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In re Essar Steel Minnesota LLC

United States District Court, D. Delaware

September 10, 2019

MESABI METALLICS COMPANY LLC, Counterclaim-Defendant. CLEVELAND-CLIFFS INC., et al, Counterclaim-Plaintiffs,
MESABI METALLICS COMPANY LLC, et al, Counterclaim-Defendants. Adv. Proc. No. 17-51210-BLS



         Having reviewed the papers submitted in connection with plaintiff Mesabi Metallics Company LLC's ("Mesabi") motion for leave to file interlocutory appeal (D.I. 1, 13) ("Motion for Leave") from the Bankruptcy Court's Memorandum Opinion and Order (Adv. D.I. 98, 104)[1](the "Interlocutory Order"), which granted Defendants' motions for partial summary judgment and denied Mesabi's cross-motion for partial summary judgment in the above-captioned adversary proceeding ("Adversary Proceeding"); the opposition thereto filed by defendants Cleveland-Cliffs Inc. and Cleveland-Cliffs Minnesota Land Development LLC (together, "Cliffs") (D.I. 5); the joinder to the opposition filed by defendant Glacier Park Iron Ore Properties LLC ("GPIOP" and, together with Cliffs, "Defendants") (D.I. 11);

         IT IS HEREBY ORDERED that the Motion for Leave (D.I. 1) is DENIED for the reasons that follow:

         1. Introduction.

         This dispute centers on mineral leases in the Mesabi Range in Minnesota. GPIOP as lessor, and Mesabi as lessee, were successors in interest to certain mineral leases at the time of Mesabi's Chapter 11 filing. Defendants contend that the mineral leases at issue were rejected and that rights under those leases have been transferred to new lessee Cliffs pursuant to newly-executed leases. Mesabi has alleged a host of claims against Defendants in the Adversary Proceeding, and Defendants have asserted a number of counterclaims. Each party filed a motion for partial summary judgment on the mineral lease-related claims asserted in the Adversary Proceeding. The Bankruptcy Court's Interlocutory Order granted the motions filed by GPIOP and Cliffs and denied the motion filed by Mesabi. Mesabi seeks leave to appeal the Interlocutory Order.

         2. Background.

         Plaintiff Mesabi, formerly known as Essar Steel Minnesota LLC ("Essar"), is an iron ore mining and processing company. Together with its affiliate, ESML Holdings, Inc., Mesabi filed its petition under Chapter 11 on July 8, 2016. (B.D.I. 1) GPIOP and Superior Mineral Resources, LLC ("Superior") each had mineral leases with Mesabi at the time that it filed for bankruptcy (collectively the "Mineral Leases").[2] The Mineral Leases granted the respective lessor the right to terminate if Mesabi failed to meet a minimum production threshold. (See e.g., B.D.I. 888 at 2) The record reflects Mesabi's concern that its lessors might retake mineral interests on grounds that Mesabi had failed to perform under its leases. (See B.D.I. 14 ¶ 13) ("[T]he potential termination of these mineral leases -the core source of supply of raw material for operation of the Facility - provided an impetus for the Debtors' filing of the Chapter 11 Cases.")

         On June 8, 2017, Mesabi filed a proposed plan of reorganization. GPIOP and Superior objected to Mesabi's assumption of their Mineral Leases under the Plan on the basis, inter alia, that Mesabi had not given adequate assurance of future performance. (See e.g., B.D.I. 888 at 3) On August 28, 2017, Mesabi, its plan sponsor Chippewa Capital Partners, LLC, GPIOP, and Superior entered into a settlement to govern the proposed assumption of the Mineral Leases, which the Debtors submitted to the Bankruptcy Court for approval on August 29, 2017 (the "Settlement Agreement"). On August 30, 2017, the Bankruptcy Court entered an order approving "all of the[] terms and conditions of the Settlement Agreement" (the "Settlement Order"). (B.D.I. 1168) The Settlement Agreement was "a comprehensive settlement.. .intended to resolve the dispute regarding assumption of the [Mineral] Leases." (Opinion at 5) Pursuant to the Settlement Agreement, Mesabi was granted an extension from August 31, 2017 to October 31, 2017 to assume the Mineral Leases. Mesabi's assumption of the Mineral Leases, however, was specifically "contingent on the Plan going effective no later than October 31, 2017." (Id.; see also B.D.I. 1168-1, Settlement Agreement at § 3(b)) The Settlement Agreement further provided that if the Effective Date did not occur by October 31, 2017, "the mineral leases will be automatically rejected . .. and revert to GPIOP and Superior, as applicable, without further Bankruptcy Court proceedings." (Settlement Agreement § 3(d)) The Settlement Agreement provided that after rejection and reversion, "GPIOP and Superior, as applicable, may take any action with respect to the Mineral Leases and the leased properties and interests and such actions will not constitute a violation of the automatic stay or any other provision of the Bankruptcy Code." (Id.) The interpretation of the Settlement Agreement is the focus of Mesabi's Motion for Leave.

         The October 31, 2017 deadline passed without the occurrence of the Effective Date. Mesabi did not secure another extension or otherwise seek any clarification of its remaining rights with respect to the Mineral Leases. On December 11, 2017, six weeks after the October 31, 2017 deadline, Cliffs announced that it had acquired GPIOP's properties that had formerly been leased by GPIOP to Mesabi. On December 22, 2017, Mesabi caused its plan to go effective and emerged from reorganization. (B.D.I. 1398) The same day, Mesabi filed a motion for leave to amend its previously-filed complaint in the Adversary Proceeding, which, among other things, added Cliffs and GPIOP as defendants and added various counts seeking determination of the parties' respective rights under the Mineral Leases. The motion for leave to amend was granted by the Bankruptcy Court on January 23, 2018. (Adv. D.I. 18) ("Amended Complaint")

         On February 26, 2018, GPIOP filed a motion for partial summary judgment on the Mineral Lease-related counts of the Amended Complaint. (Adv. D.I. 31, 33) On March 28, 2018, Cliffs filed its own motion for partial summary judgment. (Adv. D.I. 46, 47) Defendants argued that the Settlement Agreement provided that Mesabi only had the right to assume the Mineral Leases if its Plan went effective by October 31, 2017. When the Plan did not go effective by that date, the Settlement Agreement clearly provided that the Mineral Leases were rejected and reverted to GPIOP. (Adv. D.I. 47) Subsequent to that date, GPIOP entered into new leases with Cliffs, and, in Defendants' view, Mesabi no longer had rights remaining as to the Mineral Leases or the underlying property.

         On March 28, 2018, Mesabi filed its opposition and cross-motion for summary judgment on substantially the same counts at issue in GPIOP's motion. (Adv. D.I. 51) ("Cross-Motion") In its Cross-Motion, Mesabi asked the Bankruptcy Court to undertake a multi-step analysis of the Settlement Agreement and the Settlement Order to conclude that Mesabi's failure to go effective by October 31, 2017 had no impact on Mesabi's ability to assume the Mineral Leases. Mesabi argues that the Settlement Agreement gave Mesabi an absolute right to assume the Mineral Leases if its Plan became effective on or before October 31, 2017 - and, when that did not happen, the Mineral Leases were rejected, but not terminated. At the center of this argument is Mesabi's assertion that Defendants were required to take additional steps to terminate the Mineral Leases. Thus, Mesabi asserts, when the Plan went effective on December 22, 2017, the Settlement Order and Settlement Agreement provided that the previously-rejected Mineral Leases were assumed and that all pre-assumption defaults were waived. (Id.) Mesabi reasoned that missing the October 31, 2017 deadline was merely a waivable pre-assumption fault. Mesabi focused on the language in the Settlement Order, entered in August 2017, which stated that Leases "are assumed as of the Effective Date of the Plan." Mesabi contends that this Order governs and provides that the Mineral Leases are assumed, irrespective of when the effective date of the Plan occurred, so long as the Plan ultimately became effective. Separately, Mesabi contended that, even if the Bankruptcy Court did not accept its construction of the Settlement Agreement, Mesabi should still prevail because the alternative would result in forfeiture of the Mineral Leases by the reorganized debtor, and such forfeiture is strongly disfavored under prevailing Minnesota law.

         After the summary judgment motions were fully briefed, the Bankruptcy Court heard oral argument on May 15, 2018. (Adv. D.I. 100) The Bankruptcy Court took the matter under advisement. No. party asked the Bankruptcy Court to deny partial summary judgment to any other party on the grounds that there was a material fact in dispute or that the Settlement Agreement was ambiguous.

         Judge Shannon issued the Opinion on July 23, 2018. In it he agreed with Cliffs' and GPIOP's construction of the Settlement Agreement; specifically that the Settlement Agreement is clear that the October 31, 2017 date was a material condition precedent to assumption. (Opinion at 12) Judge Shannon explained that "[w]hen November 1 arrived without Mesabi going effective, the [Mineral] Leases were rejected, reverted to GPIOP, and GPIOP could take 'any action' thereafter, as provided for in the Settlement Agreement." (Id.) (citing Settlement Agreement § 3(d)) Judge Shannon reasoned that the parties' intent was abundantly clear: they had negotiated for a date certain by which the rights and obligations would be determined. (Id. at 12-15) Consequently, "the Court will not permit the parties to evade or alter the plain consequences of what they bargained for in their Agreement." (Id. at 16) On August 15, 2018, Judge Shannon entered the Interlocutory Order, consistent with his Opinion, rendering judgment in Defendants' favor on Mesabi's Third, Fourth, Sixth, Thirteenth, Fourteenth, Sixteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third, and Twenty-Fourth Claims for Relief in the Amended Complaint. (Adv. D.I. 104) The Interlocutory Order and the underlying reasons set forth in the Opinion are the subject of Mesabi's Motion for Leave.

         3. Applicable Standards.

         This Court has jurisdiction to hear appeals "with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.'* 28 U.S.C. § 158(a)(3). Section 158(a) does not identify the standard district courts should use in deciding whether to grant such an interlocutory appeal. See Id. "Typically, however, district courts follow the standards set forth under 28 U.S.C. § 1292(b), which govern interlocutory appeals from a district court to a court of appeals." In re AE Liquidation, Inc., 451 B.R. 343, 346 (D. Del. 20 ll).[3]

         Under the standards of § 1292(b), an interlocutory appeal is permitted only when the order at issue (1) involves a controlling question of law upon which there is (2) substantial ground for difference of opinion as to its correctness, and (3) if appealed immediately, may materially advance the ultimate termination of the litigation. See 28 U.S.C. § 1292(b); Katz v. Carte Blanche Corp.,496 F.2d 747, 754 (3d Cir. 1974). Entertaining review of an interlocutory order under § 1292(b) is appropriate only when the party seeking leave to appeal "establishes exceptional circumstances [to] justify a departure from the basic policy of postponing review until after the entry of final judgment." In re Del. and Hudson Ry. Co.,96 B.R. 469, 472-73 (D. Del. 1989), aff'd,884 F.2d 1383 (3d Cir. 1989). In part, this stems from the fact that "[p]iecemeal litigation is generally disfavored by the Third Circuit." In re SemCrude, L.P., 2010 WL 4537921, at *2 (D. Del. Oct. 26, 2010) (citing In re White Beauty View, Inc.,841 F.2d 524, 526 (3d ...

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