Mesabi Metallics Co LLC v. B Riley FBR Inc

47 F.4th 193
CourtCourt of Appeals for the Third Circuit
DecidedAugust 25, 2022
Docket20-3002
StatusPublished
Cited by35 cases

This text of 47 F.4th 193 (Mesabi Metallics Co LLC v. B Riley FBR Inc) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Mesabi Metallics Co LLC v. B Riley FBR Inc, 47 F.4th 193 (3d Cir. 2022).

Opinion

PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ____________

No. 20-3002 _____________

In re: ESSAR STEEL MINNESOTA, LLC; ESML HOLDINGS, INC.,

Debtors

MESABI METALLICS COMPANY, LLC, F/K/A ESSAR STEEL MINNESOTA, LLC; CHIPPEWA CAPITAL PARTNERS, LLC,

Appellants v.

B. RILEY FBR, INC., F/K/A B. RILEY & CO., LLC

________________

Appeal from the United States Bankruptcy Court for the District of Delaware (District Court Nos. 1-16-bk-11626; 18-ap-50833; 1-19-cv-00397) ________________

Argued September 29, 2021 Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges (Opinion filed: August 25, 2022)

Jeffrey M. Schlerf Gray Robinson 1007 North Orange Street 4th Floor, Suite 1278 Wilmington, DE 19801

Counsel for Debtor

Joshua A. Berman (Argued) White & Case 1221 Avenue of the Americas New York, NY 10020

Jeffrey M. Schlerf Gray Robinson 1007 North Orange Street 4th Floor, Suite 1278 Wilmington, DE 19801

Counsel for Appellant

G. David Dean Katherine M. Devanney Andrew J. Roth-Moore Cole Schotz 500 Delaware Avenue Suite 1410 Wilmington, DE 19801

Counsel for Appellee

2 Joseph M. Pastore, III (Argued) Pastore & Dailey 100 Summit Lake Drive Suite 120 Valhalla, NY 06905

__________

OPINION OF THE COURT ___________ AMBRO, Circuit Judge

The scope of a bankruptcy court’s jurisdiction narrows after the confirmation of a debtor’s restructuring plan. Parties thus often dispute whether bankruptcy jurisdiction extends to their post-confirmation proceedings. We review such an issue here, where the Delaware Bankruptcy Court dismissed for lack of jurisdiction an adversary proceeding asking it to interpret and enforce a discharge injunction issued in its prior restructuring plan and confirmation order. For the reasons below, we hold that the Bankruptcy Court had jurisdiction over the adversary proceeding, and so reverse its decision and remand for further proceedings.

I. BACKGROUND

A. The Essar Steel/ESML Bankruptcy

ESML Holdings Inc. and Essar Steel Minnesota LLC (together with their debtor-affiliates, “ESML”) filed for

3 Chapter 11 bankruptcy in the District of Delaware in July 2016. In re ESML Holdings Inc., No. 16-11626, ECF No. 1 (Bankr. D. Del. July 8, 2016). Nearly a year later, the Bankruptcy Court confirmed ESML’s bankruptcy plan of reorganization. Chippewa Capital Partners, LLC (“Chippewa”), as the plan’s sponsor, funded ESML’s exit from bankruptcy. Of relevance here, the plan and confirmation order (1) discharged all claims against ESML arising before the plan’s effective date and (2) enjoined actions against ESML and Chippewa by holders of those claims. The Court retained jurisdiction over “any matter (a) arising under the Bankruptcy Code, (b) arising in or related to the Chapter 11 [c]ases or the [p]lan, or (c) that relates to” various other matters stemming from the plan or its confirmation order. J.A. at 103–05; see also J.A. at 204. The plan became effective on December 22, 2017, at which time ESML emerged from bankruptcy as Mesabi Metallics Company LLC (“Reorganized Mesabi”).

B. The Engagement Agreement with B. Riley

During the bankruptcy case, Chippewa sought to acquire ESML. Its affiliate, ERP Iron Ore (“ERPI”), agreed to engage B. Riley & Co., LLC (now known as B. Riley FBR, Inc.) as its exclusive financial advisor to assist the “Company” (defined as ERPI and its affiliates) with the acquisition; B. Riley would receive a “Restructuring Transaction Fee” if ERPI successfully acquired ESML. The parties later amended the agreement to stipulate, among other things, that B. Riley would “provide additional financial advisory services to the Company” in connection with a financing transaction for which B. Riley would receive a success fee of 3–5% on

4 consummation of certain debt financing transactions.1 J.A. at 342–43.

On December 21, 2017—a day before the plan’s effective date—B. Riley, ERPI, and Chippewa entered a second amendment (as so amended, the “Engagement Agreement”). Most relevant here, that amendment purported to bind ERPI, Chippewa, and the post-effective date Reorganized Mesabi.2

C. The Fee Dispute and Ensuing Litigation

After a debt financing transaction closed in June 2018, B. Riley sought payment from Chippewa and Reorganized Mesabi (for ease of reference, they are jointly referred to hereafter as simply “Mesabi”) of more than $16 million as a success fee under the Engagement Agreement. When Mesabi refused to pay, B. Riley brought two actions to collect: (1) a lawsuit in the United States District Court for the District of Minnesota, see B. Riley FBR, Inc. v. Chippewa Cap. Partners

1 The initial agreement and first amendment were signed on behalf of ERPI by Thomas Clarke, as CEO of Chippewa and CEO and controlling owner of ERPI. 2 Clarke signed the second amendment on behalf of ERPI and Chippewa. A week before the parties entered that amendment, ESML had disclosed that Clarke would become a board member of Reorganized Mesabi, which had yet to come into existence. Following the effective date, he became CEO of that entity.

5 LLC, No. 18-cv-2575 (D. Minn.); and (2) an arbitration filed with the Financial Industry Regulatory Authority (“FINRA”).3

In response, Mesabi filed in the Bankruptcy Court an adversary complaint for civil contempt, declaratory judgment, and breach of the plan, maintaining the fee had been discharged by the plan and its confirmation order, and B. Riley’s actions to collect violated that order. B. Riley moved to dismiss the adversary proceeding, contending, among other things, that its claim was not a pre-effective date claim enjoined by the plan and confirmation order. Mesabi opposed dismissal and asserted that (1) Clarke lacked authority to bind Reorganized Mesabi before the effective date, and (2) even if he had authority, any claim B. Riley may have under the Engagement Agreement arose when the second amendment was entered on December 21, 2017, and so was discharged a day later on the plan’s effective date.

The Bankruptcy Court took the matter under advisement and held oral argument, during which subject matter jurisdiction was raised. In a bench ruling the next day, the Court ruled it lacking, thus dismissing the adversary proceeding.

3 The Minnesota action was dismissed with prejudice, and the FINRA arbitration has been stayed pending the outcome of this case. In addition to these actions against Mesabi, B. Riley sued Clarke personally, alleging fraud in connection with the negotiation, execution, and performance of the Engagement Agreement. See B. Riley FBR, Inc. v. Clarke, No. 18-cv-2318 (D. Minn.). That case settled following the Minnesota District Court’s denial of Clarke’s motion to dismiss.

6 Mesabi appealed to the District Court and requested, with the support of B. Riley, the appeal be certified directly to our Court. The District Court, without ruling on the merits, did so on the following issues:

(1) whether the Bankruptcy Court erred in concluding it lacked subject matter jurisdiction to interpret and implement the Discharge Injunction it issued by prior Confirmation Order and related Plan, and (2) whether the Bankruptcy Court erred in concluding it lacked subject matter jurisdiction to redress contempt of its prior Confirmation Order.

J.A. at 28. We agreed to hear the appeal.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Court’s jurisdiction is at issue and is discussed in detail below. The District Court had jurisdiction under 28 U.S.C. § 158

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Bluebook (online)
47 F.4th 193, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mesabi-metallics-co-llc-v-b-riley-fbr-inc-ca3-2022.