In re: Murray Metallurgical Coal Holdings, LLC

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

In re: Case Nos. 1:20-cv-267

1:20-cv-996

MURRAY METALLURGICAL COAL

HOLDINGS, LLC, JUDGE DOUGLAS R. COLE

OPINION AND ORDER

This case involves two appeals from the same Chapter 11 bankruptcy case,

Case No. 1:20-bk-10390. The UMWA 1974 Pension Plan and Trust (the Fund) is the

appellant in both actions. Through the two appeals, the Fund seeks two forms of

relief. First, it asks the Court to reverse the Bankruptcy Court’s interim (R. 124)1 and

final (R. 280) orders authorizing certain pre-confirmation payments to “critical

vendors;” doing so would allow the debtor to recoup those already-made payments

(amounting to roughly $16 million). And then it wants the Court to remand to the

Bankruptcy Court for that court to modify the confirmed Chapter 11 plan (the Plan)

to distribute those new proceeds to the unsecured creditors (with the Fund

constituting some 95% of that creditor class). Murray Metallurgical Coal Holdings

LLC (Murray), the debtor in the bankruptcy action, moves to dismiss both appeals,2

claiming that the Fund’s challenges are moot. Because a decision in the Fund’s favor

1 All record citations denoted “R. #” are to the bankruptcy court docket for Case No. 1:20-bk-

10390. Pin cites are to the internal page numbers of the referenced document.

2 Murray also moves to stay briefing pending this Court’s resolution of its motion to dismiss

(Case No. 1:20-cv-996, Doc 15). For the reasons discussed below, that motion is denied as

moot. Separately, the Fund seeks leave to file a sur-reply to Murray’s motion to dismiss in

Case No. 1:20-cv-267. (Doc. 26). The arguments in the proposed sur-reply were adequately

considered by the Court and, given the Court’s grant of Murray’s motion to dismiss, the Court

also denies the Fund’s motion as moot.

on the issues it raises cannot provide the Fund any relief, at least not without

fundamentally changing the already-confirmed-and-implemented Plan, the Court

agrees with Murray that the appeals are both equitably and constitutionally moot.

Thus the Court GRANTS the motions to dismiss (Case No., 1:20-cv-267, Doc. 20 and

Case No. 1:20-cv-996, Doc. 15) and DISMISSES both appeals.

BACKGROUND

Murray, along with its parent companies and subsidiaries (the Murray

conglomerate), is the largest privately owned coal conglomerate in the United States.

(Case No. 1:20-bk-10390, Confirm. Op., R. 860, p. 5). The Fund is a pension fund

representing over 2,000 of the Murray conglomerate’s current and former workers.

(Id. at pp. 5–6). The Fund filed a claim of $5.7 billion, making it Murray’s largest

unsecured creditor. (Case No. 1:20-cv-996, Doc. 16, #6595).3 Indeed, the Fund’s claim

represents some 95% of the entire unsecured claim amount in the bankruptcy. (Id.).

Murray operated two coal mines—one in Alabama (the Oak Grove Mine), and

one in West Virginia (the Maple Eagle mine). (R. 860, p.7). Murray mined and sold

metallurgical coal, an upstream component used in steel production. (Id.). When the

price of metallurgical coal sharply declined in the fall of 2019, Murray suspended

operations at its mines and obtained financing to stay afloat. (Id. at p. 10). Shortly

thereafter, Murray’s financial outlook further deteriorated, leading it to file for

Chapter 11 bankruptcy in February 2020. (Id. at p. 4).

3 The $5.7 billion claim was not originally against Murray itself but against the entire Murray

conglomerate. (Objection, R. 610, p. 4). The Fund claimed that Murray was jointly and

severally liable for the amount. (Id.).

The act of filing a Chapter 11 bankruptcy petition instantly and by operation

of law creates an estate possessing substantially all the property of the debtor. 11

U.S.C. § 541. Once the estate is created, the debtor needs court approval before

obtaining credit or executing most asset transfers. 11 U.S.C. §§ 363–364. So on the

same day Murray filed for bankruptcy, it sought approval to obtain super-priority

secured financing to cover its business operations (the DIP4 financing). (R. 44, p. 9).

The DIP lenders proposed to secure this financing with a lien against “all assets and

properties of … the debtors.” (R. 860, p. 13–14). Murray also sought approval to use

some of the proceeds of that financing to pay off some accrued debt it carried with

various “critical vendors” to its mining business. (R. 8, pp. 1–2). The bankruptcy court

granted both requests. (R. 130; R. 124).

The Fund objected to both the financing and the critical vendor payments. (R.

104; R. 741). To understand why, a brief bankruptcy primer is in order. The

Bankruptcy Code establishes a hierarchy for the repayment of debts applicable to all

bankruptcy cases: secured interests get priority over unsecured interests. 11 U.S.C.

§ 507(b). And when a business goes through a Chapter 11 restructuring, the plan

must treat similar creditor interests equally. 11 U.S.C. § 1123(a)(4). But as already

mentioned, the Bankruptcy Code also authorizes bankruptcy courts to approve pre-

restructuring asset transfers—even transfers of the entire estate. 11 U.S.C. 363(b);

4 DIP stands for debtor-in-possession. It refers to a bankruptcy proceeding in which the debtor

obtains new funding (which typically is not subject to pre-petition creditor claims) and largely

continues to manage corporate operations, subject to court approval. See 11 U.S.C. §§ 1107-

08, § 363. When correctly implemented, DIP financing allows a debtor to preserve the going-

concern value of the entity, which benefits the bankruptcy creditors by increasing asset

values. See In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002).

Stephens Indus., Inc. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986). And, assuming

certain conditions are met, such sales even may be “free and clear of any interest in

such property of an entity.” 11 U.S.C. § 363(f).

At least some courts have read § 363(b) as providing authority for the debtor

to make what are called “critical vendor payments,” which is the use that Murray

made of the provision here. See, e.g., In re Windstream Holdings Inc., 614 B.R. 441,

456–60 (S.D.N.Y. 2020) (discussing critical vendor justification); but see, e.g., In re

MacMillan, 652 B.R. 812, 815 (Bankr. D. Or. 2023) (concluding that § 363(b) does not

authorize critical vendor payments).5 The general idea is that certain vendors may

provide critical inputs to a debtor’s ongoing operations. If the debtor does not pay the

outstanding amounts due those vendors may cease to provide those inputs, harming

the going-concern value of the debtor. Id. That harms all creditors.

But, of course, such payments also lead to the prospect of certain unsecured

creditors (those deemed “critical”) receiving better treatment than other creditors in

that class (like the Fund). For example, a court may approve a § 363(b) transfer to

one unsecured creditor to cover pre-petition debts, but not to another, leaving the

latter to recover, if at all, solely through the bankruptcy plan. The first creditor

immediately receives 100 cents on the dollar (or whatever the approved amount of

5 The Fund did not argue, either before the bankruptcy court or here, that § 363(b) does not

authorize critical-vendor payments. To the contrary, the Fund conceded in the bankruptcy

proceeding that “upon specific factual showings, it is appropriate to pay the pre-petition debts

of truly critical vendors who would not otherwise perform.” (R. 104, p. 2). And it reiterated

this point in its appellate brief before this Court. (Case No. 1:20-cv-267, Doc. 8, #2242-43)

(“[C]ritical-vendor motions should be granted only in exceptional circumstances.”). Thus, the

Fund has waived any argument that it may have had that § 363(b) never authorizes such

transfers.

the § 363(b) transfer may be), while the latter is left to the vagaries of the plan

process.

Given the possible inequities that may occur within creditor classes, and the

tension that this potential inequity creates with the underlying bankruptcy intra-

creditor-class parity principle, various courts of appeals have added common law

requirements that must be met before a bankruptcy court can approve § 363(b)

transfers. See In re Kmart Corp., 359 F.3d 866, 873–74 (7th Cir. 2004) (requiring

bankruptcy court to evaluate other ways to keep vendors such as lines of credit,

among others); Matter of Bouchard Transp. Co., Inc., 74 F.4th 743, 750 (5th Cir. 2023)

(requiring some “articulated business justification” for § 363(b) asset distributions).

The dispute here arose when Murray sought to rely on this “critical vendor”

justification to allow § 363(b) payments to certain unsecured creditors who were also

Murray’s vendors. The Fund opposed Murray’s request to pay these vendors, unless

Murray showed that no feasible alternatives existed to keeping the vendors’ business.

(R. 104, p. 2). The Fund also claimed that Murray needed to present this proof on a

vendor-by-vendor basis. (Id.). The bankruptcy court disagreed. It overruled the

Fund’s objection and authorized the critical vendor payments, holding that Murray

provided a sound business justification, and that it need not present individualized

proof for every vendor. (R. 270, pp. 15–17). The Fund appealed, which is the first of

the two appeals here. (Case No. 1:20-cv-267, Doc. 1).

Meanwhile, the bankruptcy action proceeded. The bankruptcy court

authorized Murray to sell its smaller West Virginia mine on April 1, 2020. (R. 860, p.

17). Murray filed a plan of reorganization (the Plan) shortly thereafter on August 14,

2020. (R. 691). Under the Plan, Hatfield Metallurgical Holdings, LLC (Hatfield)

agreed to buy the Oak Grove Mine and all of its associated assets the day the Plan

became effective. (Id. at pp. 22, 25, 38–39). The rest of Murray’s assets, including the

net proceeds from selling both mines, would vest in a Wind-Down Trust, and the trust

administrator would then distribute the assets according to the classes of interests

set forth in the Plan. (Id. at p. 44; Wind-Down Trust Agmt., R. 704, p. 378). All

unsecured creditor classes were to receive nothing under the Plan’s distribution

scheme. (R. 691, p. 34). The Fund (perhaps predictably) objected to confirmation. (R.

741). The bankruptcy court overruled the Fund’s objection and confirmed the Plan on

November 25, 2020. (R. 798). The Fund, again, appealed. (Case No. 1:20-cv-996, Doc.

1). In particular, the Fund challenges Murray’s sale of certain “avoidance actions”

relating to the critical-vendor payments. (Case No. 1:20-cv-996, Doc. 16, #6603) As a

general matter, avoidance actions refer to actions in which a debtor’s trustee seeks to

recoup (or “avoid”) earlier payments (or asset transfers) the debtor made to creditors.

11 U.S.C. §§ 544, 550. This could include for example, the critical-vendor payments.

Under the Plan, Murray sold the right to bring such actions to Hatfield as one of the

assets relating to Murray’s sale of the Oak Grove Mine.

The case is now before the Court on Murray’s motion to dismiss both appeals

under Federal Rule of Civil Procedure 12(b)(1).

LAW AND ANALYSIS

This Court has jurisdiction to hear these appeals from the Bankruptcy Court

under 28 U.S.C. § 158(a)(1). And a motion to dismiss for lack of jurisdiction (like the

two at issue here) is properly brought under Federal Rule of Civil Procedure 12(b)(1).

See In re City of Detroit, No. 14-cv-14872, 2015 WL 5697702, at *3 (E.D. Mich. Sept.

29, 2015), aff’d, 838 F.3d 792 (6th Cir. 2016).

A. The Plan Confirmation Appeal

The Fund appeals the bankruptcy court’s confirmation of the Plan, arguing

that the Plan’s sale of Murray’s avoidance actions violates the Bankruptcy Code.

(Case No. 1:20-cv-996, Doc. 16, #6602). Murray argues that the appeal is equitably

moot because the Plan has already taken effect. The Court agrees.

The equitable mootness doctrine exists “to protect parties relying upon the

successful confirmation of a bankruptcy plan from a drastic change after appeal.” In

re United Producers, Inc., 526 F.3d 942, 947 (6th Cir. 2008). Though described as a

mootness doctrine, its legal foundation is more akin to forfeiture or estoppel. In re

City of Detroit, 838 F.3d 792, 798 (6th Cir. 2016). Equitable mootness focuses less on

the Court’s inability to adjudicate the subject of the case and more on whether the

litigant’s delay in bringing his claim upsets “good faith reliance interests.” See id.

(citing In re UNR Indus., Inc., 20 F.3d 766, 769 (7th Cir. 1994)).6

6 The Court notes the legal dissonance in resolving a 12(b)(1) motion utilizing a doctrine

which technically has very little to do with jurisdiction. While some have criticized the use of

prudential quasi-jurisdictional doctrines, see In re City of Detroit, 838 F.3d at 805 (Moore, J.,

dissenting), their view is not the law, at least as applied to Chapter 11 cases. Equitable

mootness is still a viable doctrine. Id. at 800 (majority opinion).

The Sixth Circuit analyzes equitable mootness using a three-part test:

(1) whether the appellant obtained a stay; (2) whether the confirmation plan has been

“substantially consummated”; and (3) whether the desired relief would “significantly

and irrevocably disrupt” the plan’s implementation or disproportionately harm

reliance interests of parties not before the Court. Id. The third factor is most

important. Id. at 799.

Factor one is easy. The Fund did not obtain—or even seek—a stay. It

acknowledges this. (See Case No. 1:20-cv-267, Doc. 23, #2789; Case No. 1:20-cv-996,

Doc. 22, #6667). This factor, then, favors Murray. But as the Sixth Circuit has noted,

mere failure to seek a stay “is not necessarily fatal” to the appeal.7 City of Covington

v. Covington Landing Ltd. P’ship, 71 F.3d 1221, 1225–26 (6th Cir. 1995).

Factor two is almost as easy. Indeed, the Fund “does not dispute” that the Plan

has been “substantially consummated” under the Bankruptcy Code. (Case No. 1:20-

cv-267, Doc. 23, #2790; Case No. 1:20-cv-996, Doc. 22, #6668). To determine

substantial consummation, the Court looks to the Bankruptcy Code, which considers

three things:

(A) transfer of all or substantially all of the property proposed by the

plan to be transferred;

(B) assumption by the debtor or by the successor to the debtor under the

plan of the business or of the management of all or substantially all of

the property dealt with by the plan; and

7 While the Fund’s failure to seek a stay was not fatal to its Plan confirmation appeal, it

almost certainly doomed its critical vendor appeal. Had the Plan been stayed, the critical

vendor payments perhaps could have been clawed back (if the Fund is correct that they were

inappropriate) without upsetting the heavy reliance interests that multiple third parties

have since placed on the Plan’s entire structure and consummated transactions.

(C) commencement of distribution under the plan.

11 U.S.C. § 1101. As described above, the Plan provided for the immediate sale of the

Oak Grove Mine to Hatfield and the transfer of the remaining assets to the Wind-

Down Trust for distribution. Murray now states that the sale and transfer have taken

place and that distributions have started. (Case No. 1:20-cv-996, Doc. 14, #6426–27).

So this factor also favors Murray. And in cases like this where a plan has been

substantially consummated, there is a “greater likelihood” that overturning the plan

will have adverse effects. In re United Producers, Inc., 526 F.3d at 948.

On, then, to the third (and most important) factor. To determine whether the

relief requested would affect the rights of third parties or the plan’s success “requires

a case-by-case assessment of the feasibility and effect of the relief requested.” In re

Detroit, 838 F.3d at 799. Feasibility often turns on whether the requested relief

“amounts to a piecemeal revision” or a “wholesale rewrite[]” of the plan. Id. (citation

omitted).

Recognizing this, the Fund disavows any attempt to revoke confirmation of the

entire Plan. (Case No. 1:20-cv-996, Doc. 22, #6670–71). Rather, it argues that it is

merely tinkering at the edges. According to the Fund, it simply asks this Court to

hold that one specific asset group—the avoidance actions—are not sellable estate

property and to order that any proceeds realized from any reclaimed avoidance

actions be distributed to the unsecured creditors. (Id.).

However, while the Funds characterize this modification as “slight[],” it is

anything but. (Id.). Consider what went into the avoidance action sale. When Murray

obtained the DIP financing, the DIP lenders obtained a lien on all of Murray’s assets

including any avoidance actions. (R. 860, p. 13–14). In other words, if Murray had

instituted avoidance actions at some earlier point (as the Fund now suggests it should

have), the proceeds would have gone to the DIP lenders, not Murray’s other creditors

(at least until the DIP lenders were fully repaid). Then consider Murray’s sale of the

Oak Grove Mine to Hatfield. As part of the mine purchase, Hatfield bought Murray’s

right to institute any avoidance actions. (R. 860, p. 30). To facilitate the sale, Hatfield

obtained financing to pay the purchase price and to buy out the DIP lender’s lien. (R.

860, p. 24, 30; R. 691, p. 30). The right to bring the avoidance actions (and the liens

on any proceeds from them) were thus baked into the purchase price and were

“integral” to the entire deal. (R. 860, p. 113). And that makes sense. Hatfield

presumably wanted to continue using those vendors to supply its operations at the

Oak Grove Mine post-acquisition, so it presumably wanted to control the decision on

whether to pursue attempted recoupment of past payments to those vendors. Any

effort to now undo the avoidance action part of that arrangement would strike at a

core aspect of the deal, essentially sending all parties back to the drawing board.

Consider further the Plan modification needed to distribute any avoidance

action proceeds to the unsecured creditors, which is the ultimate relief the Fund

seeks. Under the Plan, any assets not transferred to Hatfield as part of the Oak Grove

Mine sale would vest in the Wind-Down Trust. (R. 691, p. 44). So if the avoidance

actions (or any proceeds from them) return to the estate, they would revert to the

Wind-Down Trust, which can only distribute assets according to the Plan hierarchy.

(Id.). But the Plan completely extinguished the Fund’s interests—it distributes

nothing to unsecured creditors. (Id. at p. 34). Any avoidance action proceeds would

instead go to the two classes of secured creditors (classes three and four) that did not

fully recover under the Plan. Class three, for example, the Prepetition Term Loan

Claims, received under the Plan only $168 million against some $212 million in

claims. (Id. at pp. 33-34 (noting allowed amount); see also R. 87, p. 6 (showing claimed

amount)). Granting the relief the Fund seeks, then, would require the Court to alter

the distribution scheme, which was presumably central to the Plan’s implementation.

(See R. 691, pp. 33–34 (providing the two impaired classes with the ability to accept

or reject plan)).

All in all, the Fund’s purportedly limited request amounts to a substantial

rewrite of the entire Plan—something the doctrine of equitable mootness was

designed to prevent. The Court holds that this appeal is equitably moot.

B. The Critical Vendor Appeal

The Fund’s critical vendor appeal fares no better. Because the Court finds that

the Plan confirmation appeal is moot, the Plan remains intact. And the terms of the

Plan render this appeal constitutionally moot.

Article III § 2 of the Constitution limits the jurisdiction of federal courts to

“cases” and “controversies.” A controversy ceases to exist whenever the parties lack a

“legally cognizable interest in the outcome.” Already, LLC v. Nike, Inc., 568 U.S. 85,

91 (2013). When that happens, the case is moot and must be dismissed. Id.; Calderon

v. Moore, 518 U.S. 149, 150 (1996) (per curiam).

The Fund lacks any ongoing cognizable interest in the outcome of this appeal

because, even if the Court were to reverse the bankruptcy court’s orders authorizing

the critical vendor payments, the Fund would not receive a penny. As recounted

above, all assets not sold to Hatfield were transferred to the Wind-Down Trust, which

then distributes those assets according to the Plan. (R. 691, p. 44). Assuming that

(1) the Court reversed the authorization for the critical-vendor payments and (2) the

Wind-Down Trust administrator sought to recoup from those vendors, the Fund

would still receive nothing because it is a general unsecured creditor. (R. 691, p. 34).

Because the Fund would receive none of the proceeds, it has no legally cognizable

interest in the validity of the critical vendor payments. The critical vendor appeal is

therefore moot.

CONCLUSION

For the reasons stated above, the Court GRANTS Murray’s motions to dismiss

in both Case No. 1:20-cv-267 (Doc. 20), and Case No. 1:20-cv-996 (Doc. 14). The Court

DIRECTS the Clerk to enter judgment in both cases and TERMINATE each on the

Court’s docket.

September 25, 2023

DATE DOUGLAS R. COLE \

UNITED STATES DISTRICT JUDGE

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