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Km Upstream, LLC, A Delaware Limited Liability Company v. Elkhorn Construction

June 6, 2012


Appeals from the District Court of Fremont County The Honorable Norman E. Young, Judge

The opinion of the court was delivered by: Voigt, Justice.

Before KITE, C.J., and GOLDEN, HILL, VOIGT, and BURKE, JJ.

NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.

[¶1] The district court granted summary judgment to Elkhorn Construction, Inc. (Elkhorn), a subcontractor, on its mechanic's lien claim against KM Upstream, LLC (KM), the owner of an amine plant, the construction of which plant underlies all the issues of this case.*fn1 KM appealed, arguing that summary judgment was improper because of the existence of genuine issues of material fact, and because the district court did not have jurisdiction to proceed with the case, given the automatic stay arising in the bankruptcy proceedings of Newpoint Gas, LP (Newpoint, LP).*fn2 KM also asserts that the district court could not proceed in the absence of Newpoint because Newpoint, the contractor, is an indispensable party. Elkhorn cross-appealed, contending that the district court should have adjudicated its claimed oil and gas lien, in addition to the mechanic's lien, thereby making attorney's fees and costs available.

[¶2] Because of a W.R.C.P. 54(b) certification issue, the appeal and the cross-appeal were each filed twice. The resulting four docketed cases, as referenced in the heading of this opinion, have been joined for briefing, argument, and opinion. We affirm in part, reverse in part, and remand to the district court for further proceedings consistent herewith.


[¶3] 1. Did the automatic stay in Newpoint, LP's bankruptcy deprive the district court of jurisdiction to enter summary judgment in this case? 2. Did the district court err in granting summary judgment in the absence from this case of Newpoint, an indispensable party? 3. Did the district court err in granting summary judgment in the absence from this case of HFG Engineering US, Inc. (HFG), an alleged joint venturer with Newpoint, and therefore an indispensable party? 4. Did the district court err in finding no genuine issues of material fact? 5. Did the district court err in awarding summary judgment in an amount exceeding the contract price where Wyo. Stat. Ann. § 29-2-101(b) (LexisNexis 2007) requires that the work or materials establishing a mechanic's lien be furnished under a contract? 6. Did Elkhorn's Lien Statement set forth both a mechanic's lien claim and an oil and gas lien claim? 7. Did the district court err in concluding that Elkhorn's damages were liquidated and awarding pre-judgment interest? 8 Did the district court err in finding that Elkhorn conceded that $181,369 of its claim was not valid, and by subtracting that amount from Elkhorn's judgment? 9. Did the district court err in holding that the allowed foreclosure of the mechanic's lien "mooted" the necessity for the district court to address Elkhorn's separate motion for summary judgment on the oil and gas lien claim?


[¶4] On July 6, 2007, KM and Newpoint, Inc. entered into a contract whereby the latter would construct for the former "an amine plant at West Frenchie Draw, Fremont County, Wyoming[.]" KM agreed to pay Newpoint, Inc. $15,664,490 as a fixed cost, as might be amended by written change order. Eventually, two written change orders increased the price to $15,695,855.30. KM paid Newpoint, Inc. $15,524,659.21, and it paid $219,256.72 to other contractors to finish the job.

[¶5] Newpoint, Inc. subcontracted with Elkhorn to build the foundation and to interconnect certain "skids." The Time and Material Contract between Newpoint, Inc. and Elkhorn contained a "target price" of $5,700,000, which target price was not to be increased but by Newport, Inc., in writing. Despite the fact that this target price was never formally increased in writing, and despite the fact that no additional change orders were presented, Newpoint, Inc. approved Elkhorn's invoices in the total amount of $9,910,086.96.

[¶6] On March 6, 2009, Elkhorn filed a Lien Statement with the Fremont County Clerk, reading in pertinent part as follows:

NOTICE is hereby given that pursuant to and in accordance with Section 29-1-301 et. seq. and Section 29-3-101 et. seq., Wyoming Statutes, 2007, Elkhorn Construction, Inc., whose mailing address is P.O. Box 809, Evanston, Wyoming 82931, has and claims a lien against the leasehold interest and improvements hereinafter described and all production of oil, gas, ore and minerals in solid form, or proceeds therefrom in the amount of $4,880,588.83, plus interest, late charges, attorney's fees and costs from January 16, 2009, for materials furnished and delivered and labor supplied for the improvement of said property by Elkhorn Construction, Inc.

An itemized list setting forth and describing the materials delivered and labor supplied by Elkhorn Construction, Inc., is attached hereto as Appendix "A" and by this reference hereby made a part hereof.

That the materials and labor were delivered and performed for and to Newpoint Gas, LP at its special instance and request and upon its promise to pay Elkhorn Construction, Inc. the reasonable value therefore. A copy of the contract is attached as Appendix "B."

Elkhorn Construction, Inc. furnished and delivered such labor and materials aforesaid during the period of March 18, 2008 to January 16, 2009.

The aforesaid materials and labor were furnished to Newpoint Gas, LP for the improvement of the West Frenchie Draw Amine Gas Treating Plant, on real property situate in Fremont County, Wyoming, and being more particularly described as follows:

The foregoing described real property is owned by the State of Wyoming, whose address is indicated above.

(Emphasis in original.) Attached to the Lien Statement were 1,260 pages of invoices and labor charges for amounts claimed by Elkhorn.

[¶7] On March 23, 2009, Elkhorn filed a complaint against KM, alleging three causes of action: foreclosure of the lien as a mechanic's lien under Wyo. Stat. Ann. § 29-2-101 (LexisNexis 2007), foreclosure of the lien as an oil and gas lien under Wyo. Stat. Ann. § 29-3-103 (LexisNexis 2007), and unjust enrichment/quantum meruit.*fn3 KM responded with a motion to add Newpoint, Inc. as "a party needed for just adjudication of this dispute under W.R.C.P. 19." That motion was followed by a similar motion to join Newpoint, Inc. under W.R.C.P. 12(b)(7) and W.R.C.P. 19(a). Eventually, KM and Elkhorn stipulated that Newpoint, Inc. be joined as a party defendant, and an order to that effect was entered on November 24, 2009. Thereafter, Elkhorn filed its Second Amended Complaint, alleging the same three causes of action, but naming "Newpoint Gas, LP a/k/a Newpoint Gas Services, Inc." as a defendant. The Second Amended Complaint was refiled with a corrected caption, naming Newpoint Gas Services, Inc. as the additional defendant.

[¶8] KM filed an answer in response to the Second Amended Complaint, denying that Elkhorn was entitled to recover any amounts under any of its causes of action, and presenting numerous affirmative defenses. Newpoint, Inc. filed an answer, in pertinent part denying that Elkhorn had provided any material or performed any labor for which it had not been paid. Newpoint, Inc. also counterclaimed against Elkhorn, claiming that Elkhorn had breached its contract with Newpoint, Inc. by seeking compensation beyond the contract's target price, without prior notice as required by the contract. Newpoint, Inc. also sought a declaration that nothing further was owed to Elkhorn under the contract. Newpoint, Inc. later filed an amendment to its answer and counterclaim, limiting the counterclaim to a request for a declaratory judgment as to what amounts Elkhorn might be owed, and adding a cross-claim against KM, with seven claims for relief: misrepresentation, estoppel/waiver, breach of the implied covenant to provide timely and adequate plans, breach of contract, indemnity, breach of the covenant of good faith and fair dealing, and unjust enrichment.

[¶9] KM answered Newpoint, Inc.'s cross-claim, and filed a responsive cross-claim against Newpoint, Inc., in which it alleged breach of contract as follows: creation of the Elkhorn lien, failure to manage contract expenses, failure to pay or discharge lien, failure to provide notice of liens, failure to acquire subcontractor's waiver of lien rights, failure to assure consistent subcontract, failure to indemnify, and breach of the duty of good faith and fair dealing. Finally, KM sought a declaration as to Newpoint, Inc.'s obligations to defend against and hold KM harmless from the Elkhorn claims, or other claims arising by virtue of contract or common law.

[¶10] After replying to Newpoint, Inc.'s amended counterclaim, Elkhorn filed an amendment to its Second Amended Complaint in which it added a breach of contract claim against Newpoint, Inc., seeking $4,880,588.83 for amounts that it had not been paid under the project. Subsequently, Newpoint, Inc. answered the amendment to Elkhorn's Second Amended Complaint, and amended its cross-claim against KM by adding allegations of negligent retention of contractor, and indemnity under a specific section of the contract. KM then answered Newpoint, Inc.'s cross-claim, and amended its cross-claim against Newpoint, Inc. by alleging the following causes of action: breach of contract--joint venture obligations, promissory estoppel, equitable estoppel, breach of contract, breach of contract--creation of the Elkhorn lien, breach of contract--demand in excess of contract price, breach of contract--failure to pay or discharge liens, breach of contract--failure to provide notice of liens, breach of contract--failure to acquire subcontractor's waiver of lien rights, breach of contract--failure to assure consistent subcontract, breach of contract--obligation to defend and indemnify, breach of statutory duty to defend and pay, breach of the duty of good faith and fair dealing, and a declaratory judgment.

[¶11] The next series of filings in the district court began with KM's motion to join HFG as a party defendant. In its motion, KM asserted that all claims arising out of the same transaction should be adjudicated in one litigation, that Wyoming's lien statutes allow the owner to require the joinder of the project contractor because of the contractor's statutory duty to defend against the lien, that HFG and Newpoint were joint venturers, making HFG liable for project obligations, and that complete relief was not available absent joinder of HFG. Elkhorn opposed KM's motion on a number of grounds. First, Elkhorn pointed out that the case was nearly two years old and was set for trial. Second, Elkhorn complained that, despite KM's knowledge from the outset of HFG's role in the matter, no discovery had been conducted in that regard. Third, Elkhorn contended that, with its belated motion, KM was advancing an entirely new legal theory--that is, that Newpoint and HFG were joint venturers. And finally, Elkhorn pointed out that the arbitration clause in the contract between KM and HFG would compel arbitration of any issues between them.*fn4

[¶12] On March 28, 2011, Elkhorn filed a motion for summary judgment. A similar motion from KH followed on April 4, 2011. Both motions were supported by hundreds of pages of affidavits, deposition transcripts, and other exhibits. On May 3, 2011, KM filed a motion seeking partial summary judgment against Newpoint, Inc., on four of the causes of action in its cross-claim. Before any of these motions could be heard, KM notified the district court that Newpoint, LP had filed in Oklahoma a voluntary petition seeking bankruptcy protection, and seeking the district court's guidance on application of the bankruptcy court's automatic stay. Two days later, KM filed an amended notice of the bankruptcy, this time advising the court that "Newpoint Gas, LP, allegedly a/k/a Newpoint Gas Services, Inc." had taken bankruptcy. Elkhorn opposed recognition or application of the automatic stay arising in the Oklahoma bankruptcy in this case, arguing that its contract was with Newpoint, Inc., which company was not in bankruptcy, rather than with Newpoint, LP, the company in bankruptcy. Elkhorn argued further that, not only does a bankruptcy stay not stay proceedings against solvent companies affiliated with the company taking bankruptcy, neither does it stay proceedings against co-defendants of the company taking bankruptcy.

[¶13] The district court heard the pending motions in regard to the bankruptcy stay, as well as the summary judgment motions, on June 17, 2011. Ruling from the bench, the district court granted Elkhorn's motion for summary judgment to allow foreclosure on the mechanic's lien, but indicated that it would stay the balance of the proceedings as such related to Newpoint, Inc. and Newpoint, LP. On July 1, 2011, an Order Staying Case and an Order Granting Plaintiff's Motion for Summary Judgment on Foreclosure of Mechanic's Lien were entered. The details of those orders will be discussed as pertinent below.


Did the automatic stay in Newpoint, LP's bankruptcy deprive the district court of jurisdiction to enter summary judgment in this case?

[¶14] With little fanfare, we will dispose of KM's contention that the federal bankruptcy code's automatic stay, found at 11 U.S.C. § 362(a) (2006 & Supp. IV 2010), effective in Newpoint, LP's Oklahoma bankruptcy, should have stayed the entire case facing the district court in Wyoming. Whether we review the district court's decision de novo, as argued by KM, or for an abuse of discretion, as argued by Elkhorn, we come to the same conclusion.*fn5 The automatic stay does not stay proceedings against solvent co-defendants, such as KM, of an insolvent debtor, such as Newpoint, LP. See, e.g., Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324, 1329-30 (10th Cir. 1984); Diamond Hill Inv. Co. v. Shelden, 767 P.2d 1005, 1010 (Wyo. 1989); Hamel v. Am. Continental Corp., 713 P.2d 1152, 1154 (Wyo. 1986); 2 Howard J. Steinberg, Bankruptcy Litigation § 12:13 (2d ed. 2008); 9B Am. Jur. 2d Bankruptcy § 1747 (2006).

[¶15] It must be remembered that, in the instant case, the district court did stay the proceedings in regard to any claims, cross-claims, or counterclaims that could have resulted in a judgment against Newpoint, allowing only the summary judgment on Elkhorn's in rem mechanic's lien foreclosure to proceed. See True v. Hi-Plains Elevator Mach., Inc., 577 P.2d 991, 1004 (Wyo. 1978) and Mawson-Peterson Lumber Co. v. Sprinkle, 59 Wyo. 334, 140 P.2d 588, 591-92 (Wyo. 1943). Because the property subject to the lien foreclosure was the property of KM, rather than the property of Newpoint, the entity in bankruptcy, the in rem proceeding to foreclose the lien was not subject to the automatic stay. Fortier, 747 F.2d at 1330.

It should be self-evident from the clear language of 11 U.S.C. § 362 (1983) that the automatic stay granted petitioners in bankruptcy is directed at only claims against the "debtor," the "property of the debtor," and the "estate" and not acts against others. This is confirmed by courts working regularly in bankruptcy matters and knowledgeable in the field.

The automatic stay provisions apply to proceedings or acts against the debtor, the debtor's property, and the property of the estate, but do not apply to acts against property which is neither the debtor's nor the estate's. The automatic stay does not operate to prohibit action against a co-debtor nor affect the liability of a co-debtor not in bankruptcy. Something more than filing a bankruptcy petition must be shown in order that proceedings be stayed against nonbankrupt parties. Where a pending action is not interfering with a bankruptcy, an automatic stay of such action would in no way foster the Bankruptcy Code's policy of preserving the debtor's insolvent estate for the benefit of creditors.

Hamel, 713 P.2d at 1154 (internal citations omitted). The bankruptcy stay in Oklahoma did not deprive the district court of jurisdiction to enter summary judgment in the instant case.

Did the district court err in granting summary judgment in the absence from this case of Newpoint, an indispensable party?

[¶16] District court rulings on the joinder of parties, including allegedly indispensable parties, are reviewed for an abuse of discretion. Grove v. Pfister, 2005 WY 51, ¶ 4, 110 P.3d 275, 277 (Wyo. 2005); Albrecht v. Zwaanshoek Holding En Financiering, B.V., 762 P.2d 1174, 1178 (Wyo. 1988). The court rule governing joinder is found at W.R.C.P. 19: (a) Persons to be joined if feasible. -- A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if: (1) in the person's absence complete relief cannot be accorded among those already parties; or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may: (i) as a practical matter impair or impede the person's ability to protect that interest; or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest. If the person has not been so joined, the court shall order that the person be made a party. If the person should join as a plaintiff but refuses to do so, the person may be made a defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to venue and joinder of that party would render the venue of the action improper, that party shall be dismissed from the action.

(b) Determination by court whenever joinder not feasible. -- If a person as described in subdivisions (a)(1) and

(a)(2) hereof cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as ...

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