Baker Hughes Oilfield Operations, Inc. v. Nat'l Rural Utilities Coop. Fin. Corp. (In re Naknek Elec. Ass'n, Inc.)

• Decision Date: 21 March 2012
• Docket Number: Bankruptcy No. A10–00824–DMD.,Adversary No. A11–90007–DMD.
• Citation: 471 B.R. 225
• Parties: In re NAKNEK ELECTRIC ASSOCIATION, INC., Debtor. Baker Hughes Oilfield Operations, Inc., and BJ Services Company, U.S.A., Plaintiffs, v. National Rural Utilities Cooperative Finance Corporation, Naknek Electric Association, Inc., CoBank, ACB, Workstrings, LLC, Tecton Geologic, LLC, Centrifuge Services, LLC, TIW Corporation, BC Contractors, Inc., and GBR Equipment, Defendants.
• Court: U.S. Bankruptcy Court — District of Alaska

471 B.R. 225

In re NAKNEK ELECTRIC ASSOCIATION, INC., Debtor.Baker Hughes Oilfield Operations, Inc., and BJ Services Company, U.S.A., Plaintiffs,

v.National Rural Utilities Cooperative Finance Corporation, Naknek Electric Association, Inc., CoBank, ACB, Workstrings, LLC, Tecton Geologic, LLC, Centrifuge Services, LLC, TIW Corporation, BC Contractors, Inc., and GBR Equipment, Defendants.

Bankruptcy No. A10–00824–DMD.

Adversary No. A11–90007–DMD.

United States Bankruptcy Court,

D. Alaska.

March 21, 2012.

John C. Siemers, Burr, Pease & Kurtz, Anchorage, AK, William Ross Spence, Snow Fogel Spence, LLP, Houston, TX, for Plaintiff.

David W. Oesting, Davis Wright Tremaine, Garrett C. Parks, Davis Wright Tremaine LLP, Erik LeRoy, Gary C. Sleeper, Jermain Dunnagan & Owens, David J. Schmid, Law Offices Of David J. Schmid, Michelle L. Boutin, Jermain, Dunnagan & Owens, P.C., Gregory G. Silvey, Michael S. McLaughlin, Guess & Rudd, Anchorage, AK, Lori V. Graham, Dore & Associates, Attorneys, PC, Houston, TX, for Defendant.

CoBank, ACB, pro se.

Workstrings, LLC, pro se.

MEMORANDUM ON CROSS MOTIONS FOR SUMMARY JUDGMENT

DONALD MacDONALD IV, Bankruptcy Judge.

Motions for partial summary judgment on the priority of certain statutory liens have been filed by the plaintiffs and by defendant TIW Corporation (“TIW”). Defendants Tecton Geologic, LLC, GBR Equipment, Inc., Centrifuge Services, LLC, and Larry Compton, as chapter 7 trustee for BC Contractors, Inc., have joined in the plaintiffs' motion. A motion for summary judgment has also been filed by defendant and cross-claimant National Rural Utilities Cooperative Finance Corporation (“CFC”). Having considered the motions, joinders, oppositions and responses thereto, I conclude that the plaintiffs' motion for partial summary judgment, and the joinders thereto, should be granted, in part. TIW's motion for partial summary judgment should be granted on the same basis as the plaintiffs' motion. CFC's motion will be denied.

Factual Background

Debtor Naknek Electric Association, Inc., is an electric utility cooperative that serves members in the remote western Alaska communities of King Salmon and Naknek. The debtor uses diesel fuel to generate electricity. Because of the significant increase in the price of diesel fuel from 2005 to 2008, the debtor decided to pursue geothermal power as a supplemental method to provide electric power to its members. In mid–2009, it obtained a permit to conduct geothermal drilling operations on property that it owned in Naknek, Alaska. It acquired a drilling rig (Rig No. 7), improved it, and transported it to the property. Once the rig was assembled and positioned on the site, the debtor started drilling an exploratory well.

The debtor incurred substantial debt in its efforts to drill and develop a successful well. Its efforts were thwarted by many factors. Anticipated grant funds were not received, and compliance with regulatory requirements was costly. Other factors also affected the successful development of the well.

The debtor filed a chapter 11 petition on September 29, 2010. By the time its petition was filed, several statutory liens had been recorded by contractors and vendors who had provided services, equipment or materials in connection with the development of the exploratory well. Additionally, two of the debtor's largest creditors, CoBank and Baker Hughes, had obtained and recorded judgments against it. Naknek filed its chapter 11 petition to stay further collection efforts against it and to preserve its rights to avoid the CoBank and Baker Hughes judgments as preferential transfers.

The instant adversary proceeding was commenced on April 19, 2011. It involves a lien priority dispute between the entities claiming statutory liens against the well and Rig No. 7, and CFC, which has a security interest in the rig. CFC filed a financing statement with the UCC Central Filing Office on October 14, 2009, that describes Rig No. 7 as its collateral. The plaintiffs, Baker Hughes and BJ Services, claim mining liens against the well and Rig No. 7 under AS 34.35.125, et seq. They recorded lien notices in the Kvichak Recording District, where the rig and well are located, on July 21, 2010, and May 7, 2010, respectively. The other named defendants in this proceeding (excluding the debtor and CFC) also claim statutory liens against the well and rig. ¹ The pending summary judgment motions address the validity of the plaintiffs' mining liens and the issue of priority between those liens and CFC's security interest.

Summary Judgment Standard

Fed.R.Civ.P. 56(a), which is applicable to adversary proceedings,² provides:

(a) Motion for Summary Judgment or Partial Summary Judgment. A party may move for summary judgment, identifying each claim or defense—or the part of each claim or defense—on which summary judgment is sought. The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The court should state on the record the reasons for granting or denying the motion.³

“Interpretation of the statutory requirements for a valid lien is a question of law ... [and] whether those requirements are met is a question of fact.” ⁴ Here, the material facts are embodied in the recorded lien notices and CFC's recorded financing statement. The pending motions can be resolved by applying the pertinent lien statutes to those notices.

The Summary Judgment Motions

Three summary judgment motions have been filed in this proceeding and are now ripe for ruling. The plaintiffs filed a motion for partial summary judgment on November 21, 2011.⁵ The sole issue to be determined is whether their statutory liens take priority over CFC's security interest in Rig No. 7. The plaintiffs contend their liens take priority pursuant to AS 34.35.135 because CFC never recorded notice of its lien in the Kvichak Recording District. They also say their liens prime CFC's interest in any event because the liens relate back to the date they started work on the well. The plaintiffs started work on the project in August of 2009, two months before CFC filed its financing statement.

CFC's motion for summary judgment was filed on November 21, 2011.⁶ CFC says its financing statement primes the plaintiffs' statutory liens against the rig. Its argument has three prongs. First, CFC contends the geothermal well is outside the scope of AS 34.35.130, one of the statutes under which the plaintiffs claim liens. CFC also contends the plaintiffs' liens against Rig No. 7 are invalid, because only claims for labor may attach to the rig and the plaintiffs' lien notices did not separately list the costs for labor attributable to the rig alone. Finally, CFC says its lien has priority because it filed its financing statement before any of the statutory liens were recorded. Although CFC's motion is directed to the plaintiffs' claims, it takes the same position with regard to all other parties in this proceeding who claim to have a statutory lien against Rig No. 7.⁷

Defendant TIW filed its motion for partial summary judgment on November 22, 2011.⁸ TIW also claims a mining lien against the rig. However, its work on the project commenced after CFC's financing statement was filed. TIW's motion advances the same argument as the plaintiffs'; it contends its lien is prior to CFC's under AS 34.35.135 because CFC never recorded notice of its security interest in the Kvichak Recording District. The defendants who have joined in the plaintiffs' motion seek summary judgment on this point as well. The plaintiffs are the only statutory lien claimants who commenced work on the well prior to the date CFC's security interest was recorded.

The Applicable Lien Statutes

The plaintiffs claim liens against both the well and Rig No. 7. AS 34.35.125 provides for liens on mines and wells:

A person who, at the instance of the owner, performs work in, on, or about a mine, or mining claim, oil, gas, or other well, in opening up, developing, sinking, drilling, drifting, stoping, mucking, stripping, shoveling, mining, hoisting, firing, cooking, teaming, or performs any other class or kind of work necessary or convenient to the development, operation, working, or mining of the claim or well; or who performs work tending to or assisting in the development, extraction, separation, or reduction to a commercial value of the minerals; or who performs work on a water right, ditch, flume, pipe line, tramway, tram, road, or trail, used in connection with the opening up, or to facilitate the opening up, operation, or development of the claim or well, or the extraction of the minerals, has a lien on the mine or mining claim, oil, gas, or other claim or well as security for the payment of the work.⁹

AS 34.35.130 provides for a lien on a mill or machine:

A person who, at the instance of the owner, performs work or labor on, in, or about a mill or machine, either in the alteration or repair of it, or in the operation or working of it, while the mill or machine is used in or about a mine, or mining claim, oil, gas, or other claim or well, as a means of opening up, developing, or mining, or as a means of separating, extracting, or reducing minerals to commercial value, has a lien on the mill or machine, to secure the payment of the amount due for the work.¹⁰

These statutes permit liens on two different classes of property. Both are defined in AS 34.35.170(a):

(2) “mill” or “machine” includes a ... drill, ... or other mill, concentrator, conveyor, elevator, or other machinery used in or about a mine in digging, hoisting, conveying, washing, or blocking out mineral contents, or reducing the mineral contents to a commercial value, while the mill or machine is used in connection with the operation of the mine, and is not a fixture and included in the term “mine” as defined in this section;

(3) “mine” or “mining claim” means a block or parcel of mining...