Midwest Renewable Energy, LLC v. Am. Eng'g Testing, Inc.

• Decision Date: 17 March 2017
• Docket Number: No. S-16-122.,S-16-122.
• Citation: 894 N.W.2d 221,296 Neb. 73
• Parties: MIDWEST RENEWABLE ENERGY, LLC, appellant, v. AMERICAN ENGINEERING TESTING, INC., et al., appellees.
• Court: Nebraska Supreme Court

296 Neb. 73

894 N.W.2d 221

MIDWEST RENEWABLE ENERGY, LLC, appellant,

v.AMERICAN ENGINEERING TESTING, INC., et al., appellees.

No. S-16-122.

Supreme Court of Nebraska.

Filed March 17, 2017.

Dean J. Jungers, Bellevue, for appellant.

William J. Troshynski, of Brouillette, Dugan & Troshynski, P.C., L.L.O., for appellees.

Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy, Kelch, and Funke, JJ.

Funke, J.

I. INTRODUCTION

This appeal concerns a quiet title action brought in the district court for Lincoln County by the appellant, Midwest Renewable Energy, LLC (Midwest Renewable), against several entities and all known and unknown parties claiming an interest in its real property located in Lincoln County, Nebraska. Western Ethanol Company, LLC (Western Ethanol), was one of the named parties alleged to claim an interest in the real estate.

Western Ethanol obtained a judgment lien on Midwest Renewable's Lincoln County property after transcribing a California judgment against Midwest Renewable with the district court and filing a writ of execution on that judgment. Before Midwest Renewable filed its quiet title action, Western Ethanol dissolved and transferred its assets to its members. Douglas Vind, the managing member of Western Ethanol, claimed that Western Ethanol transferred the Midwest Renewable judgment to him, but he was never made a party to the litigation.

After a trial on the merits, the court ruled that Western Ethanol's judgment had been assigned to Vind and that the judgment lien against the real estate owned by Midwest Renewable in Lincoln County was still valid and subsisting. The court then dismissed with prejudice Midwest Renewable's action regarding Western Ethanol. Midwest Renewable filed a motion to alter or amend the court's order, which the court substantively overruled. Midwest Renewable appeals.

In order to consider this appeal, we must determine whether Western Ethanol, as a limited liability company, was amenable to the present action; whether Vind was an indispensable party to the controversies; and whether the court had subject matter jurisdiction to determine if the judgment and the judgment lien were assigned and remained valid and subsisting.

We hold that Western Ethanol was amenable to suit under Nevada law. Further, we decide that Vind was an indispensable party to the controversies decided by the court. Accordingly, his absence from the litigation deprived the court of subject matter jurisdiction over the issues of whether the judgment and the judgment lien were assigned and whether they were still valid and subsisting. Because the court erred in not making Vind a party to the action sua sponte, we vacate the court's memorandum opinion and judgment and remand the cause with direction to make Vind a party.

II. BACKGROUND

Western Ethanol was a limited liability company formed under Nevada law and registered in California. In September 2010, it obtained a judgment against Midwest Renewable in California for $30,066.59, plus interest and costs. Western Ethanol transcribed the foreign judgment with the district court for Lincoln County in November 2010 and filed a writ of execution on the judgment in September 2011.

Western Ethanol filed its articles of dissolution in Nevada on November 12, 2013, and a certificate of cancellation in California on November 21, both effective on December 31. In both documents, Vind attested that Western Ethanol had distributed all of its assets to its members.

In September 2014, Midwest Renewable filed a petition to quiet title claims to its Lincoln County property, an ethanol manufacturing facility in Sutherland, Nebraska. In its petition, Midwest Renewable named nine specific entities, the property, and " ‘all persons having or claiming any interest in said real estate, real names unknown,’ " under Neb. Rev. Stat. § 25-21,113 (Reissue 2016). Western Ethanol was one of the named parties.

On February 5, 2015, Midwest Renewable filed a motion for partial summary judgment against Western Ethanol and a motion for default judgment against all parties who had failed to answer or otherwise plead. Both motions were heard on February 23. At the hearing on Midwest Renewable's motion for partial summary judgment, an affidavit executed by Vind—alleging that Western Ethanol had transferred its Midwest Renewable judgment to Vind—was entered into evidence. The record does not reflect that Vind filed an assignment of the judgment with the district court in the prior case where the judgment had been transcribed or provided notice of the assignment to Midwest Renewable. Neither Vind, the other parties, nor the court made Vind a party to the litigation.

The court entered a default judgment against three of the named parties and all of the unknown parties for failing to answer the complaint. The court denied Midwest Renewable's motion for partial summary judgment against Western Ethanol. Midwest Renewable settled with the other parties. The matter proceeded to trial against Western Ethanol as the only remaining defendant.

At trial, the court found, under Nevada law, that Western Ethanol could defend itself against the action by entering an appearance and asserting that its judgment lien had been assigned to Vind. The court also found that Western Ethanol had transferred its interest to Vind and that "he was then the interested party."

The court went on to address the merits of the quiet title action, because it determined that "the validity of any lien interest ... Vind has in real estate of [Midwest Renewable] is dependent upon validity of Western Ethanol's judgment lien against [Midwest Renewable].... Vind's interest in the property flows directly from the interest of Western Ethanol." The court stated that neither Western Ethanol's dissolution nor the failure to provide notice of the assignment to Midwest Renewable canceled the judgment lien. Therefore, the court ruled that the judgment lien "is and continues to be a valid and subsisting judgment lien against real estate owned by [Midwest Renewable] in Lincoln County, Nebraska." Accordingly, the court dismissed the quiet title action against Western Ethanol with prejudice.

Midwest Renewable then filed a motion to alter or amend the judgment, arguing that Nebraska law allows a corporation to continue defending itself only during the winding-up process and that the court had already quieted the lien in Vind's name when it issued its default judgment against unnamed parties. The court overruled the motion, relying on its earlier order.

III. ASSIGNMENTS OF ERROR

Midwest Renewable assigns, reordered and restated, as error the court's findings that (1) Western Ethanol owned the judgment in question on the date of trial and (2) the judgment and the judgment lien against Midwest Renewable's Lincoln County property are valid and subsisting. Additionally, it assigns error to (3) the court's dismissal of its complaint against Western Ethanol.

IV. STANDARD OF REVIEW

Whether the law of Nebraska or that of another state controls the disposition of an issue by a Nebraska court is an issue of law.¹ Subject matter jurisdiction and statutory interpretation present questions of law.²

A quiet title action sounds in equity.³ On appeal from an equity action, an appellate court resolves questions of law and fact independently of the trial court's determinations.⁴

V. ANALYSIS

1. WESTERN ETHANOL IS AMENABLE UNDER NEVADA LAW

Midwest Renewable argues that under Nebraska law, Western Ethanol has dissolved and completed its winding up, so it is no longer a legal entity capable of defending itself.

Alternatively, Midwest Renewable contends that if Nevada law applies, Western Ethanol would have to be defended on behalf of its trustees, in their name, because it is no longer a legal entity.

Western Ethanol argues that under Nevada law, it may defend itself against a lawsuit in its name for 2 years after filing its articles of dissolution. It contends that the capacity to sue or be sued after dissolution is part of the winding-up process and that winding up is an internal affair of a limited liability company. Western Ethanol argues that, accordingly, Nevada law should control because Nebraska allows a foreign limited liability company's state of formation to govern its internal affairs.

(a) Amenability of Western Ethanol Is Dependent on Which State's Survival Statute Applies

We have not addressed the issue of whether a dissolved limited liability company is amenable to suit. However, we have addressed the issue concerning corporations.⁵ In cases concerning limited liability companies, we have looked to the principles of corporate law when addressing areas of similar functions, because a limited liability company is " ‘a hybrid of the partnership and corporate forms.’ "⁶

In Christensen v. Boss ,⁷ we considered a corporation's amenability to suit after voluntary dissolution. We stated:

At common law a corporation's capacity to sue or be sued terminates when the corporation is legally dissolved....

Where a corporation has in fact been dissolved and no longer exists as a legal entity, the rule of its incapacity to sue or be sued applies regardless of the mode of dissolution whether by judicial decree or otherwise.... In the absence of statutory provisions to the contrary no action at law can be maintained by or against it as a corporate body or in its corporate name.⁸

In Van Pelt v. Greathouse ,⁹ we interpreted Nebraska's former survival statute that permitted corporations to maintain actions by or against them after dissolution.¹⁰ We clarified the effect of survival statutes by stating:

[W]here a [survival] statute continues the existence of a corporation for a certain period after its dissolution for purposes of defending and prosecuting suits, no action can be maintained by or against it after the expiration of that period. In other words, while a statute of limitations relates to the remedy only and not to substantive rights, ... a survival statute operates on the right or claim

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