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In re Peabody Energy Corp.

United States District Court, E.D. Missouri, Eastern Division

March 29, 2019

In re PEABODY ENERGY CORP., et al., Reorganized Debtors,



         Appellants County of San Mateo, City of Imperial Beach, and County of Marin (Appellants) filed this appeal seeking to overturn the bankruptcy court's order that they dismiss their lawsuits against the Reorganized Peabody Energy Corporation (PEC). The Bankruptcy Court[1] ordered that Appellants dismiss their complaints against the Reorganized PEC on the grounds that the causes of action in those complaints constituted dischargeable claims that Appellants failed to file before the deadline the bankruptcy court set. After a review of the briefs and the record in this matter, I find that the bankruptcy court reached the correct legal conclusion regarding the First Causes of Action in Appellants' complaints and did not abuse its discretion regarding the remaining causes of action. As a result, I will affirm the bankruptcy court's order.

         I. Background

         Debtors Peabody Energy Corporation and its affiliates filed for Chapter 11 bankruptcy protection in 2016 in the United States Bankruptcy Court for the Eastern District of Missouri. The bankruptcy court set October 11, 2016 as the deadline for governmental units to assert claims that arose prepetition. On March 17, 2017, the bankruptcy court entered its order confirming PEC's Plan of Reorganization (Chapter 11 Plan). On April 3, 2017, the Chapter 11 Plan went into effect and Reorganized PEC emerged from bankruptcy. The Chapter 11 Plan established the deadline of May 3, 2017 for all creditors to assert claims against PEC that arose between the filing of the bankruptcy petition and the Plan's effective date.

         Appellants are three governmental entities in California. None of the Appellants filed a claim in PEC's bankruptcy proceeding. Instead, on July 17, 2017, shortly after PEC's plan went into effect, Appellants each filed a separate, nearly identical, lawsuit in three separate California state courts. The lawsuits sought damages and injunctive relief from multiple fossil fuel industry defendants for their role in contributing to global warming. PEC is a named defendant in these three lawsuits. The complaints allege that the defendants are responsible for greenhouse gas emissions between 1965 and 2015. The complaints seek compensatory damages, equitable relief, punitive damages, attorneys' fees, disgorgement of profits, and cost of suit.

         Each of Appellants' eight causes of action is the same, and they are presented in the same order across the three complaints: The First Cause of Action in each complaint (“First Causes of Action”) brings a public nuisance action on behalf of the People of the State of California. The remaining causes of action are brought on behalf of the government entities themselves and are as follows: (Second) Public Nuisance; (Third) Strict Liability-Failure to Warn; (Fourth) Strict Liability-Design Defect; (Fifth) Private Nuisance; (Sixth) Negligence; (Seventh) Negligence-Failure to Warn; (Eighth) Trespass. These lawsuits were removed to federal court.

         On August 28, 2017, Reorganized PEC filed a motion in the bankruptcy court seeking an order enforcing the discharge and injunction provisions of its Chapter 11 Plan. Specifically, PEC asked the bankruptcy court to enjoin Appellants from prosecuting their causes of action against PEC and to require Appellants to dismiss those actions with prejudice. The bankruptcy court found Appellants' claims against PEC had been discharged in bankruptcy. The bankruptcy court granted Reorganized PEC's motion, enjoined Appellants from prosecuting the PEC causes of action, and directed Appellants to dismiss the PEC causes of action with prejudice. Appellants appealed the bankruptcy court's decision to this Court.

         II. Legal Standard

         This court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a)(1). Appellants filed a timely notice of appeal.

         “When a bankruptcy court's judgment is appealed to the district court, the district court acts as an appellate court and reviews the bankruptcy court's legal determinations de novo and findings of fact for clear error.” Fix v. First State Bank of Roscoe, 559 F.3d 803, 808 (8th Cir. 2009) (internal quotation and citation omitted). Issues committed to the bankruptcy court's discretion are reviewed for an abuse of that discretion. In re Zahn, 526 F.3d 1140, 1142 (8th Cir. 2008). A bankruptcy court's interpretation of its own prior orders, including a confirmed Chapter 11 plan, is committed to the discretion of the bankruptcy court and is reviewed for abuse of discretion. See, e.g., In re Dial Bus. Forms, Inc., 341 F.3d 738, 744 (8th Cir. 2003). A bankruptcy court abuses its discretion when it fails to apply the proper legal standard or if it bases its order on findings of fact that are clearly erroneous. Id.

         III. Discussion

         Appellants raise four issues on appeal, which fall into two general categories. The first issue requires me to determine whether Appellants' First Causes of Action, which sought relief under a statutory remedial provision that only allowed them to seek abatement, raised claims that were discharged by the Chapter 11 Plan and Confirmation Order. The remaining issues pertain to whether Appellants' causes of action were exempt from discharge under certain exceptions included in the Chapter 11 Plan.

         The Chapter 11 Plan contains provisions (“EPA Settlement Provisions”) that clarify the extent to which Environmental Law claims and actions brought pursuant to a government entity's police powers are exempt from discharge under the Plan. Those provisions came after “significant negotiations between the Debtors, the U.S. Environmental Protection Agency, the Department of the Interior, other governmental entities, and many Indian Nations as part of a settlement in connection with the plan confirmation process (EPA Settlement).” [Memorandum Opinion, ECF Doc. No. 18-2, A0752, 0757] Appellants argue those provisions apply to their claims and protect them from discharge.

         a. Government Bar Date

         As an initial matter, Appellants did not file a proof of claim before the established deadline of October 11, 2016. [See Memorandum Opinion, ECF Doc. No. 18-2, A0752, 0759] They filed their complaints against PEC more than three months after the Effective Date of the Reorganized PEC's Chapter 11 Plan. The complaints they filed allege that PEC's activity between the years 1965-2015 contributed to climate change and has imposed significant costs on Appellants. [See, e.g., Marin Complaint, Exhibit C, ECF Doc. No. 18-2, A0619, 0695]

         Appellants “do not dispute that they received notice of the Debtors' bankruptcy cases, and the other operative deadlines in the Debtors' bankruptcy cases.” [Memorandum Opinion, ECF Doc. No. 18-2, A0752, 0759] They contend that they were not bound by the deadline for governmental units to file claims because their complaints bring claims that were exempted from discharge under PEC's confirmed Chapter 11 Plan. I address those arguments more fully below in Parts III(b) and (c). Because I find that Appellants' causes of action were not exempt, and because Appellants chose not to file a proof of claim before the deadline, I also find that their claims were discharged under the Plan and Confirmation Order.

         b. Discharge of the First Causes of Action

          I review de novo the question of whether Appellants' First Causes of Action constitute discharged claims under the PEC Chapter 11 Plan. In the First Causes of Action, Appellants seek injunctive relief pursuant to California's Public Nuisance Enabling Statute. I find that Appellants' First Causes of Action are claims that were discharged under the Chapter 11 Plan.

         The Bankruptcy Code defines the term “claim” as either a “right to payment” or a “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment.” 11 U.S.C. § 101(5)(A, B). The Code's use of the phrase “right to payment” “is usually referring to a right to payment recognized under state law.” Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450-51 (2007). Under the Bankruptcy Code, a debtor's breach of a state statutory provision constitutes a breach of performance. Ohio v. Kovacs, 469 U.S. 274, 279 (1985) (“There is no indication in the language of the statute that the right to performance cannot be a claim unless it arises from a contractual arrangement.”).

         Appellants argue that California's Public Nuisance Enabling Statute only enables them to seek injunctive relief, and they do not have a separate right to payment as a result of PEC's alleged conduct. Accordingly, they argue, their request for injunctive relief is not a claim under the Bankruptcy Code.

         While it may be the case that Appellants cannot seek damages under the Public Nuisance Enabling Statute for actions they brought in the name of the People of the State of California, the fact that Appellants can, and did, include a separate cause of action for damages in their complaints is ...

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