KEVIN R. HUENNEKENS, Bankruptcy Judge.
Before the United States Bankruptcy Court for the Eastern District of Virginia (the "Court") is the issue of whether Mar-Bow Value Partners, LLC ("Mar-Bow") possesses standing to be heard on Mar-Bow Value Partners, LLC's Amended Motion for Relief from Judgments and for Indicative Ruling and Reply to the United States Trustee's Response to (I) Motion to Reopen Case and (II) Motion for Relief from Judgments and for Indicative Ruling [Case No. 15-33896-KRH, ECF No. 4128] (the "Rule 60(d) Motion").
As the question presented concerns Mar-Bow's standing, the Court's subject-matter jurisdiction over this matter is the focus of this memorandum opinion. Venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
On August 3, 2015 ("Petition Date"), Alpha Natural Resources, Inc. ("ANR") and 149 direct and indirect subsidiaries (collectively, the "Debtors") each filed voluntary petitions under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in this Court.
On March 23, 2016, Mar-Bow entered the Bankruptcy Case by filing a proof of claim in the amount of $1.25 million of ANR 7.5% second lien notes due August 1, 2020 [Case No. 15-33896-KRH, Claim No. 30-1] (the "Claim").
In the Bankruptcy Case, the Court confirmed the Second Amended Joint Plan of Reorganization of Debtors and Debtors in Possession (the "Plan")
Despite the overwhelmingly successful reorganization of the Debtors, the Bankruptcy Case has been mired by a lengthy and protracted series of objections by Mar-Bow to McKinsey RTS's disclosures under Bankruptcy Rule 2014.
On June 28, 2018, the Court entered the Order Approving Motion for Entry of a Final Decree and Order (I) Closing These Chapter 11 Cases; (II) Authorizing and Directing the Reorganized Debtors to (A) Make the Final Category 1 Distribution and (B) Apply Any Unclaimed Distributions to the Reorganized ANR Contingent Revenue Payments; (III) Discharging the Claims Oversight Committee; and (IV) Terminating Kurtzman Carson Consultants, LLC as Claims, Ballot and Noticing Agent [Case No. 15-33896-KRH, ECF No. 4119], closing the Bankruptcy Case after finding that the estates had been fully administered in accordance with the Plan. On July 18, 2018, Mar-Bow filed Mar-Bow Value Partners, LLC's Motion to Reopen Case [Case No. 15-33896-KRH, ECF No. 4122] (the "Motion to Reopen"), asking the Court to reopen the Bankruptcy Case pursuant to section 350(b) of the Bankruptcy Code "(i) to address the additional disclosure violations on the part of McKinsey that have come to light, (ii) to address credible allegations from public documents evidencing McKinsey's fraud on the Court and (iii) to grant Mar-Bow's request for an indicative ruling." Mot. to Reopen 3. The Office of the United States Trustee (the "U.S. Trustee") joined the Motion to Reopen,
The Court heard argument on these pleadings at a hearing on January 9, 2019. Following the hearing, the Court entered an Order [ECF No. 2] (the "Miscellaneous Proceeding Order") granting the Motion to Reopen on a limited basis. Misc. Proc. Order ¶ 1.
On January 16, 2019, the Court entered the Order Appointing United States Bankruptcy Judge as Mediator [ECF No. 5] (the "Mediation Order") in the Miscellaneous Proceeding, appointing the Honorable Marvin Isgur as a mediator in the global dispute between Mar-Bow and McKinsey RTS, which had arisen in two additional bankruptcy cases pending in other bankruptcy courts.
McKinsey RTS and Mar-Bow were unable to reach an agreement through mediation. Before considering the merits of the Rule 60(d) Motion, the Court first asked the parties to address the issue of whether Mar-Bow has standing to request such relief. On February 20, 2019, McKinsey RTS submitted McKinsey Recovery and Transformation Services U.S., LLC's Brief Concerning Mar-Bow Value Partners, LLC's Lack of Standing to Pursue Motion to Reopen Case and Motion for Relief from Judgments [ECF No. 19] (the "McKinsey RTS Brief"). On March 6, 2019, Mar-Bow filed a Response of Mar-Bow Value Partners, LLC to McKinsey RTS's Brief Concerning Standing [ECF No. 26] (the "Mar-Bow Response"). On March 13, 2019, McKinsey RTS filed McKinsey Recovery & Transformation Services U.S., LLC's Reply Brief Concerning Mar-Bow Value Partners, LLC's Lack of Standing [ECF No. 31] (the "McKinsey RTS Reply"). On April 23, 2019, the Court held a hearing on the McKinsey RTS Brief, the Mar-Bow Response, and the McKinsey RTS Reply (the "Hearing"). At the conclusion of the Hearing, the Court took the matter under advisement.
Standing is "[a] party's right to make a legal claim or seek judicial enforcement of a duty or right." Standing, Black's Law Dictionary (10th ed. 2014). Thus, "any party who invokes the court's authority must establish standing." Ansley v. Warren, 861 F.3d 512, 517 (4th Cir. 2017) (citing Ariz. Christian Sch. Tuition Org. v. Winn, 563 U.S. 125, 133 (2011)). In federal courts, standing is determined by Article III of the Constitution, which confines the judicial power of the United States to "Cases" and "Controversies." U.S. Const. art. III, § 2, cl. 1. To possess Article III standing, "[t]he plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) (citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). An injury in fact is "`an invasion of a legally protected interest' that is `concrete and particularized' and `actual or imminent, not conjectural or hypothetical.'" Id. at 1548 (quoting Lujan, 504 U.S. at 560)). There must be a "causal connection" between the injury in fact and the defendant's conduct; a plaintiff will not have standing to sue based upon "the independent action of some third party not before the court." Lujan, 504 U.S. at 560-61; (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 41-42 (1976)). Finally, redressability of the injury in fact by the court must be likely "as opposed to merely `speculative.'" Id. at 561 (quoting Simon, 426 U.S. at 43). The plaintiff bears the burden of establishing these three elements. Spokeo, 136 S. Ct. at 1547 (citing FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990)).
While Article III dictates what a plaintiff must possess to have standing in federal court generally, section 1109 of the Bankruptcy Code sets forth an additional standing requirement in chapter 11 bankruptcy cases.
In In re Alpha Natural Resources Inc., 544 B.R. 848, this Court recognized that the term "party in interest" appears throughout the Bankruptcy Code but "is not defined, and the Court of Appeals for the Fourth Circuit has not elaborated on its meaning in § 1109(b)." Id. at 855. Nevertheless, this Court found that the Fourth Circuit had determined the term "party in interest" to mean "one who has a pecuniary interest in the distribution of assets to creditors" in interpreting section 502 of the Bankruptcy Code and "persons whose pecuniary interests are directly affected by the bankruptcy proceedings" in the context of section 102 of the Bankruptcy Code. Id. (quoting Grausz v. Englander, 321 F.3d 467, 473 (4th Cir. 2003); Yadkin Valley Bank & Tr. Co. v. McGee (In re Hutchinson), 5 F.3d 750, 756 (4th Cir. 1993)). Applying the canon of statutory construction that "a term is presumed to have the same meaning throughout a statute," id. (quoting Va. Office for Prot. & Advocacy v. Reinhard, 405 F.3d 185, 190 (4th Cir. 2005)), this Court held that a "party in interest" under section 1109(b) must have a "pecuniary interest at stake" that would be "`directly affected' by the bankruptcy proceeding'" Id. at 856 (quoting In re Hutchinson, 5 F.3d at 756). Similar definitions of section 1109 adopted by the Second, Third, and Seventh Circuits bolstered this interpretation. Id. at 855 (citing cases).
Accordingly, whether Mar-Bow has a right to be heard on the Rule 60(d) Motion pursuant to section 1109 of the Bankruptcy Code turns on whether Mar-Bow has a pecuniary interest that would be directly affected by the relief sought in the Rule 60(d) Motion. Mar-Bow asserts that it has "a pecuniary interest for standing purposes" because "a monetary distribution to Mar-Bow is a colorably arguable consequence of McKinsey's frauds on the Court."
Id. (emphasis in original) (footnote omitted).
The same logic applies when considering any disgorgement of profits or additional monetary sanctions hypothetically ordered by the Court in response to the Rule 60(d) Motion. Mar-Bow maintains that it has a pecuniary interest in these parts of the "monetary distribution" because "the disposition of any monetary sanctions that the Court imposes on McKinsey RTS for its abuses of the judicial process is entirely in the Court's discretion," and the Court should order that "all monetary sanctions be distributed broadly to those unsecured creditors on a pro-rata [sic] basis." Mar-Bow Resp. ¶¶ 22. However, "[a] bankruptcy court's order of confirmation is treated as a final judgment with res judicata effect." First Union Commercial Corp. v. Nelson, Mullins, Riley & Scarborough (In re Varat Enters., Inc.), 81 F.3d 1310, 1315 (4th Cir. 1996) (internal citations omitted). Even if the Court were to order disgorgement and other monetary sanctions, such money would be distributed as additional cash to the holders of "Allowed Secured First Lien Lender Claims," "which does not include Mar-Bow," as required by the terms of the Plan. Mar-Bow II, 2017 WL 4414155, at *18 (emphasis added). Thus, Mar-Bow has no pecuniary interest at stake in the current proceeding that would qualify it as a party in interest under section 1109(b).
Even more fundamentally, Mar-Bow lacks standing under Article III to permit the Court to consider its Rule 60(d) Motion. The first element of Article III standing is an "injury in fact," defined as "`an invasion of a legally protected interest' that is `concrete and particularized' and `actual or imminent, not conjectural or hypothetical.'" Spokeo, 136 S. Ct. at 1547, 1548 (quoting Lujan, 504 U.S. at 560)). Mar-Bow has no injury in fact in the current matter that satisfies this standard. To begin with, Mar-Bow has no legally protected interest in McKinsey RTS's disgorged fees and expenses, disgorged profits, or any other sanctions ordered by the Court. Any such hypothetical funds, if awarded, would be distributed to "Allowed Secured First Lien Lender Claims." The legally protected interest in these funds, to the extent one exists, belongs to the First Lien Lenders, as defined by the Plan.
To the extent Mar-Bow alleges "injury to the public's confidence in the integrity of the Court's process in this case," Mar-Bow Resp. ¶ 31 (emphasis omitted), or "a wrong against institutions set up to protect and safeguard the public," Hr'g Tr. 14:5-8, Apr. 23, 2019, ECF No. 50, that injury is a generalized grievance insufficient to support Article III standing. "[W]hen the asserted harm is a `generalized grievance' shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction." Warth v. Seldin, 422 U.S. 490, 499 (1975) (internal citations omitted). "Normally, of course, an individual lacks standing when seeking `not remediation of its own injury[,] . . . but vindication of the rule of law—the "undifferentiated public interest."'" Mar-Bow II, 2017 WL 4414155, at *17 n.41 (alteration in original) (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 106 (1998)). Public confidence in the integrity of the courts is the quintessential generalized grievance, shared by all citizens in substantially equal measure. Mar-Bow's desire to restore that confidence and rectify a wrong visited upon our public institutions would be an attempt to vindicate the undifferentiated public interest. This alleged harm does not confer standing under Article III.
Mar-Bow contends that the issue of standing is fundamentally different in the context of Federal Rule 60(d)(3).
Mar-Bow relies on Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), to assert that the inherent equity power of the Court permits it to depart from the standing doctrine to remedy a fraud on the court. In Hazel-Atlas, the Supreme Court recognized that a court sitting in equity is not constrained by the "evils of archaic rigidity" and can equitably intervene to "accord all the relief necessary to correct the particular injustices" of a fraudulent judgment. Id. at 248. Mar-Bow analogizes the actions taken in Hazel-Atlas to wrongfully obtain a patent judgment to McKinsey RTS's alleged frauds on this Court. Mar-Bow Resp. ¶¶ 24-32. Yet, in Hazel-Atlas, the standing of the parties was not in question because the party seeking to set aside the fraudulent patent judgment was the defendant in the prior case against whom the judgment was entered. Hazel-Atlas, 322 U.S. at 239-44. The case at bar more closely resembles the case of Houck ex rel. United States v. Folding Carton Administration Committee (In re Folding Carton Antitrust Litigation), 881 F.2d 494 (7th Cir. 1989). There a plaintiff brought a claim of fraud on the court pursuant to Federal Rule 60(b) relying on Hazel-Atlas to establish standing. Id. at 505. The district court determined that the plaintiff "lacked standing to bring an independent action under Rule 60(b)," and the Seventh Circuit affirmed. Id. In explaining its decision, the Seventh Circuit observed that "[t]he cases relied upon by [the plaintiff] in asserting that his lack of standing is immaterial are not germane to his argument because they involve movants whose legal interests were affected by the judgment sought to be set aside." Id. The Seventh Circuit concluded that "[a] nonparty who seeks to attack a fraudulently obtained judgment through an independent action is required to show that his legal interests are affected." Id. (citation omitted). This Mar-Bow failed to do.
Notwithstanding Mar-Bow's unsupported conclusion that motions for relief under Federal Rule 60(d)(3) are unique in that they afford even "non-parties" standing, this Court concludes otherwise, holding that "any party who invokes the court's authority must establish standing." Ansley v. Warren, 861 F.3d 512, 517 (4th Cir. 2017) (citing Ariz. Christian Sch. Tuition Org. v. Winn, 563 U.S. 125, 133 (2011)). While concededly Federal Rule 60(d)(3) "does not limit a court's power to . . . set aside a judgment for fraud on the court,"
Finding that Mar-Bow does not have standing to pursue the Rule 60(d) Motion, the Court turns to Mar-Bow's oral request at the Hearing, if the Court determined that that Mar-Bow lacked a pecuniary interest, for "the appointment of an investigator to look into McKinsey's conduct in this case," explaining it would be "inappropriate to dismiss Mar-Bow's claims and let McKinsey get away without explaining itself to this Court." Hr'g Tr. 31:8-32:10, Apr. 23, 2019, ECF No. 50. As there is no longer a pending contested matter, the Court declines to appoint an investigator pursuant to Rule 706 of the Federal Rules of Evidence. To the extent that the Court may have the ability to appoint an examiner sua sponte, pursuant to the authority granted to it under section 105(a) of the Bankruptcy Code, the Court elects not to do so at this time.
For the foregoing reasons, the Rule 60(d) Motion is denied for lack of standing. The oral request for the appointment of an examiner is denied. A separate order shall issue.
Fed. R. Bankr. P. 2014(a). For a comprehensive account of these objections, see Mar-Bow II, 2017 WL 4414155 at *2-16; see also Mar-Bow Value Partners, LLC v. McKinsey Recovery & Transformation Servs. US, LLC, 578 B.R. 325 (E.D. Va. 2017), aff'd per curiam sub nom. In re Alpha Nat. Res., Inc., 736 F. App'x 412 (4th Cir. 2018), cert. denied, No. 18-974, 2019 WL 342275 (Apr. 22, 2019) [hereinafter Mar-Bow I].
