Macquarie Americas Corp.. v. Knickel

• Decision Date: 30 June 2010
• Docket Number: Case No. 4:08-cv-048.
• Parties: MACQUARIE BANK LIMITED and Macquarie Americas Corp., Plaintiffs, v. Bradley D. KNICKEL; LexMac Energy, L.P.; Lexar Energy, Inc.; Novus Operating Company, L.P.; KHL, Inc.; and Mineral Land Services, Inc., Defendants, v. Macquarie Barnett, LLC, Third-Party Defendant.
• Court: U.S. District Court — District of North Dakota

723 F.Supp.2d 1161

MACQUARIE BANK LIMITED and Macquarie Americas Corp., Plaintiffs,

v.Bradley D. KNICKEL; LexMac Energy, L.P.; Lexar Energy, Inc.; Novus Operating Company, L.P.; KHL, Inc.; and Mineral Land Services, Inc., Defendants,

v.Macquarie Barnett, LLC, Third-Party Defendant.

Case No. 4:08-cv-048.

United States District Court,

D. North Dakota,

Northwestern Division.

June 30, 2010.

COPYRIGHT MATERIAL OMITTED.

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Benjamin J. Hasbrouck, Todd E. Zimmerman, Fredrikson & Byron PA, Matthew Kipp, Dorsey & Whitney LLP, Fargo, ND, Paul J. Brown, Shari L. Heyen, Greenberg Traurig LLP, Houston, TX, for Plaintiffs.

Paul F. Ebeltoft, Ebeltoft Sickler Kolling Grosz Bouray, PLLC, Dickinson, ND, David W. Elrod, Worthy W. Walker, Elrod, PLLC, Dallas, TX, for Defendants.

ORDER

DANIEL L. HOVLAND, District Judge.

Before the Court are the Plaintiffs' and Third-Party Defendant's “Motion for Partial Summary Judgment on Plaintiffs' Breach of Contract Claim and Motion for Summary Judgment on Defendants' Counter-Claims” and the Defendants' and Counter-Claimants' Motion for Summary Judgment filed on October 1, 2009. See Docket Nos. 99 and 104. The Defendants filed a response in opposition to the Plaintiffs' and Third-Party Defendant's motion on November 2, 2009. See Docket No. 112. The Plaintiffs and Third-Party Defendant filed a response in opposition to the Defendants' motion on November 3, 2009. See Docket No. 114. The parties filed reply briefs on November 10, 2009 and November 13, 2009. See Docket Nos. 120 and 124. Oral argument on the motions was held in Bismarck, North Dakota on December 18, 2009. For the reasons set forth below, the Plaintiffs' and Third-Party Defendant's motion is granted in part and denied in part and the Defendants' and Counter-Claimants' motion for summary judgment is granted in part and denied in part.

I. BACKGROUND

Plaintiff Macquarie Bank Limited (“MBL”) is a bank incorporated under the laws of Australia, with its principal place of business in Sydney, Australia. Plaintiff Macquarie Americas Corp. (“Macquarie Americas”) is a Delaware corporation with its principal place of business in New York. Defendant KHL, Inc. (“KHL”) is a New Mexico corporation with its principle place of business in New Mexico. Defendant Mineral Land Services, Inc. (“Mineral Land Services”) is a North Dakota corporation with its principal place of business in North Dakota. Defendant Bradley Knickel is in the business of developing oil and gas reserves and is a resident of Texas. Defendant LexMac Energy, L.P. (“LexMac”) is a Nevada limited partnership with its principle place of business in Houston, Texas. Knickel has a 92-percent limited partnership interest in LexMac. See Docket No. 57-3, p. 3. Defendant Novus Operating Company, L.P. (“Novus”) is a Nevada limited partnership with its principle place of business in Houston, Texas. Knickel has a 99-percent limited partnership interest in Novus. See Docket No. 57-3, p. 3. Defendant Lexar Energy, Inc. (“Lexar”) is a corporation with its principle place of business in Houston, Texas. Knickel owns 100-percent of Lexar. See Docket No. 57-3, p. 5. Third-Party Defendant Macquarie Barnett, LLC (“Macquarie Barnett”) is a Delaware limited liability company.

At some point, LexMac and Novus decided to develop certain oil and gas leases in McKenzie County, North Dakota in what became known as the “Cedar Butte Project.” Most, if not all, of the leases relating to the Cedar Butte Project had originally been owned by Lexar but were transferred to LexMac to secure funding for oil and gas development. See Docket No. 57-3, pp. 61-62. LexMac and Novus needed funding to develop the Cedar Butte Project and, therefore, approached MBL. MBL is based in Australia and does business in the United States specializing in lending money for energy development.

On April 8, 2005, MBL, LexMac, and Novus finalized financing for the Cedar Butte Project. MBL, LexMac, and Novus executed numerous financial documents to secure funding for the project. The “lead agreement” was the “Senior First Lien Secured Credit Agreement” (“Credit Agreement”) wherein LexMac and Novus agreed to grant, assign, transfer, and convey to MBL a first priority mortgage lien and perfected security interest in the collateral subject to permitted encumbrances. See Docket No. 26-2, p. 33. The Credit Agreement provided that MBL would lend LexMac and Novus up to $20,000,000 for the project to be advanced in “tranches” for specific uses if certain conditions were met. The Credit Agreement provides for funding in accordance with the following tranches:

Section 2.2 Availability and Purpose of Advances. Beginning on the Closing Date and continuing through the applicable Availability Termination Date:

(a) Tranche A. Up to two million dollars ($2,000,000.00) of the Term Loan (“ Tranche A ”), comprised of sub-Tranches A-1 and A-2 described below, may be used by Borrower for the following purposes:

( i ) Tranche A-1. Up to one million dollars ($1,000,000.00) of Tranche A (“ Tranche A-1 ”) may be used by Borrower exclusively for the purposes of paying:

(A) dry hole costs associated with the drilling of the Ann # 1 Well and incurred by Borrower pursuant to an AFE approved in writing by Lender in its sole and absolute discretion; and

(B) other fees and expenses incurred by Borrower in connection with the transactions contemplated by this Agreement, but only to the extent (1) those fees and expenses are included on Schedule 2.2(a)(i)(B ) and (2) the payment of those fees and expenses does not result in insufficient availability remaining under Tranche A-1 to pay the drilling costs contemplated by Section 2.2(a)(i)(A) above.

( ii ) Tranche A-2. Up to one million dollars ($1,000,000.00) of Tranche A (“ Tranche A-2 ”) may be used by Borrower exclusively for the purposes of paying completion costs associated with the Ann # 1 Well and incurred by Borrower pursuant to an AFE approved in writing by Lender in its sole and absolute discretion.

( iii ) Tranche A Generally. Notwithstanding the other terms and conditions of this Agreement, (A) Lender will have no obligation to make any Advance under Tranche A-1 unless and until Lender is satisfied, in its sole and absolute discretion, with its due diligence review of the Properties, and (B) Lender will have no obligation to make any Advance under Tranche A-2 unless and until Lender is satisfied, in its sole and absolute discretion, with the results of all drilling activities related to the Ann # 1 Well and the geological and other technical information generated or acquired as a result of those activities. Additionally, to the extent the full amount of funds available for Tranche A are not needed for the purposes set out above, such funds shall not be available for any other purpose or under any other Tranche.

(b) Tranche B. Up to four million eight hundred sixty-five thousand dollars ($4,865,000.00) of the Term Loan (“ Tranche B ”) may be used by Borrower exclusively for the following purposes:

( i ) (A) up to sixty-five thousand dollars ($65,000) of Tranche B may be used for the acquisition of seismic [data] associated with the Cedar Butte Properties;

(B) up to four million eight hundred thousand dollars ($4,800,000.00) of Tranche B may be used to pay costs incurred by Borrower pursuant to an AFE approved in writing by Lender in its sole and absolute discretion in connection with [ ] drilling and completing two additional wells on the Cedar Butte Properties; and

(C) to pay the Advance Fee associated with each Advance (if any) made under Tranche B.

( ii ) Tranche B Generally. Notwithstanding the other terms and conditions of this Agreement, Lender will have no obligation to make any Advance under Tranche B unless and until Borrower prepares and Lender approves in writing, in its sole and absolute discretion, a revised Development Plan. Borrower agrees and acknowledges that Lender has no obligation, express or implied, to approve a revised Development Plan for the use of any proceeds under Tranche B. Additionally, to the extent the full amount of funds available for Tranche B are not needed for the purposes set out above, such funds shall not be available for any other purpose or under any other tranche.

(c) Tranche C. Up to thirteen million one hundred thirty-five thousand dollars ($13,135,000) of the Term Loan (“ Tranche C ”) may be used by the Borrower for the purpose of funding the acquisition and development of additional Properties pursuant to a revised Development Plan prepared by Borrower and approved in writing by Lender in its sole and absolute discretion. Notwithstanding the approval of a revised Development Plan, however, Lender has no obligation to make any Advance under Tranche C unless the results of development activities contemplated in that revised Development Plan for which Tranche B funds are utilized are satisfactory to Lender in its sole and absolute discretion. Borrower agrees and acknowledges that Lender has no obligation, express or implied, to approve a revised Development Plan for the use of any proceeds under Tranche C.

See Docket No. 26-2, pp. 24-26.

In accordance with the terms of the Credit Agreement, LexMac and Novus executed a “Term Note” in the amount of $20,000,000, along with a “Mortgage, Assignment of Production, Security Agreement and Financing Statement” (“Mortgage and Security Agreement”) which provided that the borrowers (LexMac and Novus) pledged as collateral a continuing security interest in, among other things, the leases that had been previously assigned by Lexar to LexMac for the Cedar Butte Project. The Mortgage and Security Agreement was amended two additional times, once on January 13, 2006 and also on June 1, 2006. The purpose of the amendments was to revise the listing of the collateral leases.

The Mortgage and Security Agreement also required LexMac and Novus to execute a “Net Profits...