American Prairie Construction Co. v. Hoich

• Decision Date: 16 February 2010
• Docket Number: No. 08-1288.,No. 08-1394.,08-1288.,08-1394.
• Citation: 594 F.3d 1015
• Parties: AMERICAN PRAIRIE CONSTRUCTION CO., formerly known as North Central Construction, Inc., Appellee/Cross-Appellant, v. John HOICH, Defendant, Tri-State Financial, LLC, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

594 F.3d 1015

AMERICAN PRAIRIE CONSTRUCTION CO., formerly known as North Central Construction, Inc., Appellee/Cross-Appellant, v. John HOICH, Defendant, Tri-State Financial, LLC, Appellant/Cross-Appellee.

No. 08-1288.

No. 08-1394.

United States Court of Appeals, Eighth Circuit.

Submitted: September 16, 2009.

Filed: February 16, 2010.

David L. Nadolsi, argued, Nicole Nachtigal Emerson, on the brief, Sioux Falls, SD, for appellant.

Patrick J. Lee-O'Halloran, Marvin T. Fabyanski, Minneapolis, MN, Ronald J. Hall, Aberdeen, SD, for appellee.

Before MURPHY, RILEY, and GRUENDER, Circuit Judges.

RILEY, Circuit Judge.

Tri-State Financial, LLC (TSF) appeals the district court's finding that TSF formed an enforceable settlement agreement with North Central Construction, Inc. (NCC)¹ on June 21, 2004, during bankruptcy proceedings for Tri-State Ethanol (TSE).² NCC cross-appeals, claiming the district court abused its discretion by denying NCC reasonable attorney fees. Because no enforceable contract was formed, we reverse and also dismiss NCC's cross-appeal as moot.

I. BACKGROUND

A. Tri-State Ethanol Bankruptcy Proceedings

In 2001, NCC built an ethanol plant in Rosholt, South Dakota. TSE owned the plant, and NCC retained a $1 million equity interest in the plant. The plant began operating in 2002, but was not profitable. TSE failed to pay NCC for construction of the plant, and NCC filed a mechanic's lien and initiated foreclosure proceedings in South Dakota state court. In May 2003, TSE filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of South Dakota, resulting in a stay of NCC's state foreclosure action. In June 2003, a group of investors formed TSF, a shell corporation designed exclusively to provide funding for TSE in an effort to return the ethanol plant to operation.

TSE filed a Modified Chapter 11 Plan in March 2004 (modified plan or plan). NCC and creditor Interstate Electric and Engineering Company (Interstate) objected to their treatment under the plan. On June 14, 2004, TSF representatives engaged in settlement negotiations with NCC representatives. TSF sought an agreement under which TSF could purchase NCC's claims against the bankruptcy estate, thus eliminating NCC's objections to the modified plan. No agreement was reached on that date, but settlement negotiations continued between TSF representative John Hoich (Hoich) and NCC representative Peter Rudeen (Rudeen). TSF representatives later authorized Hoich to offer Rudeen $2.5 million in exchange for NCC's claims and interests in TSE. Hoich made the offer on June 20, 2004, the evening before a hearing was scheduled to discuss confirmation of the modified plan.

On the morning of June 21, 2004, shortly before the hearing commenced, Rudeen called Hoich and accepted the offer. Representatives for TSF and Interstate met with NCC attorney Ron Hall (Hall) to discuss how the settlement should be structured. Hoich did not attend either the meeting or the confirmation hearing. Several other TSF representatives attended, including David Ruback (Ruback) TSF's manager; James Jandrain (Jandrain), a certified public accountant; and Jerrold Strasheim (Strasheim), TSF's newly hired attorney. Hall took notes of the discussion and passed the notes around for others to review.

Shortly after the meeting, the confirmation hearing commenced. Hall read his notes into the record and indicated, with no objection, that his notes represented the settlement agreement among TSF, Interstate, and NCC. Several parties were present, including at least sixteen attorneys, and a significant amount of confusion existed about the terms of the agreement. . . .

The terms of the "settlement agreement" read into the record cannot easily be summarized. TSF agreed to purchase the various claims of NCC and Interstate for $2.5 million, with $475,000 payable to Interstate. The alleged agreement also contained provisions stating NCC and Interstate would not object to TSE's plan confirmation. The reading detailed which claims were being purchased and from which class the claims could be found in TSE's Chapter 11 bankruptcy plan. There was also a provision allowing Interstate to retain one of its claims which was to be paid by TSE's bankruptcy estate over a period of three years.

At the conclusion of the June 21, 2004 hearing, the bankruptcy court requested an amended plan be filed by June 25, 2004, in an effort to expedite the process. The court scheduled a confirmation hearing for the amended plan on July 28, 2004. Before the confirmation hearing took place, the parties began to discuss the settlement agreement, and to exchange drafts of proposed documents, in an effort to memorialize the settlement discussed during the June 21, 2004 hearing. Conflicts arose when TSF claimed the agreement was subject to confirmation of the amended plan. NCC vehemently denied the existence of such a condition. In the meantime, TSF raised $2.5 million from investors and deposited the money into a trust account with Strasheim's law firm. . . .

When NCC and TSF failed to agree on the written terms for the formal agreement, NCC filed a motion on July 14, 2004, asking the bankruptcy court to enforce the June 21, 2004 agreement. NCC and Interstate also filed new objections to plan confirmation and ballots rejecting the modified plan in the event TSF failed to perform under the agreement. The motion to approve the settlement agreement and the motion to confirm the modified plan were heard on July 27, 2004.

Shortly before the hearing, NCC attempted to perform its obligations under the "settlement agreement" by tendering to TSF an assignment of its claims against, and its interests in, TSE. TSF . . . declined to accept the tendered assignment and refused to pay NCC. When the hearing convened, TSE and TSF did not pursue confirmation of TSE's modified plan, but instead, joined in a pending motion by the [United States Bankruptcy Trustee (Trustee)] asking the court to dismiss the Chapter 11 proceedings. The bankruptcy court denied the motion to dismiss and instead converted TSE's Chapter 11 reorganization to a Chapter 7 liquidation.

The bankruptcy court also denied NCC's motion to approve the settlement agreement, finding the settlement agreement was not conditional in any manner. The court noted the parties disagreed as to whether a meeting of the minds occurred, but the court concluded it did not have jurisdiction to force TSF, a third party not directly involved in the bankruptcy, to consummate a deal. TSF returned the $2.5 million, which had been placed in a trust account, to the contributors.

Am. Prairie Constr. Co. v. Hoich, 560 F.3d 780, 787-88 (8th Cir.2009).

B. Present Contract Action

After the bankruptcy court denied NCC's motion, NCC filed this lawsuit in district court seeking to enforce the alleged settlement agreement against TSF and Hoich. The parties also continued attempts to negotiate a new settlement in the bankruptcy court. The district court repeatedly stayed the contract action to allow negotiations to continue in bankruptcy. During this time, many of TSE's assets were sold, and several secured creditors and priority administrative expenses were paid from the bankruptcy estate.

On June 12, 2006, NCC and the Trustee reached a settlement agreement as to NCC's claim for construction costs. The bankruptcy court granted the Trustee's motion to approve the settlement agreement, but by that time, the district court had lifted the stay in the present action. As a result, the bankruptcy court was unable to enforce the settlement agreement formed by NCC and the Trustee.

On August 1, 2007, this contract action proceeded to trial. The district court issued an opinion and order on December 27, 2007, holding the original settlement agreement, read into the bankruptcy court record on June 21, 2004, was a binding and enforceable agreement. The district court further found both TSF and Hoich were bound by the agreement, and both TSF and Hoich breached the agreement when they failed to perform, making them jointly and severally liable in the amount of $2.5 million, plus prejudgment interest. The award was later reduced to $2,025,000, plus interest, pursuant to a stipulation NCC previously had made. The district court denied NCC's request for attorney fees.

On February 5, 2008, TSF and Hoich filed this consolidated appeal challenging the district court's judgment in favor of NCC. NCC filed a cross-appeal challenging the denial of attorney fees. On November 12, 2008, counsel for TSF, Hoich, and NCC appeared for oral argument before our court. TSF later filed bankruptcy and all proceedings were stayed as to the issues raised by TSF in its appeal and by NCC in its cross-appeal. The stay did not extend to Hoich's appeal. On March 24, 2009, this court issued an opinion resolving all issues raised by Hoich in his appeal. See Hoich, 560 F.3d at 780. We held, among other things, that the district court erred in finding Hoich had personally guaranteed, or Hoich was a party to, the alleged June 21, 2004 settlement agreement. Id. at 793, 796.

TSF's Trustee filed a motion with the bankruptcy court seeking to lift the stay as to the litigation pending between TSF and NCC. On September 11, 2009, the bankruptcy court granted the motion, and our court was notified the stay was lifted on September 15, 2009. On September 30, 2009, this court severed Hoich's appeal from the remaining consolidated cases. On that same date, we dismissed, as moot, the claims against Hoich in NCC's cross-appeal.

The remaining matters for our court to consider are TSF's claims against NCC in case number 08-1288, and NCC's claim against TSF in case number 08-1394. TSF argues the district court erred when the court (1) denied TSF's motion for recusal and disqualification, (2) denied TSF's motion to dismiss on the basis of issue preclusion, (3) concluded a binding agreement had been formed between TSF and...