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Herling v. Wyoming Machinery Co.

Supreme Court of Wyoming

July 10, 2013

JERRY HERLING, Appellant (Defendant),
v.
WYOMING MACHINERY CO., a Wyoming corporation, Appellee (Plaintiff).

Appeal from the District Court of Natrona County The Honorable Catherine E. Wilking, Judge

Representing Appellant: Carissa D. Mobley and Cameron S. Walker of Schwartz, Bon, Walker & Studer, LLC, Casper, Wyoming. Argument by Ms. Mobley.

Representing Appellee: Timothy M. Stubson of Crowley Fleck, PLLP, Casper, Wyoming

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

DAVIS, Justice.

[¶1] This case involves a complicated series of events that have so far led to litigation in as many as three Wyoming district courts, a jury trial in the United States District Court for the District of Wyoming, a bankruptcy proceeding in California, and this appeal. Jerry Herling Construction, Inc. ("JHCI") contracted with Wyoming Machinery for rental and service of earthmoving equipment, but defaulted on the payments due under the agreement. Wyoming Machinery seeks to enforce personal guaranties of JHCI's performance against Jerry Herling, JHCI's CEO. Herling argues that an assignment of JHCI's retainage account and a settlement between other parties released him from his guaranties. We agree with the trial court that Wyoming Machinery was entitled to judgment against Herling on his guaranties as a matter of law, but we find that there are genuine issues of material facts as to the correct amount of the judgment, and we therefore reverse and remand for further proceedings consistent with this opinion.

ISSUES

[¶2] 1. Did JHCI's assignment of retainage it claimed to be owed by Tetra Tech EC, Inc. or an oral promise or representation by an employee of Wyoming Machinery release Jerry Herling from personal guaranties of JHCI's performance?

2.Did a settlement agreement between Tetra Tech and Wyoming Machinery release Jerry Herling from personal liability on his guaranties?

3.Were there genuine issues of material fact regarding the proper amount of the judgment to which Wyoming Machinery was entitled against Mr. Herling?

FACTS

[¶3] In 2007, PacifiCorp began development of three wind turbine farms in Converse and Carbon counties. PacifiCorp hired Tetra Tech as the project's general contractor, and Tetra Tech subcontracted the civil earth moving work to JHCI. Jerry Herling is the CEO and majority shareholder of JHCI.

[¶4] Herling executed a revolving credit agreement with Wyoming Machinery for the rental of heavy earthmoving equipment and maintenance services in his capacity as CEO of JHCI. He also executed a personal guaranty of JHCI's performance of the rental agreement. Beginning in February of 2008, Wyoming Machinery rented JHCI approximately forty-four pieces of heavy machinery under the agreement.

[¶5] JHCI began having difficulties paying its suppliers in June of 2008. Herling claimed that PacifiCorp significantly accelerated the construction schedule to complete the wind farm projects by the end of 2008 in order to reap the benefits of federal tax credits which were to expire soon. He contends that this accelerated schedule required JHCI to provide additional equipment and labor not included in its bid. He argued that JHCI was unable to make payroll or pay his suppliers because Tetra Tech stopped paying JHCI for work it had completed. Tetra Tech contended below and in a federal lawsuit that JHCI was not paid because it failed to properly perform the work required by its subcontract, and that Tetra Tech therefore properly withheld funds arguably due JHCI from a retainage account.[1]

[¶6] Wyoming Machinery threatened to remove its equipment from the jobs when it was not paid as required by the revolving credit agreement. Jerry Herling then signed a second personal guaranty which induced Wyoming Machinery to allow him to continue to use the equipment so that the work required by JHCI's subcontract could continue.

[¶7] In August of 2008, Tetra Tech learned that JHCI was not paying its suppliers, which could result in material liens being filed on the real property on which the wind farms were being built. Tetra Tech approached Wyoming Machinery and offered to pay some of JHCI's debt directly by using a two-party check that would draw on funds held in JHCI's retainage account in exchange for partial lien waivers from Wyoming Machinery. Wyoming Machinery supplied Tetra Tech with the requested lien waivers, but Tetra Tech did not pay anything at that point, later claiming that it had never agreed to pay any specific amount.

[¶8] Wyoming Machinery then again threatened JHCI with removal of the equipment unless JHCI assigned its interest in the retainage held by Tetra Tech to it. Jerry Herling executed the requested assignment as president of JHCI on September 16, 2008. Herling claims that he was released from his personal guaranties by an oral promise made to induce him to sign the assignment on behalf of JHCI. The facts concerning this assignment and its terms will be discussed in detail below.

[¶9] Tetra Tech refused to pay Wyoming Machinery any of the retainage it allegedly owed JHCI, assignment notwithstanding. Wyoming Machinery then terminated the revolving credit agreement with JHCI and removed its equipment in early September of 2008. Tetra Tech terminated its subcontract with JHCI and hired a replacement contractor to finish the excavation work on the wind farm projects. By this time JHCI owed Wyoming Machinery almost $1.3 million. JHCI claims that approximately $1.5 million remained in its retainage account with Tetra Tech at the time of these events.

[¶10] Wyoming Machinery sued JHCI, Tetra Tech, and Jerry Herling in the Seventh Judicial District in November of 2008. It claimed quantum meruit and breach of contract against JHCI and Tetra Tech. It claimed that Tetra Tech breached a promise that it would pay the company from JHCI's retainage, thus causing it to leave its equipment in place and to forego remedies it would otherwise have pursued. It also sought to hold Jerry Herling personally liable on his guaranties of JHCI's obligations under the revolving credit agreement.

[¶11] Wyoming Machinery also filed liens on the real property where its rental equipment had been used. On April 28, 2010, the Natrona County District Court granted Tetra Tech's motion for partial summary judgment and dismissed the lien claims, holding that rental equipment was not "material" within the scope of Wyoming's material lien statute, and that the liens were therefore invalid. That determination has not been appealed.

[¶12] In the meantime, JHCI filed a petition for Chapter 11 bankruptcy relief in the United States Bankruptcy Court for the Central District of California on April 5, 2010, and the proceedings against it in this case were stayed. There is no indication that the claims against JHCI were ever dismissed, and so they are evidently still pending, but do not appear to have been pursued.

[¶13] After the ruling dismissing the lien claims and the bankruptcy filing, Tetra Tech and Safeco, which had supplied bonds to obtain release of the liens, entered into a written settlement agreement with Wyoming Machinery on December 28, 2010. Tetra Tech paid Wyoming Machinery $500, 000 for a stipulated dismissal of claims against it and Safeco. Herling claims that he was released by this agreement, or in the alternative, that the $500, 000 payment should reduce any judgment against him as guarantor of JHCI's obligation to Wyoming Machinery. The settlement agreement will be examined in greater detail below.

[¶14] Meanwhile, Tetra Tech had sued JHCI and Jerry Herling in the United States District Court for the District of Wyoming on September 25, 2008, claiming that JHCI had breached its subcontract. JHCI counterclaimed, alleging a breach of contract by Tetra Tech. Summary judgment was granted as to some of the personal claims against Herling, and the rest were dismissed by stipulation, and he therefore ceased to be a party before that case went to trial between Tetra Tech and JHCI.[2]

[¶15] Tetra Tech was ultimately awarded a judgment of approximately $1.4 million on October 31, 2011, although JHCI was allowed a substantial setoff based upon a theory of unjust enrichment.[3] As will be discussed below, that case involved a relatively complex set of claims and counterclaims which may have directly or indirectly determined the ownership of funds held in JHCI's retainage account with Tetra Tech.

[¶16] Wyoming Machinery moved for summary judgment against Jerry Herling in this case on January 31, 2011, about a month after its settlement with Tetra Tech. Herling responded to the motion and also filed a cross-motion to dismiss, collectively claiming that he had been released from his guarantee by virtue of the settlement between Tetra Tech and Wyoming Machinery or the assignment of JHCI's retainage to Wyoming Machinery. In a statement of material facts filed with its motion for summary judgment under Wyoming Rule of Civil Procedure 56.1, Wyoming Machinery indicated that the undisputed amount of its debt was $884, 019.59, plus attorney fees. This would be approximately what JHCI originally owed Wyoming Machinery, less $500, 000.

[¶17] On October 21, 2011, the district court denied Herling's motion to dismiss based on the Wyoming Machinery/Tetra Tech settlement, concluding that:

The Defendant Jerry Herling is not a party to the subject settlement agreement entered into between Wyoming Machinery Company, Tetra Tech EC, Inc., and Safeco Ins. Co. of America. Said agreement specifically requires the Plaintiff to pursue the claims against Defendant Jerry Herling and did not intend or contemplate Defendant Herling as a third party beneficiary.

[¶18] At some point, the district judge evidently made an oral ruling that she would grant Wyoming Machinery's motion for summary judgment. The date of the hearing at which that ruling was made is not reflected in the record, and there is no transcript of any hearing at which the ruling was made.

[¶19] The parties submitted competing written orders to implement the oral decision. Wyoming Machinery submitted a proposed order which would have awarded it judgment for $1, 383, 472.93 on October 31, 2011, the same day the federal court entered judgment against JHCI in favor of Tetra Tech. Herling objected, claiming that the $500, 000 paid from JHCI's retainage account should be credited against the amount he had been found to owe, that Wyoming Machinery had admitted as much in its statement of material facts, and that the court had made no finding or order as to the amount of the judgment in its previous oral ruling. He accordingly submitted an order which would have granted Wyoming Machinery judgment against him for $883, 472.93.[4]

[¶20] Herling also moved to rejoin Tetra Tech, which had been dismissed as a result of the settlement. He filed an affidavit of Cameron S. Walker, who had been counsel for JHCI in the federal case described above. Mr. Walker attested that Tetra Tech had claimed the $500, 000 in the federal case, and submitted an exhibit used at trial by Tetra Tech's forensic accountant to establish its damages. That document reflected a claim for "Wyoming Machinery (Settlement, Nov 2010) $500, 000." Mr. Walker's affidavit concluded that part of Tetra Tech's judgment against JHCI included the $500, 000 Wyoming Machinery is attempting to recover from Herling in this case. Herling contended that Tetra Tech needed to be a party in order to assure that he would not have to pay what Tetra Tech had already recovered against JHCI on his guaranties.

[¶21] Wyoming Machinery responded that it would be required to repay Tetra Tech up to $500, 000 if it ever succeeded in recovering anything over $884, 472.93 from Herling because of the terms of its settlement agreement. The response did not address the effect, if any, of the Tetra Tech judgment against JHCI.

[¶22] On December 16, 2011, the district court entered a written order on Wyoming Machinery's motion for summary judgment, finding that: (1) Herling's personal guaranties were unambiguous; (2) Herling was not a party to JHCI's assignment of retainage to Wyoming Machinery; and (3) Herling failed to introduce evidence showing a genuine issue of material fact on whether the settlement agreement released Herling from his guaranties. It held that JHCI failed to pay for $1, 383, 472.93 of equipment and services supplied by Wyoming Machinery, and entered judgment against Herling in that amount based on his guaranties. It did not address whether the settlement funds came from JHCI's retainage account, the effect of the federal judgment, or what impact either of those issues might have on the amount owed on the personal guaranties. Herling withdrew his motion to join Tetra Tech because it had become moot in light of the judgment against him.

[¶23] As noted above, Wyoming Machinery's claims against JHCI were stayed but are evidently still pending. The court entered final judgment against Herling under Wyoming Rule of Civil Procedure 54(b), which permits final judgment against one party even when claims against other parties have not been fully adjudicated, thus allowing this appeal to proceed.

STANDARD OF REVIEW

[¶24] Our standard of review of an order granting summary judgment has been stated often and is as follows:

We review a summary judgment in the same light as the district court, using the same materials and following the same standards. We examine the record from the vantage point most favorable to the party opposing the motion, and we give that party the benefit of all favorable inferences that may fairly be drawn from the record. A material fact is one which, if proved, would have the effect of establishing or refuting an essential element of the cause of action or defense asserted by the parties. If the moving party presents supporting summary judgment materials demonstrating no genuine issue of material fact exists, the burden is shifted to the non-moving party to present appropriate supporting materials posing a genuine issue of a material fact for trial. We review a grant of summary judgment deciding a question of law de novo and afford no deference to the district court's ruling.

Redland v. Redland, 2012 WY 148, ¶ 47, 288 P.3d 1173, 1185 (Wyo. 2012) (quoting Lindsey v. Harriet, 2011 WY 80, ¶ 18, 255 P.3d 873, 880 (Wyo. 2011)) (citations omitted).

[¶25] Although one of the issues before us was raised by a pleading styled as a motion to dismiss, it is apparent from the record that it was in substance a cross-motion for summary judgment, and that it was treated as such by the parties and the district court. We will not therefore discuss the standard of review for motions to dismiss.

DISCUSSION

[¶26] Releases, assignments, and settlement agreements are all types of contracts[5]subject to our usual rules of contractual interpretation:

The primary focus is on determining the intent of the parties to the contract. The initial question is whether the language of the contract is clear and unambiguous. If it is, then the trial court determines the parties' intent from the contract language alone. It does not consider extrinsic evidence, although it may consider the context in which the contract was written, including the subject matter, the purpose of the contract, and the circumstances surrounding its making, all to help ascertain what the parties intended when they made the contract. The trial court then enforces the contract in accordance with the plain meaning its language would be given by a reasonable person. All of these issues–deciding whether a contract is unambiguous, determining the parties' intent from the unambiguous language, and enforcing the contract in accordance with its plain meaning–involve questions of law for the trial court. When we undertake de novo review of the trial court's conclusions of law, we follow the same familiar path.

Knight v. TCB Const. & Design, LLC, 2011 WY 27, ¶ 7, 248 P.3d 178, 181 (Wyo. 2011) (quoting Terris v. Kimmel, 2010 WY 110, ¶ 7, 236 P.3d 1022, 1025 (Wyo. 2010)) (citation omitted).

I. Assignment of Retainage

[ΒΆ27] Herling resisted Wyoming Machinery's motion for summary judgment by asserting that JHCI's assignment of retainage released him from his personal guaranties, an assertion which was supported by the assignment, his affidavit, and an excerpt of his ...


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