr & Gallagher LLP (In re Murray Energy Holdings Co.), 654 B.R. 469 (Bankr. S.D. Ohio 2023) ("Willkie"). In Willkie, the Court held that remanding the plaintiffs' malpractice claim was inappropriate because the Court had core, arising-in jurisdiction. The Court so held because (1) the malpractice claim was based on the defendants' role in negotiating the Chapter 11 Plan, meaning that claim would not have existed but for the Debtors' bankruptcy cases, and (2) the defenses asserted in the adversary proceeding required the Court to interpret and enforce the Chapter 11 Plan. Willkie, 654 B.R. at 487-97. The same is true here. For that reason, the result must be the same here as in Willkie. The Court will retain this adversary proceeding.

II. Jurisdiction & Constitutional Authority

As explained further 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 under 28 U.S.C. § 157(a). Because 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).

III. Procedural History

The complaint in this adversary proceeding was initially filed in the Belmont County, Ohio Court of Common Pleas ("State Court"). As in Willkie, the plaintiffs here ("Plaintiffs") include Brenda L. Murray ("Mrs. Murray"), the wife of the Debtors' founder, Robert E. Murray ("Mr. Murray"), who died in October 2020. Mrs. Murray is a Plaintiff both in her capacity as executrix of Mr. Murray's estate and in her capacity as trustee of the Brenda L. Murray Trust. The other Plaintiff is Michael J. Shaheen, in his capacity as trustee of the Robert E. Murray Trust ("Robert Murray Trust"). The State Court complaint alleges that the defendants-Dinsmore & Shohl LLP ("Dinsmore") and three of its present or former partners, Jerrad T. Howard, J. Michael Cooney and Kim Martin Lewis (collectively, "Defendants")-committed legal malpractice in negotiating and seeking confirmation of the Chapter 11 Plan.

The Defendants removed the State Court complaint to this Court under 28 U.S.C. § 1452(a), which provides for the removal of actions over which there is jurisdiction under 28 U.S.C. § 1334 (jurisdiction over bankruptcy cases and proceedings), and Rule 9027 of the Federal Rules of Bankruptcy Procedure. Notice of Removal, Adv. Doc. 1. The parties then entered into an agreed order (Adv. Doc. 6) establishing deadlines for filing the Defendants' motion to dismiss, the Plaintiffs' opposition to that motion or amended complaint, and the Defendants' reply in support of their motion to dismiss.

The Plaintiffs filed a motion to remand ("Remand Motion") (Adv. Doc. 33), which the Defendants opposed ("Remand Opposition") (Adv. Doc. 45). Later, the Plaintiffs' replied ("Remand Reply") (Adv. Doc. 46) and filed an amended complaint ("Amended Complaint") (Adv. Doc. 47) in response to the Defendants' motion to dismiss (Adv. Doc. 42) ("Dismissal Motion"). The briefing on the Dismissal Motion is in the process of wrapping up, and the Court will address that motion in a separate opinion.

IV. Background

The following facts are taken from the Amended Complaint and the Notice of Removal.

A. Competing Attorney-Client Relationships

For decades before the Debtors filed bankruptcy, the Defendants represented Mr. and Mrs. Murray and their trusts (collectively, "Murray Clients") in personal matters. See Am. Compl. ¶ 18. In particular, the Defendants advised the Murray Clients on estate planning matters. See id. ¶¶ 19- 23. The Defendants continued to represent the Murray Clients in personal matters after the Debtors filed bankruptcy. Id. ¶ 24. But at the same time, the Defendants represented the Debtors as their bankruptcy counsel. Id. ¶ 26. That is, the Defendants served as the Debtors' counsel in their bankruptcy cases while continuing to represent the Murray Clients in personal matters. Id. ¶ 27.

B. ERISA Withdrawal Liability

The interests of the Murray Clients and the Debtors diverged as to what is known as "ERISA withdrawal liability." Id. ¶ 28. Before they filed bankruptcy, some of the Debtors were signatories to a collective bargaining agreement ("CBA") with the United Mine Workers of America. Id. ¶ 29. The CBA required the Debtors to contribute to the United Mine Workers of America 1974 Pension Plan and Pension Trust ("1974 Plan"), a multiemployer pension plan under the Employee Retirement Income Security Act of ("ERISA"). See id. ¶¶ 1, 12. While representing the Debtors during their bankruptcy, the Defendants sought and obtained Court approval for the Debtors to reject the CBA. Id. ¶ 29. Rejecting the CBA terminated the Debtors' contribution obligations to the 1974 Plan, but left the Plaintiffs potentially liable for such obligations under ERISA. See id. ¶¶ 29-30. "If an employer withdraws from a multiemployer pension plan, ERISA imposes 'withdrawal liability,' meaning that the withdrawing employer is liable to the plan for its proportionate share of the plan's unfunded vested benefits." Id. ¶ 13.

ERISA withdrawal liability is not limited to employers-it can also be imposed on members of a "controlled group," including individuals who "carr[y] on an unincorporated 'trade or business.'" Id. ¶¶ 15-16. The Plaintiffs are defending a lawsuit regarding the Murray Clients' alleged withdrawal liability to the 1974 Plan. See Buckner, et al. v. Pers. Representative of the Est. of Robert E. Murray, et al., Case No. 1:24-cv-1268-TJK (D.D.C.). In that lawsuit, the 1974 Plan is seeking more than $6.5 billion from the Plaintiffs based on the Murray Clients' alleged withdrawal liability. See Am. Compl. ¶ 1.

C. The Alleged Malpractice

The Plaintiffs contend that representing both the Debtors and the Murray Clients created a conflict of interest for the Defendants:

Unbeknownst to Plaintiffs, a conflict arose in which Defendants knew that the interests of Plaintiffs and the Murray Energy Debtors diverged on the critical issue of potential ERISA withdrawal liability. In the face of this conflict, Defendants willfully and deliberately breached their duties to Plaintiffs by exposing them to potential claims by the 1974 Plan for ERISA withdrawal liability and/or by failing to expose their conflict of interest, withdraw from the representation of the Murray Energy Debtors, and warn and advise Plaintiffs of the potential liability Defendants created by their actions on behalf of Defendants' other clients.

Id. ¶ 18.

The Plaintiffs also allege that they were targeted for withdrawal liability "[d]ue to Defendants' legal malpractice." Id. ¶ 1. As stated above, the Defendants' alleged legal malpractice arose from their actions in negotiating and seeking confirmation of the Chapter 11 Plan:

Defendants included provisions in the Chapter 11 plan that personally exposed Plaintiffs to potential claims by the 1974 Plan to recover from Plaintiffs the remaining billions of dollars in ERISA withdrawal liability left unpaid by the withdrawing Murray Energy Debtors. . . . Defendants deliberately harmed Plaintiffs by advocating for the Bankruptcy Court to confirm the Chapter 11 plan that placed Plaintiffs at risk of billions of dollars in potential claims by the 1974 Plan for ERISA withdrawal liability without ever warning Plaintiffs of that risk or advising them on steps they could take to protect themselves from it, despite Defendants' long-standing representation of Plaintiffs.

Id. ¶¶ 32-33.

D. Defenses Based on the Chapter 11 Plan

In support of removal, the Defendants rely on a "Release" and an "Exculpation Clause" in the Chapter 11 Plan. As for the Release, the Defendants say:

For their part, and in partial consideration for the releases they themselves were receiving under the Chapter 11 Plan, the Murrays agreed to release Dinsmore (as a "Released Party") from any claims "based on or related to, or in any manner arising from, in whole or in part, the Debtors' in- or

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