ALEXANDER REED MANTLE and MARJORIE M. MANTLE, Appellants (Plaintiffs),
NORTH STAR ENERGY & CONSTRUCTION LLC; GARY W. GARLAND; RAYMOND W. GARLAND; MATT R. GARLAND; THREE WAY, INC.; HOT IRON, INC.; MGM ENTERPRISES, INC.; GT INVESTMENTS, INC.; and WYODAK ENERGY SERVICES, LLC, Appellees (Defendants). RAYMOND W. GARLAND and THREE WAY, INC., Appellants (Defendants),
ALEXANDER REED MANTLE and MARJORIE M. MANTLE, Appellees (Plaintiffs). GARY W. GARLAND, Appellant (Defendant),
ALEXANDER REED MANTLE and MARJORIE M. MANTLE, Appellees (Plaintiffs).
from the District Court of Johnson County The Honorable John
G. Fenn, Judge
Representing Alexander Reed Mantle and Marjorie M. Mantle:
Stephen R. Winship, Winship & Winship, PC, Casper,
Wyoming. Argument by Mr. Winship.
Representing Gary W. Garland, Hot Iron, Inc., and GT
Investments, Inc.: Kim D. Cannon & Codie D. Henderson,
Davis & Cannon, LLP, Sheridan, Wyoming. Argument by Mr.
Representing WyoDak Energy Services, LLC: Greg L. Goddard,
Goddard and Vogel, P.C., Buffalo, Wyoming. Argument by Mr.
Representing Raymond W. Garland, Matt R. Garland, Three Way,
Inc., and MGM Enterprises, Inc.: Judith A. W. Studer,
Schwartz, Bon, Walker & Studer, LLC, Casper, Wyoming.
Argument by Ms. Studer.
Representing North Star Energy & Construction LLC: No
DAVIS, C.J., and FOX, KAUTZ, BOOMGAARDEN, and GRAY, JJ.
This case arose when the parties entered into an
ill-conceived business conveyance plan during a downturn in
the oil market. The three Garland brothers, Ray, Gary, and
Matt,  each had separate entities which provided
specialized services directly to, or related to, the oil
industry in Northeast Wyoming and North Dakota. Upon the
advice of their accountant, Karl Killmer, the Garlands formed
a new entity in 2011, North Star Energy & Construction,
LLC (North Star), with the Garlands' companies as members
and the Garlands individually as managers. Alex Mantle, who
had previously worked for Ray's company and was Mr.
Killmer's friend, was named President of North Star.
North Star made a profit at first but struggled with cash
flow and took out substantial loans.
In 2014, Mr. Killmer and Mr. Mantle proposed to buy North
Star. In conjunction with obtaining the necessary financing,
Mr. Killmer, Mr. Mantle, and the Garlands entered into a
Memorandum of Understanding (MOU). Among other things, the
MOU provided that Mr. Mantle and his wife, Marjorie Mantle,
would personally guarantee payment of $6, 110, 000, part of
the purchase price. As part of the buyout, North Star
obtained a $3-million loan from First Northern Bank (FNB),
secured by securities held by Mr. Mantle, Mrs. Mantle, and
Later in 2014, after the price of oil had dropped further,
and after North Star had suffered significant losses as a
result of some poor business practices, Mr. Mantle backed out
of the deal. The Garlands took over management of North Star
to complete pending jobs, auction equipment, and, by the
spring of 2015, liquidate the company. While the wheels were
falling off, the Mantles negotiated a new $3-million loan
from FNB, and acquired the original North Star loan, stepping
into FNB's shoes with regard to its loan to North Star.
The scenario gave rise to an assortment of claims and
counterclaims, some of which the district court disposed of
on summary judgment, with the remainder resolved after a
The parties raise numerous procedural and substantive issues
on appeal, which we rephrase:
1. Did the Garlands and their associated entities abandon
their counterclaims when they did not refile them after the
2. Was the Memorandum of Understanding an enforceable
3. Did the district court err when it concluded that the
Garlands' negligent misrepresentation claim against Mr.
Mantle would entitle them to no additional damages?
4. Did the district court err when it found no disputed
issues of material fact to support Mantles' claim of
5. Did the district court correctly decide that certain North
Star conveyances were fraudulent?
6. Are the Garlands entitled to equitable affirmative
7. Did the district court correctly conclude that the
elements necessary for LLC veil-piercing were absent?
8. Did North Star's members have a fiduciary duty to its
9. Did the Garlands owe the Mantles a duty of good faith?
10. Should the Garlands' breach of fiduciary duty claim
have been brought as a derivative action?
11. Did the district court abuse its discretion when it
denied Mantles' attorney fees?
The Garland brothers, Gary, Ray, and Matt, were born and
raised in Buffalo, Wyoming. In 1990, Gary formed Hot Iron,
Inc., a company that specializes in "underground work,
water and sewer, street rehabs." Ray Garland formed a
separate entity, Three Way, Inc., which specialized in
reclamation work for highways and pipelines. Matt
Garland's company, MGM, Inc., specialized in trucking,
heavy hauling, laying gravel, and building construction. Each
of these businesses was operated independently until 2011,
when North Star Energy & Construction, LLC was formed.
Karl Killmer, a Casper CPA, started doing the accounting for
Matt in 2004; for Gary and Hot Iron in 2006; and for Ray and
Three Way in 2008. Beginning in 2000, Alex Mantle was
employed by Three Way. Over time, Mr. Killmer and Mr. Mantle
developed a close friendship. In the summer of 2010, the two
began to discuss the formation of a company called North
Star. When it became operational November 1, 2011, Mr. Mantle
was appointed its President; he remained President until
North Star offered pipeline construction, roustabout,
trucking, material hauling, road building, and underground
utility services. Its members were Hot Iron, Three Way, and
MGM. Ray and Gary were the initial managers, with Matt added
as manager on December 31, 2011. Mr. Killmer was North
Star's accountant. He calculated each member's
capital contribution and determined each member's equity
in North Star: 50% owned by Three Way, 30% by Hot Iron, and
20% by MGM. Mr. Killmer testified North Star had an initial
capitalization of $11 million, and he did not consider this
to be undercapitalized.
North Star did not immediately generate money. However, North
Star's operations in 2012 and 2013 were profitable, with
a net income of $2, 063, 086 and $1, 082, 017, respectively.
North Star had more than 300 employees during its three years
of operations. Up until early 2014, Mr. Killmer prepared
monthly financial statements based on the numbers Mr. Mantle
supplied, which were provided to the members and reviewed at
the company's regular monthly meetings.
The North Star Operating Agreement expressly allowed members
and managers to make loans to North Star if revenues were
insufficient to pay the company's operating expenses. It
also stated that loans would be "repayable by the
Company to such Member . . . at such date or dates as the
Managers shall determine in his discretion[.]" Mr.
Mantle and North Star's managers and members provided
occasional short-term loans, and North Star obtained a line
of credit from American National Bank (ANB). ANB dealt
primarily with Mr. Mantle in its transactions with North
Star. ANB and North Star entered into a Commercial Loan
Agreement, signed by Mr. Mantle as North Star's managing
member, on December 24, 2012. The loan agreement contained
several covenants that would become significant: North Star
would maintain a Debt/Worth Ratio not to exceed 1.25/1; any
ownership changes must be pre-approved by ANB; and no
additional debt could be incurred without prior approval by
ANB. The 2013 amended agreement contained the same covenants
and was also signed and initialed on each page by Alex
[¶10] In January 2014, Mr. Mantle requested greater
control of North Star, pronouncing, "the days of the
'round table' are over and we will move forward with
the 'oblong table' that has a President at the
head." He also wanted "to know that I don't
have to seek approval for decisions before I make them."
He promised to make $5, 000, 000 in profit on $77, 000, 000
of gross revenue in 2014. The Garland brothers agreed to Mr.
Mantle's offer "to step back and let him run the
North Star operations were "catastrophically
unprofitable in 2014." The company began to feel the
financial effects of the "Middle Loop" job, a large
pipeline installation job for a CO2 recovery
project that North Star had significantly underbid. In the
last half of 2014, the price of oil declined more than 50%.
Mr. Mantle testified that "North Star's future was
based on the price of oil[.]" The Garlands received no
North Star balance sheets or profit and loss statements after
the first quarter of 2014 until late November 2014. Mr.
Killmer testified that was "because I wasn't
In May or June 2014, Mr. Mantle and Mr. Killmer proposed a
buyout to the member entities of North Star. Mr. Mantle
testified that he only became interested in acquiring North
Star because he "believed in Karl Killmer's fairy
tale, drank too much of his Kool-Aid." He explained that
Mr. Killmer took the lead in proposing the plan, and in the
buyout discussions with the Garland brothers. While those
discussions continued, Mr. Mantle loaned North Star a total
of $1.2 million in several payments between May 1, 2014, and
September 2, 2014, even though his authority to incur
indebtedness on behalf of North Star was limited to $100,
000. In initial discussions, Mr. Mantle and Mr. Killmer
proposed to pay $6.9 million for the members' equity and
$7-million "blue sky, " with the first secured and
the second unsecured, and a $3-million down payment.
Mr. Mantle and Mr. Killmer applied for a $3-million loan from
First Northern Bank (FNB), which would be secured by
securities held by Mr. Mantle and Mrs. Mantle. Gary believed
that the FNB loan would be made to Mr. Mantle and Mr.
Killmer. In an August 11, 2014, email to Mr. Mantle and the
three Garlands, Mr. Killmer explained:
- [W]e have not issued the June financials pending the
resolution of Middle Loop. Now that this has been settled, I
will make adjustments and get June issued. June will show a
- Currently waiting to hear from First Northern Bank (Ryan
Fieldgrove). This loan is what we are planning on using to
fund the down payment and to put $$$$ back into the Company
("Baseball Card loan"). Per Ryan, they should have
their Underwriting complete either today or tomorrow.
- Alex and I talked to Ann Nelson earlier today and will be
talking to her later this afternoon. I will forward under
separate e-mail the e-mail I sent to Ann on Friday. As you
will note in that e-mail, we are trying to access $500, 000
of the guaranteed auction $$$$ as soon as possible. We will
also be laying the groundwork on paying-off the Line of
Credit . . . the how and when[.]
Initially, the entire $3 million was going to be paid to the
North Star members as a down payment. Then, as North
Star's finances deteriorated through the summer of 2014,
Mr. Mantle and Mr. Killmer asked the members if they could
put the $3 million into the company, offering to pay the
members interest in the form of a salary,  with a payment of
$1 million in June 2015, and monthly payments for ten years
thereafter. On August 14, 2014, Mr. Mantle received North
Star's June financials which showed a $4.69-million
year-to-date loss. He did not recall giving the document to
either FNB or the Garlands prior to the execution of the MOU
and the FNB loan closing. Ryan Fieldgrove at FNB testified
that he had not been provided with the June financials,
although it would have been important information for the
bank to have. The debt schedule which FNB had requested in
order to assess the loan request omitted North Star debts to
American Express and Mr. Mantle. The final July financials,
which were emailed to Mr. Mantle on September 4, 2014,
reflected an even greater year-to-date loss of nearly $6
million. Between August 17, 2014, when Mr. Mantle received
verbal approval of the FNB loan, and the loan closing on
September 17th, Mr. Mantle made loans to North
Star totaling $950, 000, without consulting with any of the
Garlands. The members were unaware that, by September
17th, Mr. Mantle had loaned North Star $1.2
million. When North Star received the FNB loan, Mr. Mantle
repaid $1.2 million to himself, leaving $1.8 million for
The Garlands understood that Mr. Mantle and Mr. Killmer were
obtaining the $3-million loan, and that the main source of
collateral was to be the Mantles' securities. Mr. Mantle
testified that the collateral for the loan was North Star
equipment and assets, and the securities held by him and his
wife, with loan guarantees from him, his wife, and Mr.
[¶16] On August 24, 2014, at what became known as the
"white board meeting, "Mr. Killmer and Mr. Mantle
informed the Garlands that North Star had an operating loss
of $4.6 million for the first six months, with $3.5 million
attributable to the Middle Loop project. They forecasted a
$1-million profit for the remainder of the year. Mr. Mantle
and Mr. Killmer asked to split the losses with the Garlands
and proposed a reduced purchase price. Mr. Killmer testified
that he arrived at a $6, 110, 000 figure based on his
valuation of the net equity and hard assets, using a
valuation asset approach he had previously used. Mr. Mantle
and Mr. Killmer were to personally guarantee the purchase
amount of $6, 110, 000. In a September 2, 2014 email to his
daughter, Ray explained:
As of the 1st of September Alex and Karl asked
Gary, Matt and I to stand aside as the business sale was
imminent by mid-September or early October. They felt they
needed us out of the picture to gain more credibility. We
agreed to their requests as a result and based on the
1. They could not pay a down payment at this time. They will
pay a partial the first of July.
2. They will pay no payments until the first of July. They
have to pay Matt, Gary and myself a wage until then.
3. They will no longer pay for our pickups etc.
4. We agreed to let them auction off another $3, 200, 000.00
worth of equipment that they have a guarantee price from the
Auction Co. on. These funds were to be used to pay off the
line of credit and equipment debt.
5. We agree to leave our personal CD investment that belongs
to Gary, Alex and myself that amounts to $500, 000.00 at the
bank for a year. This helps with the covenants.
6. We had to participate in the year to date loss and take it
off the total value that was based on 12/31/2013.
So what is the trade off and why would we agree to this[:]
1. The company value had decreased in value almost five
million from the first of the year. Largely because of Salt
Creek [Middle Loop]. . . .
2. To bolster the company Alex would put in $3, 000, 000.00
3. Matt, Gary and I will be kept on the payroll until
payments start coming in which will be the original figures
used except they will probably be higher because we asked for
the payment schedule to be cut by two years as trade off.
4. There will be a guaranteed floor of value that is to be
maintained or else we take over and Alex loses his $3, 000,
5. Karl has to personally guarantee and put up Kilmer and
[A]ssociates plus his other assets as collateral.
6. Alex has to personally guarantee the purchase. (I am
suspect the Mantle-Marjorie Investment account is larger than
the $3 Mill.)
7. NS was to get rid of several overhead items such as: High
dollar non-productive people. Excess pickups sent back to
Enterprise. Move out of high dollar rental shop in Watford.
(Gary has already sold this concurrently as we speak and will
have a new shop, which is smaller and less expensive ready by
12/8/14. This will be much cheaper.)
8. The people who are gone so far are Andy Dennis Salt Creek,
Tim Wheatly SC, all the rest of the S.C. crew, John Abseth
maintenance super. Daniel Duncan. I will update as I learn
9. The bottom line of all these transactions are a more solid
company with low debt to equity.
The transaction ultimately took shape as a leveraged buyout,
which Mr. Killmer defined as "using the company's
assets and equity and earning st[r]eam to buy out the
shareholders and its seller-financed debt. It's not paid
for with equity or equity contributions." Mr. Mantle
would be a 51% owner; Mr. Killmer 24%, and neither one would
contribute any money of his own.
After the white board meeting but before the $3-million loan
was obtained, Robb Bischoff, North Star's Controller,
sent Mr. Killmer and Mr. Mantle the "tweaked cash
management spreadsheet." After taking into consideration
a $3-million FNB loan, together with receipt of $3.3 million
from anticipated equipment sales, North Star was still
projected to lose $5 million beginning in October 2014. The
next day, on August 28, 2014, Mr. Mantle wrote to his friend:
"I can see a profitable future I'm just not sure
there is enough gas in the tank to get us there. I may have
just bought a really nice state room on the Titanic."
The following day, Lori Zink, North Star's accounting
manager, sent Mr. Mantle an email regarding "cranky
utility vendor payments." These documents were not given
to the Garlands or FNB prior to the loan closing.
Mr. Mantle and Mr. Killmer took immediate steps to effectuate
their "purchase" of North Star. On September 3,
2014, Mr. Mantle sent an email to the Garlands with the
subject "Purchase Announcement," explaining that
"I have begun to announce the news of our purchase of
North Star." The next day, September 4th, Mr.
Mantle informed the Garland brothers by email that their
North Star credit cards "have been cancelled," and
advised them to "transition your phone off the North
Star plan." The Garlands moved out of their offices.
In a North Star newsletter dated September 19, 2014, Alex
NORTH STAR CHANGES OWNERSHIP! On behalf of Karl Killmer, Josh
Miller, Bryan Garland, Rafael Del Toro, Chris Knudson and
myself we wish to announce as of September 1, 2014 we have
purchased North Star from Ray, Gary, and Matt. We are very
grateful for the opportunity and the trust the Garlands have
placed in us. We are also very grateful for all of the
outstanding employees dedicated to North Star. We look
forward to a long and prosperous future.
Mr. Mantle gave himself the title of CEO.
On September 4, 2014, Lori Zink sent Mr. Mantle the final
figures for July showing losses of $718, 933.35 for the
month. The year-to-date losses were $5, 902, 900.29. The
members' equity had eroded to $1, 889, 668.84. Mr. Mantle
did not provide this financial information to FNB or the
Garlands, although it was known to him before he signed the
MOU and guarantee of the FNB loan. By September 2014, North
Star was insolvent.
[¶22] North Star held three equipment auctions in 2014,
the last and largest of which was September 23, 2014. Of the
combined net proceeds of $4.53 million, only $1 million went
to North Star for general operating purposes, and the
remainder was used to pay secured creditors, primarily ANB.
Despite North Star's dire financial condition, Mr. Mantle
and Mr. Killmer proceeded with the buyout. As a condition to
making the $3-million loan, FNB requested various documents
and assurances, including: 1) a copy of the purchase
agreement or a MOU setting forth the terms of the
parties' agreement; 2) Mantles' securities, worth $3
million, to be placed in an FNB Trust account as collateral
for the loan; 3) sale of some North Star equipment; 4) a
second position lien on remaining North Star equipment; 5)
debt subordination agreements by the Garlands; 6) a corporate
resolution granting Mr. Mantle the authority to sign
financial documents, including loans for the company; and 7)
an explanation of the new ANB loan terms.
Accordingly, on September 17, 2014, the parties executed the
• The MOU
• North Star's promissory note in the amount of $3
million, signed by Alex Mantle as President of North Star
• A security agreement executed by Alex Mantle, the
Marjorie M. Mantle Revocable Living Trust Agreement, Marjorie
McWhorter Mantle, and the Alexander R. Mantle Revocable
Living Trust Agreement
• Security agreement from North Star
• Personal guarantees of Alex Mantle, Marjorie Mantle,
and Karl Killmer
• Subordination agreements by the Garlands
• FNB Loan Agreement
• Consent form to allow Alex Mantle to sign the loan
paperwork as President on behalf of North Star
After September 17th, all parties continued to
conduct themselves as though Mr. Mantle and Mr. Killmer had
acquired North Star. Mr. Mantle testified that, after
September 17th, the Garlands had no North Star
operational duties. Gary and Ray testified that they believed
Mr. Mantle and Mr. Killmer owned North Star after the MOU was
signed. Ray testified that he agreed that Mr. Mantle and Mr.
Killmer could auction $3.2-million-worth of North Star
equipment "[b]ecause they are the owners." In
October, Mr. Mantle signed the PACCAR Equipment Lease
Agreement as "Member" of North Star, and Mr.
Killmer sent out the minutes for the October meeting (which
was not attended by any of the Garlands), signing them
"Your new Partner." On November 3, 2014, Marjorie
Mantle sent Mr. Mantle an email saying:
I just want to reiterate how proud I am of you for taking the
chance and making the move to become owner & CEO of
Northstar. I know you have a vision for this company along
with Karl and in order to reach this vision there are going
to be times of financial anxiety. We are now experiencing the
first wave of this anxiety and we will weather it in order to
see the good decision in buying this company and making it a
viable contender in the energy and reclamation field. I
believe in your abilities to turn this company around and so
do many other people. Everyone has signed on knowing the
uphill climb because we all know there will be a turn around
and success is in Northstar's future.
Winter is Coming
Success was not in North Star's future and, in fact, the
forces for its demise were already in place. In the fall of
2014, the price of oil was dropping, and North Star depended
on oil field work. On October 26th, Ann Nelson at
ANB had emailed Mr. Mantle requesting updates on:
• Monthly financials (The latest the bank has received
is 6/30/2014. We are missing July statements on.)
• Monthly Borrowing Bases
• Covenant Compliance
• Updated equipment listing and new appraisal on all
equipment following the 9/23/2014 auction
• Status of pending MOU and pending sale of NS. This
will also trigger certain portions of existing ANB loan
Nelson testified that, when she sent this email, it was her
understanding from her earlier conversations with Mr. Mantle
that the MOU was still being negotiated "to determine
the particulars of a sale if it were to happen. And that was
the document or something of that nature that ANB would need
to review prior to."
On November 21, 2014, ANB obtained North Star's
financials. Ann Nelson forwarded them to her colleagues with
the following email:
As I mentioned in our board meeting, both Alex Mantle and
Karl Kil[l]mer are on vacation until 12/1. However, I was
able (with a little convincing) to talk with their CFO, Robb
Bischoff. He did some arm twisting of his own to obtain
authorization to release the attached financials to the bank
Once you review them, you'll understand why North Star
hasn't provided them earlier. The results are a disaster
with a loss through 9/30 of $7.6mm. Robb also shared (off the
record) that while October numbers aren't final yet, he
anticipates that loss to widen to $8mm. He summed it up by
saying that while NS has reduced revenues it has failed to
correspondingly reduce its expenses, primarily direct payroll
I've responded to North Star that these numbers are
significantly worse than what had been represented in our
conversations over the past weeks and months. Previous
representations from Alex and Karl were that July would have
a $100-$300 loss, August would be breakeven up to a $100K
loss, and September would have a $200k profit. Clearly that
hasn't happened. I've asked for a meeting to discuss
our next course of action. I'm waiting to hear back.
While all NS loans are current, our only responsible course
of action is a speedy, orderly exit from this relationship as
soon as possible.
The Garlands had also received the disastrous financial
information, by email from Mr. Killmer on November 20, 2014,
(conveying financial statements he and Alex Mantle had
received November 7th). These were the first
financial statements that the Garlands had received from Mr.
Mantle or Mr. Killmer since March 2014. On November
22nd, the Garlands received a lengthy email from
Mr. Killmer, which began: "As you are aware, we have
continued to experience operating losses through
September." He described various facets of the business
and steps he and Mr. Mantle were taking to increase revenues
and decrease costs and debt, and he assured the Garlands
"that both Alex and I are still 'in' on buying
the Company." He acknowledged, "We are currently
'in default' on paying Three-Way the balance of their
income taxes for 2013," and he conceded it was unlikely
they would be able to meet the payment schedule under the
MOU. "Therefore, we ask you to consider a payment of
$500, 000 on July 1 and a payment of $500, 000 on October 31
in lieu of the $1, 000, 000 payment on July 1st.
To overstate the obvious, this will give us more 'healing
time' to gather the $$$$$." Further, "[w]e ask
that you consider releasing us from the personal
guarantee." The Garlands did not release Mr. Mantle and
Mr. Killmer from the personal guarantee obligation.
Sometime in late November, Mr. Mantle made the decision that
"this was not a good deal." In a November 29, 2014
email to a friend, Mr. Mantle said "North Star is not
profitable and I'm struggling to figure things out and am
running out of time. . . . The falling price of oil also
weighs heavily on my mind." This may explain why, when
the renewal notice came for the errors and omissions policy
which might have covered the Garlands' legal expenses in
this litigation, Mr. Mantle did not renew it.
On December 1, 2014, Mr. Mantle and Mr. Killmer received an
email from ANB's general counsel notifying them that the
$3-million FNB note on North Star's balance sheet
"concerns us because the covenants in North Star's
loans with ANB prohibit North Star from incurring any
additional debt without ANB's consent, and ANB has not
consented to any such indebtedness." The Garlands did
not learn that ANB was calling North Star's loans until
they received a letter from the bank on December
3rd. Meanwhile, at a December 2, 2014 meeting with
the Garlands and Mr. Killmer, Mr. Mantle refused to sign the
personal guarantees. He stated that if he owned the company
without the requirement of personal guarantees, his next move
would be to liquidate. But then, in response to a December 4,
2014 email from Matt Garland, Mr. Mantle pushed back on
demands Matt had made, saying "Do Karl and I work for
you guys or did we buy the company? I thought all we did was
postpone paperwork until June."
Disaster followed disaster and, by letter dated December 15,
2014, ANB declared North Star's four outstanding loans in
default, demanding payment in full on all loans by February
28, 2015. The same day, Mr. Mantle informed the Garlands that
North Star could not make payroll or payroll taxes. Ray
agreed to "put in $90, 000 cash today to take care of
tax deposit . . . but I want it right back."
On December 16th, the Garlands, Mr. Mantle, and
Mr. Killmer met with ANB representatives in Cheyenne. The
North Star principles indicated they could not pay off the
four loans by February 28th. However, they
proposed to sell North Star equipment at auction in March and
April, to yield enough to pay off the first three notes,
totaling $2.1 million; and to pay off the fourth note,
secured by North Star's commercial property in Gillette
(1401 Oil Drive), which had an outstanding balance of $568,
000. Accordingly, on December 30, 2014, Mr. Mantle, signing
as President of North Star, signed the document stating that
North Star "agrees to sell the property at 1401 Oil
Drive composed of shop, office, yard, welding shop to GT
Investments for the sum of $650, 000.00." The property had
been appraised in October 2013 at a value of $1, 260, 000,
with a December 30, 2014 market condition analysis at the
same value. (North Star purchased the property from MGM in
2013 for $750, 000.) The same day, Mr. Mantle signed the
Warranty Deed conveying the property to GT
Investments. None of the members of North Star had any
interest in GTI at that time.
Also in December 2014, the Garlands took over the management
of North Star, demoting Mr. Mantle to Controller. Although
the Garlands knew that North Star was insolvent, Ray still
believed that, considering the company's equipment value,
they could rebuild with hard work. Gary took over as North
Star's President, and he determined to stop making
payments on the FNB loan. He explained that he considered
that loan to be an obligation of Mr. Mantle and Mr. Killmer
as owners of North Star, and he chose instead to pay other
North Star loans and debts, some of which were owed to or
guaranteed by the Garlands or their entities. North
Star's balance sheet showed a loss of $8, 899, 031.07 for
In January 2015, the Garlands negotiated a modification to
North Star's ANB loans that gave North Star additional
time to pay them off. In exchange, ANB required that North
Star's line of credit be secured by a cash deposit, which
the Garlands complied with by obtaining a $500, 000 loan from
the Bank of Buffalo and purchasing a CD which they deposited
at ANB. North Star made the monthly payments on the Bank of
Buffalo loan, which totaled $37, 792.52. When ANB's loans
had been paid off, it released the funds back to the
Meanwhile, the Garlands continued their attempts to dig out
of the "huge hole." In December 2014, Hot Iron made
two loans to North Star totaling $45, 000 so that it could
make payroll. Those loans were repaid to Hot Iron on March 4,
2015. Hot Iron made another loan to North Star to cover
payroll in January 2015, this time for $50, 000, which was
also repaid in March.
In the fall of 2014, North Star had begun a project for the
City of Sheridan. The job was shut down for the winter and
was scheduled to resume in April 2015. However, North Star
was unable to resume the work because it was required to sell
its equipment to satisfy ANB's lien. Hot Iron, which had
obtained the bond for the project, stepped in to complete the
job. Hot Iron charged North Star $325, 000 for mobilization
costs, which included purchasing equipment and materials,
transporting equipment, paying supervisors, and obtaining
financing. North Star paid Hot Iron for those mobilization
costs in March and April 2015.
By March 2015, North Star's financial condition had
continued to deteriorate, and it was apparent that the
company could not survive. Mr. Mantle resigned as Controller.
In February and March 2015, North Star could no longer pay
for its employees' health insurance. Gary testified that
it was important to keep North Star employees to finish the
jobs it had in the works, "instead of just picking up
and walking off. And if we did that, [customers] would not
have paid the money that we still had coming." So, Hot
Iron put the North Star employees on its payroll to maintain
their health insurance. North Star reimbursed the $59, 952.82
associated with that cost to Hot Iron in May 2015. Finally,
Hot Iron paid $25, 000 to facilitate the sale of a crane,
which enabled North Star to sell the crane and reduce its
debt by approximately $385, 000. North Star reimbursed Hot
Iron the $25, 000 in July 2015.
North Star's Operating Agreement provided for its members
and affiliates to make loans to the company, and from its
inception, Ray, Gary, and Mr. Mantle did so. After they took
back management of North Star, repayments of the loans to the
Garlands accelerated. Gary was repaid $370, 166.91 in 2015.
Ray was repaid $190, 000. Mr. Mantle testified he noticed a
pattern of paying vendor debt guaranteed by the Garlands.
North Star's accounting manager, Lori Zink, testified
that, in early 2015, the Garlands requested a list of
creditors they had personally guaranteed. She said it seemed
that those creditors were getting paid after the list was
produced. Gary agreed that some debts that had been
personally guaranteed by him and his brothers were paid off
after he took over as President of North Star. In contrast,
in March 2015, North Star stopped paying the PACCAR truck
leases, which had been guaranteed by Mr. Mantle and Mr.
Killmer, and one of the employee credit cards, guaranteed by
Mr. Mantle. On August 5, 2015, North Star's members
executed its Plan of Liquidation.
In the fall and winter of 2014, it had become clear to some
employees of North Star that the company would fail. In March
2015, North Star employees Chris Knudson and Josh Miller,
along with numerous other North Star employees, began
searching for new employment. Around that same time, Mr.
Knudson, Mr. Miller, and Gary Garland began discussing the
possibility of forming a new company, WyoDak, whose purpose
would be to employ North Star employees who were going to be
out of work and to provide oil and gas roustabout services on
a small scale. WyoDak was formed on April
2015. Mr. Knudson, Mr. Miller, and Gary were the
company's members, and each contributed $75, 000. Mr.
Knudson and Mr. Miller served as WyoDak's managers; Gary
did not participate in managing the company. In May of 2015,
WyoDak began hiring employees, almost all of whom had been
North Star employees. In a series of transactions, WyoDak
acquired various pieces of equipment that had previously been
owned or leased by North Star. One such purchase was for 16
pickup trucks that North Star had leased from Enterprise.
Enterprise had intended to repossess these and other trucks
it leased to North Star before North Star could liquidate
them in an equipment auction because North Star was not
current on its lease payments. Before Enterprise repossessed
them from North Star, Mr. Knudson contacted Enterprise and
agreed to pay the remaining North Star lease balances to