Murray Energy Holdings Co., 639 B.R. 463

Background:

Kanawha Stone Company filed two identical proofs of claim asserting a mechanic’s lien (about $805,491 each) against the Dent’s Run Landfill in Marion County, WV.
Debtor lenders under a June 2018 Credit Agreement recorded a prior mortgage on Dent’s Run; Kanawha admitted its lien attached August 24, 2018 and is subordinate to that mortgage.
The confirmed Chapter 11 Plan classified mechanic’s liens as Class 2 Other Secured Claims but provided that disputed secured claims could be reclassified as general unsecured claims if allowed or determined to be zero; the Confirmation Order preserved liens pending final allowance but provided for release if a claim is disallowed or reclassified.
Drivetrain, as Plan Administrator, moved for summary judgment seeking reclassification of Kanawha’s claims as general unsecured and extinguishment of the mechanic’s lien on the ground the senior mortgage consumed the collateral value.
Kanawha argued its lien should “ride through” the bankruptcy and remain valid even if it receives no distribution; it did not dispute subordination or offer valuation evidence and did not object to confirmation or appeal the Confirmation Order.
The court granted summary judgment: Kanawha’s claims (Nos. 807 and 2374) were reclassified as general unsecured claims and the mechanic’s lien was released and extinguished.

Issues:

Issue	Drivetrain's Argument	Kanawha's Argument	Held
Whether Kanawha’s mechanic’s lien is subordinate and "underwater" such that it should be reclassified as unsecured	Kanawna’s lien is junior to the recorded Dent’s Run Mortgage and there is insufficient collateral to secure both the mortgage and junior liens; therefore reclassify as general unsecured	Lien is properly filed and perfected and remains secured regardless of likely recovery; lien should survive even if claimant gets no distribution	Kanawha admitted subordination and offered no valuation; court reclassified the claims as general unsecured and extinguished the lien
Whether a wholly unsecured lienholder may retain a lien that has no collateral value in a Chapter 11 plan	Plan and Code permit stripping/reclassification of wholly unsecured liens in Chapter 11; confirmation binds creditors	Relied on Chapter 7 precedent (Ryan/Dewsnup) that consensual liens may remain until foreclosed	Court held Dewsnup/Ryan (Chapter 7) do not control Chapter 11; wholly unsecured liens may be stripped in Chapter 11 and Plan governs treatment
Whether Kanawha is bound by the Plan and Confirmation Order that preserved liens only until final allowance and authorized release upon reclassification	Confirmation Order and 11 U.S.C. §1141 bind creditors to plan provisions; lien rights are those provided in the confirmed plan	Argued lien should survive independent of plan classification	Court held the Confirmation Order is final and binding; Kanawha is bound by plan treatment and lien is released when claim reclassified

Key Cases Cited

Stern v. Marshall, 564 U.S. 462 (bankruptcy court may enter final order when dispute arises from the bankruptcy)
Dewsnup v. Timm, 502 U.S. 410 (1992) (Chapter 7 consensual lien stripping principles)
Ryan v. Homecomings Fin. Network, 253 F.3d 778 (4th Cir. 2001) (applying Dewsnup in Chapter 7 to preserve consensual liens)
In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir. 2012) (Chapter 11 permits lien-stripping/modification distinct from Dewsnup)
Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012) (bankruptcy court authority under Stern)
Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden-shifting principles)
Ricci v. DeStefano, 557 U.S. 557 (treating how facts are viewed on summary judgment)
Viet v. Le, 951 F.3d 818 (6th Cir.) (summary judgment standard regarding burden to show essential elements)
In re Pennsylvania Iron & Coal Co., Inc., 56 B.R. 492 (Bankr. S.D. Ohio 1985) (confirmed plan governs post-confirmation lien rights)