BRENDA L. MURRAY, AS EXECUTRIX OF THE ESTATE OF ROBERT E. MURRAY, еt al. v. WILKIE FARR & GALLAGHER LLP, et al.
Case No. 2:23-cv-3457
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO EASTERN DIVISION
March 11, 2025
Judge Algenon L. Marbley
PAGEID #: 2403
This matter is before this Court on appeal from the United States Bankruptcy Court for the Southern District of Ohio. Plaintiffs Brenda Murray, executrix of the estate of Robert Murray, and Michael Shaheen, trustee of the Robert E. Murray Trust, appeal the bankruptcy court‘s orders denying their Motion for Remand, Motion to Stay Pending Arbitration, and granting the Motion to Dismiss brought by Defendants Wilkie Farr & Gallagher, Brian Lennon, and Matthew Feldman (together, “Wilkie“). For the reasons more fully stated below, this Court AFFIRMS the bankruptcy сourt‘s judgment.
I. BACKGROUND
Robert Murray was the Chairman, President, and Chief Executive Officer of the Murray Energy Corporation. (Compl., R. 1, ¶ 9). Prior to its bankruptcy, Murray Energy was the largest privately owned coal company in the United States. (Disclosure Statement, No. 2:19-bk-56885, Doc. 1155-1, 1). Robert Murray owned all voting shares of Murray Energy. Id. at 13. His sons and family trust owned all remaining shares. Id.
The Chapter 11 Plan contains an Exculpation Clause that includes Plaintiffs and Wilkie as exculpated parties. (See id. at 13 (covering current and former equity holders, officers, and directors and their attorneys)). The Exculpation Clause states:
[N]o Exculpated Party shall have or incur, and each Exculрated Party is hereby exculpated from, any Cause of Action for any claim related to any act or omission based on the negotiation, execution, and implementation of any transactions approved by the Bankruptcy Court in the Chapter 11 Cases, including the [Chapter 11] Plan, except for claims related to any act or omission that is determined by Final Order to have constituted actual fraud, willful misconduct, or gross negligence, each solely to the extent as determined by a Final Order of a court of competent jurisdiction[.]
Id. at 54–55.
Through the Chapter 11 Plan, Murray Energy withdrew from its obligations to the United Mine Workers of America 1974 Pension Plan and Trust (“1974 Plan“). (Confirmation Order, No. 2:19-bk-56885, Doc. 2135, 22–23). The Chapter 11 Plan did not release the 1974 Plan‘s claims against Plaintiffs or exculpate Plaintiffs as to those claims. (Id. at 50–51).
On March 2, 2021, the 1974 Plan demanded Robert Murray‘s estate or trust pay $6.5 billion in withdrawal liability under the
On February 1, 2022, Plaintiffs initiated this lawsuit in the Belmont County Court of Common Pleas, bringing a claim for legal malpractice against Wilkie. (See id.). Plaintiffs alleged
Wilkie removed the case to the bankruptcy court. (Notice of Removal, R. 1). In their Notice of Removal, they stated that an arbitration agreement applied to Plaintiffs’ claim. (Id.) Wilkie moved to dismiss. (R. 9). Plaintiffs then moved for remand for lack of subject-matter jurisdiction, or in the alternative, mandatory abstention, permissive abstention, and equitable remand to state court. (R. 42). Plaintiffs opposed Wilkie‘s Motion to Dismiss on the merits. (R. 51). Wilkie then opposed remand and moved to stay pending arbitration should the bankruptcy court decline to adjudicate the claim. (R. 57; R. 60). Subsequently, Plаintiffs moved to stay pending arbitration and initiated arbitration proceedings. (R. 64).
The bankruptcy court denied Plaintiffs’ Motion for Remand and Motion to Stay Pending Arbitration and granted Wilkie‘s Motion to Dismiss with prejudice to re-filing. (Op. & Order, R. 89). Plaintiffs brought this appeal.
II. LAW AND ANALYSIS
Plaintiffs appeal the bankruptcy court‘s order denying remand, denying a stay pending arbitration, and dismissing the complaint with prejudice. This Court has jurisdiction to hear this appeal from a final judgment of the bankruptcy court pursuant to
A. Denial of Motion to Remand
This Court reviews de novo the bankruptcy court‘s dеnial of Plaintiffs’ Motion to Remand. See Eastman v. Marine Mech. Corp., 438 F.3d 544, 549 (6th Cir. 2006). As the party seeking removal, Wilkie bears the burden of demonstrating subject-matter jurisdiction. See id.
The “arising under,” “arising in,” and “related to” categories also govern the “core proceeding” analysis.
The Sixth Circuit has defined only the “related to” category in the jurisdictional context. “Related-to” jurisdiction exists where “the outcome of th[e] proceeding could conceivably have any effect on the estate being administered in bankruptcy.” Wolverine Radio, 930 F.2d at 1142
1. Related-to Jurisdiction Does Not Subsume Arising-in Jurisdiction.
Plaintiffs contend that related-to jurisdiction encompasses arising-under and arising-in jurisdiction. Plaintiffs base this conclusion on Wolverine Radio, where the Sixth Circuit adopted the conceivable effect test for related-to jurisdiction. In finding “at least” related-to jurisdiction existed, the Sixth Circuit stated:
For the purposes of determining whether a particulаr matter falls within bankruptcy jurisdiction, it is not necessary to distinguish between the second, third, and fourth categories (proceedings “arising under,” “arising in,” and “related to” a case under title 11). These references operate conjunctively to define the scope of jurisdiction. Therefore, for purposes of determining section 1334(b) jurisdiction, it is necessary only to determine whether a matter is at least ‘related to’ the bankruptcy.
Wolverine Radio, 930 F.2d at 1141 (internal citations omitted).
In Plaintiffs’ view, the last sentence quoted above diсtates that if there is no related-to jurisdiction, there cannot be arising-under or arising-in jurisdiction. Wilkie argues that Plaintiffs mistake sufficiency for necessity; Wolverine Radio says that a finding of “at least” related-to jurisdiction is sufficient to establish bankruptcy jurisdiction without further analysis.
Courts in the Sixth Circuit have read Wolverine Radio both ways. After Wolverine Radio, some courts have held that the test for related-to jurisdiction is outcome-determinative for bankruptcy jurisdiction. See, e.g., Spradlin v. Pikeville Energy Grp., LLC, No. CIV. 12-111, 2012 WL 6706188, at *6 (E.D. Ky. Dec. 26, 2012). Other courts have held that the jurisdictional categories each stand alone, even if they may overlap. See, e.g., In re HNRC Dissolution Co., No. 02-14261, 2018 WL 2970722, at *3 (Bankr. E.D. Ky. June 11, 2018) (“The Court has ‘arising in’ jurisdiction and that is sufficient . . . ‘Related to’ jurisdiction has nothing to do with the issues here“) (quoting In re Motors Liquidation Co., 514 B.R. 377, 381 (Bankr. S.D.N.Y. 2014)); see also McKinstry v. Sergent, 442 B.R. 567, 572–76 (E.D. Ky. 2011) (“Any one of [arising-under, arising-in, or related-to jurisdiction] will suffice“). As one court put it, ”Wolverine Radio could be read to mean only that in determining § 1334(b) jurisdiction, it is ‘necessary only’ to find related-to jurisdiction, not that in determining § 1334(b) jurisdiction, it is ‘necessary only’ to determine whether there is related-to jurisdiction, yes or no.” In re Alma Energy, LLC, 521 B.R. 1, 26 n.3 (Bankr. E.D. Ky. 2014).
Plaintiffs’ interpretation has some support. Wolverine Radio states that “it is necessary only to determine whether a matter is at least ‘related to’ the bankruptcy.” “Whether” usually means “if” or “if, or not.” CAMBRIDGE DICTIONARY, dictionary.cambridge.org (last visited Mar. 11, 2025). If the Sixth Circuit intended Wilkie‘s meaning, it would have been more precise to use “that” in place of “whether.” Further, as Plaintiffs point out,
Wilkie has the better reading when looking to Wolverine Radio and the bankruptcy statute as a whole. Wolverine Radio states that the three categories “оperate conjunctively to define the scope of jurisdiction.” Wolverine Radio, 930 F.2d at 1141. Therefore, “related to” does not define the scope of jurisdiction operating alone. “Arising in” and “arising under” must play some role.
The statute‘s text supports Wilkie‘s interpretation. Plaintiffs’ reading erases the terms “arising under” and “arising in” from
A recent published case confirms that Wilkie is correct. In Autumn Wind, the Sixth Circuit clarified that the test for related-to jurisdiction does not apply to arising-under or arising-in jurisdiction. Autumn Wind Lending, LLC v. Est. of Siegel by & through Cecelia Fin. Mgmt., LLC, 92 F.4th 630, 637 (6th Cir. 2024). The Sixth Circuit held that “the conceivable-effect test applies only to related-to jurisdiction,” and, consequently, a finding of no related-to jurisdiction ends the
Only Wilkie‘s reading of Wolverine Radio is consistent with Autumn Wind. If the conceivable-effect test is met, there is bankruptcy jurisdiction because related-to jurisdiction exists. Wolverine Radio, 930 F.2d at 1142. But where related-to jurisdiction does not exist, courts should evaluate whether “arising-under or arising-in jurisdiction is implicated.” See Autumn Wind, 92 F.4th at 637. Read together, Autumn Wind and Wolverine Radio dictate that a court may find that it does have bankruptcy jurisdiction without differentiating between arising-under, arising-in, or related-to jurisdiction, but a court cannot determine that it lacks bankruptcy jurisdiction until it rules out each jurisdictional category.
2. Arising-in Jurisdiction
Arising-in proceedings “by their nature, could arise only in bankruptcy cases.” Wolverine Radio, 930 F.2d at 1144. Under the Sixth Circuit test, a claim arises in the bankruptcy case if: (1) “the claim could not have еxisted ‘but for’ the bankruptcy“; and (2) “the factual underpinnings of
At a high level of generality, the form of the claim here—a legal malpractice action—could exist outside of the bankruptcy. But courts must look at both form and substance to make the arising-in determination. Sanders Confectionery, 973 F.2d at 483; Wolverine Radio, 930 F.2d at 1144. Plaintiffs’ complaint alleges that Wilkie failed to take adequate steps to warn, advise, and protect Plaintiffs from ERISA withdrawal liability stemming from the Chapter 11 Plan that Wilkie negotiated in the bankruptcy case. (Compl., R. 1, ¶¶ 6, 11, 14–16, 20). Acсordingly, the claim could not exist outside the bankruptcy and the claim‘s factual underpinnings actually arose in the bankruptcy case. See In re HNRC Dissolution Co., 761 F. App‘x at 562 (holding that state-law claims arose in the bankruptcy where the plaintiffs faulted the defendants for bad acts in the bankruptcy and claimed damages from the outcome of the bankruptcy); see also Baker v. Simpson, 613 F.3d 346, 350–51 (2d Cir. 2010) (holding that malpractice claims based on services rendered in a bankruptcy case fall within arising-in jurisdiction). There is arising-in jurisdiction herе.
***
Because there is at least arising-in jurisdiction, this Court need not address whether there is also related-to jurisdiction. Further, because arising-in proceedings are core, the bankruptcy court did not err in declining to abstain or order equitable remand. This Court AFFIRMS the bankruptcy court‘s denial of Plaintiffs’ Motion for Remand.
B. Denial of Motion to Stay
This Court reviews de novo the bankruptcy court‘s denial of Plaintiffs’ Motion to Stay Pending Arbitration. See Albert M. Higley Co. v. N/S Corp., 445 F.3d 861, 863 (6th Cir. 2006). Accordingly, this Court may affirm the bankruptcy court‘s decision on any grounds supportеd by
As a threshold matter, Plaintiffs argue that the waiver issue is itself arbitrable. Under Sixth Circuit precedent, however, courts—not arbitrators—presumptively decide whether a party has waived the right to demand arbitration through litigation conduct. JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 394 (6th Cir. 2008); see also Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 69 (2019) (noting an exception to referring arbitrability issues to arbitrators when the party seeking arbitration has defaulted on their right to arbitrate).
The Supreme Court recently clarified that courts should “apply ordinary waiver rules, looking for the ‘intentional relinquishment or abandonment of a known right‘” to determine waiver of the right to arbitrate. Schwebke v. United Wholesale Mortg. LLC, 96 F.4th 971, 974 (6th Cir. 2024) (quoting Morgan v. Sundance, Inc., 596 U.S. 411, 417 (2022)). Under Morgan, courts must make “arbitration agreements as enforceable as other contracts, but not more so.” Id. at 418 (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)). Accordingly, the Supreme Court held that “prejudice is not a condition of finding that a party, by litigating too long, waived its right to stay litigation or compel arbitration[.]” Morgan, 596 U.S. at 419.
Before Morgan, the Sixth Circuit litigation-conduct waiver test required showing: (1) that the party had taken “actions that are completely inconsistent with any reliance on an arbitration
On remand in Morgan, the Supreme Court allоwed the Eighth Circuit to apply its existing waiver test without the prejudice requirement. Id. at 974. But the Eighth Circuit test did not require complete inconsistency. Id. Under the modified Eighth Circuit test, a party waives its right to arbitrate when it acts inconsistently with a known arbitration right. Id. Similarly, the Third Circuit “[a]pplying the general rule for waiver as Morgan directs,” looked to whether the party “acted inconsistently with an intent to assert its right to arbitrate” under the totality of the circumstances. White v. Samsung Elecs. Am., Inc., 61 F.4th 334, 339 (3d Cir. 2023).
Here, Plaintiffs’ conduct amounts to waiver under either the general rule for waiver or the complete inconsistency standard. Plaintiffs brought this action in state court without reserving their arbitration rights. This is inconsistent with an intent to assert the right to arbitrate and demonstrates intentional relinquishment of that right. Lee Constr., LLC v. Bratton, No. 1:22-cv-196, 2023 WL 5805848, at *4 (E.D. Tenn. July 28, 2023); Nicholas v. KBR, Inc., 565 F.3d 904, 908 (5th Cir. 2009) (“[S]hort of directly saying so in open court, it is difficult to see how a party could more clearly evince a desire to resolve a dispute through litigation” than by “filing suit without asserting an arbitration clause“). Standing alone, however, filing a complaint is not аlways “completely inconsistent” with “any reliance” on arbitration rights. O‘Meara as next friend of O‘Meara v. Fid. Invs., No. 2:20-cv-2838, 2021 WL 493422, at *4 (W.D. Tenn. Feb. 10, 2021) (Finding no complete inconsistency because “Plaintiff mentioned arbitration and his intent to
Combined with their choice to bring suit in state court, Plaintiffs subsequent actions are completely inconsistent with any reliance on the arbitration agreement. After Wilkie removed the action to bankruptcy court, Plaintiffs moved for remand to state court. Had Plaintiffs only argued that the bankruptcy court lacked subject-matter jurisdiction, that might not have been “completely inconsistent” with reliance on arbitration. See Smith v. Spizzirri, 601 U.S. 472, 476 n.2 (2024) (a bankruptcy court cannot stay a case pending arbitration if it lacks jurisdiction). But Plaintiffs made alternative arguments assuming jurisdiction, and, even so, did not express any intent to invoke the arbitration agreement. Instead, Plaintiffs requested mandatory аbstention, permissive abstention, or equitable remand to state court. Plaintiffs asserted that the state court was an appropriate forum, could timely adjudicate the claim, and could meet their jury trial demand. (Mot. To Remand, R. 47, 14–17). Plaintiffs then asked the bankruptcy court permissibly to abstain and remand out of “respect for Plaintiffs’ choice of a state-court forum.” (Id. at 17).
Plaintiffs now contend that they only initiated the lawsuit out of concern that Wilkie would dishonor the arbitration agreement and seek to apply Ohio‘s statute of limitations. (Reply Br. 18–19). Plaintiffs do not explain why they did not reserve the right to arbitrate in their state court complaint or initiate arbitration in conjunction with filing the complaint. Further, in their Notice of Removal, Wilkie stated that “Plaintiffs’ claim is also subject to an arbitration clause.” (R. 1, 7 n.6). Plaintiffs did not then commence arbitration or move to stay the case. Instead, Plaintiffs asked to return to state court through remand or abstention. Plaintiffs noted that Wilkie asserted that an arbitration agreement applied, but Plaintiffs only did so to argue that the bankruptcy court should return the action to state court because Wilkie had engaged in forum-shopping by removing
In sum, Plaintiffs sought to litigate the case in state court “before deciding they would fare better in arbitration” than before the bankruptcy court. See Morgan, 596 U.S. at 413. Plaintiffs’ actions demonstrate intentional relinquishment of their right to arbitration and are completely inconsistent with any reliance on the arbitration agreement. Accordingly, Plaintiffs waived their right to arbitrate. This Court AFFIRMS the bankruptcy court‘s denial of Plaintiffs’ Motion to Stay Pending Arbitration.
C. Dismissal for Failure to State a Claim
This Court reviews de novo an appeal from the bankruptcy court‘s dismissal for failure to state a claim under
Here, Plaintiffs fail to state a claim because they do not allege gross negligence, as required by the Exculpаtion Clause. The parties agree that the Exculpation Clause, at minimum, acts to raise the standard of care to gross negligence for covered claims. (Appellant Br. 44, 48; Appellee
The complaint does not mention gross negligence. (Compl., R. 1). The complaint alleges that “Defendants breached their duties and obligations to Plaintiffs, including professional standards, duties of care, and fiduciary duties,” that those duties “arose from the attorney/client relationship,” and that “[a]s a result of Defendants’ negligence and malpractice, Plaintiffs proximately suffered financial harm[.]” (Compl., R. 1, ¶¶ 23, 25–27). These allegations reflect the elements for ordinary legal malpractice based on negligence. See Badgett v. Schulman, No. 17-3331, 2018 WL 11591213, at *3 (6th Cir. Nov. 28, 2018).
Plaintiffs argue that the complaint meets the Exculpation Clause‘s gross-negligence exception by alleging “actual malice.” (Compl., R. 1, ¶ 28). Plaintiffs contend that the complaint sufficiently pleads actual malice because the factual allegations show “a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.” Preston v. Murty, 512 N.E.2d 1174, 1176 (Ohio 1987). Plaintiffs point to allegations that Wilkie claims ERISA withdrawal liability expertise and that Plaintiffs face potential withdrawal liability claims of over $6.5 billion. (Appellant Br. 49–50; Compl., R. 1, ¶ 26). The complaint does not allegе that Wilkie‘s failure to warn had a “great probability of causing” this potential substantial harm to transpire. Preston, 512 N.E.2d at 1176 (“A possibility or even probability is not enough as that requirement would place the act in the realm of negligence“).
Plaintiffs also argue that the Exculpation Clause does not apply because it only covers a “claim related to any act or omission based on the negotiation” of the Chapter 11 Plan. (Appellant Br. 47 (quoting the Exculpation Clause)). First, Plaintiffs argue that fаilure to warn or advise of the ERISA liability is not sufficiently related to the negotiation of the Chapter 11 Plan to fall under
Plaintiffs’ arguments contort the complaint. The complaint specifically links the failure to warn allegations to the “impact” of the Chapter 11 Plan. (Compl., R. 1, ¶ 26). The complaint also ties the failure to warn to the negotiation. The complaint alleges that Defendants “failed to warn [Robert Murray] of the ramifications of the plan of reorganization that Defendants negotiated as their legal counsel in the Bankruptcy Proceeding.” (Id. ¶ 25). Moreover, even if the Exculpation Clause did not apply to malpractice prior to the bankruptcy, any such claim would not survive for lack of damages. The complaint solely alleges harm stemming from “[t]he plan of reorganization in the Bankruptcy Proceeding that Defendants negotiated.” (See Compl., R. 1, ¶ 20); Kovacs v. Chesley, 406 F.3d 393, 398 (6th Cir. 2005) (A legal malpractice action requires showing “resulting damage or loss“).
For the reasons stated above, the complaint fails to plead gross negligence, as required to meet the Exculpation Clause еxception. Accordingly, Plaintiffs fail to state a claim upon which relief can be granted. This Court need not reach the bankruptcy court‘s alternative grounds for dismissal. This Court AFFIRMS the bankruptcy court‘s dismissal of Plaintiffs’ complaint.
D. Dismissal With Prejudice
Plaintiffs argue that the bankruptcy court erred when it dismissed the complaint with prejudice without an opportunity to amend. This Court reviews for abuse of discretion. See United States ex rel. Owsley v. Fazzi Assocs., Inc., 16 F.4th 192, 197 (6th Cir. 2021).
Here, Plaintiffs never moved for leave to amend or filed a proposed amended complaint. Plaintiffs only included a footnote in their opposition to the Motion to Dismiss that requested, “In the unlikely event that the Court enters an order granting [Wilkie‘s Motion to Dismiss] it be without prejudice so that Plaintiffs may have an opportunity to file a motion for leave to amend and a proposed amended Complaint.” (Resp. to Mot. to Dismiss, R. 48, 14 n.4). Accordingly, this Court AFFIRMS the bankruptcy court‘s dismissal of Plaintiffs’ claim with prejudice.
III. CONCLUSION.
For the foregoing reasons, this Court hereby AFFIRMS the bankruptcy court‘s judgment.
IT IS SO ORDERED.
ALGENON L. MARBLEY
UNITED STATES DISTRICT JUDGE
DATED: March 11, 2025