Mo. Breaks, LLC v. Burns

• Decision Date: 23 December 2010
• Docket Number: No. 20100124.,20100124.
• Court: North Dakota Supreme Court
• Parties: MISSOURI BREAKS, LLC, Robert M. Hallmark & Associates, Frank Celeste, William R. Austin, Phoenix Energy, Bobby Lankford and Erskine Williams, Plaintiffs and Appellees v. John O. BURNS; Thomas P. Cawley; Terry Moore; Cheryl Moore; John C. Walter, Trustee; Williston Gas Company; Geary Trigleth; William Thomas Trigleth III, as Trustee, on behalf of the Blue Sky Trust; Astro-Chem Lab, Inc.; Total Safety, Inc.; Williston Basin District of Pool Company; Champion Technologies, Inc.; DC Well Service, Inc.; First National Bank of Williston; and all other persons unknown claiming any estate or interest in or lien or encumbrance upon the property described in the Complaint, Defendants Thomas R. Cawley, Appellant.

791 N.W.2d 33
2010 ND 221

MISSOURI BREAKS, LLC, Robert M. Hallmark & Associates, Frank Celeste, William R. Austin, Phoenix Energy, Bobby Lankford and Erskine Williams, Plaintiffs and Appellees
v.
John O. BURNS; Thomas P. Cawley; Terry Moore; Cheryl Moore; John C. Walter, Trustee; Williston Gas Company; Geary Trigleth; William Thomas Trigleth III, as Trustee, on behalf of the Blue Sky Trust; Astro-Chem Lab, Inc.; Total Safety, Inc.; Williston Basin District of Pool Company; Champion Technologies, Inc.; DC Well Service, Inc.; First National Bank of Williston; and all other persons unknown claiming any estate or interest in or lien or encumbrance upon the property described in the Complaint, Defendants
Thomas R. Cawley, Appellant.

No. 20100124.

Supreme Court of North Dakota.

Nov. 16, 2010.
Rehearing Denied Dec. 23, 2010.

791 N.W.2d 35

Jon R. Brakke (argued) and Caren Lynn Wanner Stanley (on brief), Fargo, N.D., for plaintiffs and appellees.

791 N.W.2d 36

Robert S. Rau, Minot, N.D., for appellant.

VANDE WALLE, Chief Justice.

[¶ 1] Thomas P. Cawley appealed from a judgment quieting title to interests in an oil and gas well in Missouri Breaks, LLC, and others, and rejecting Cawley's claims to a working interest in the well and for repayment of loans made to Missouri Breaks' predecessor. We conclude the district court correctly ruled Cawley's claims are barred under the circumstances of this case. We affirm.

I

[¶ 2] This case involves Cawley's claims to a working interest in the Missouri Breaks Unit No. 1 oil and gas well in McKenzie County and for repayment of loans he made to the current owner's predecessor. Comanche Oil Company was the original lessee under the terms of four leases entered into with the owners of the land on which the well is located. In September 1997, Comanche assigned its interests to Athens/Alpha Gas Corporation, whose president was Frank Woodside. In May 1998, Cawley made the first of several loans to Athens/Alpha in the amount of $15,000. Cawley also loaned Athens/Alpha $5,000 in August 1998; $20,000 in March 2002; and $6,000 in July 2002. Cawley claimed he was promised a working interest in the well as collateral for the loans, and when the loans were not repaid he purchased a 5% working interest in the well in 2002.

[¶ 3] Later in 2002, Athens/Alpha filed for Chapter 11 bankruptcy because of its inability to pay its debts. According to Woodside, the bankruptcy filings listed Cawley as a "secured creditor" owed $26,000 and as an owner of a 5% working interest in the well. Cawley had notice of the bankruptcy proceedings but did not file a proof of claim with the bankruptcy court and did not record his 5% working interest in the well. In May 2005, a reorganization plan was confirmed by the bankruptcy court. Cawley did not object to the reorganization plan. The plan provided for the formation of Missouri Breaks, and transferred Athens/Alpha's 50% working interest in the well to Missouri Breaks. Missouri Breaks began operating the well and was required to pay Athens/Alpha's creditors using the revenue from its portion of the working interest. The reorganization plan defined "Allowed Claim" for purposes of the plan as:

(i) a Claim that has been allowed by this Plan or a Final Order of the Bankruptcy Court or (ii) a Claim timely filed with the Clerk of Court scheduled as liquidated, undisputed and non-contingent by the Debtor in the schedules, lists and statement of financial affairs and executory contracts heretofore filed with the Bankruptcy Court as they may be amended or supplemented (collectively the "schedules"), as to which Claim no objection to the allowance thereof has been interposed within the period of time fixed by the Code or by a final order of the Bankruptcy Court, or as to which Claim either an objection to the Claim or an application to amend the schedules with respect to a scheduled Claim has resulted in the allowance of a Claim, in whole or in part, by a final order of the Bankruptcy Court.

[¶ 4] The reorganization plan described the effect of the transfer of assets to Missouri Breaks:

On the Effective Date, the Property of the Estate and any and all other assets of the Debtor shall be transferred to [Missouri Breaks] free and clear of any and all Claims, Liens, charges, encumbrances and interests, except as otherwise provided in the Plan and [Missouri

791 N.W.2d 37

Breaks] shall be deemed a purchaser in good faith and be entitled to all of the protections afforded by section 363(m) of the Bankruptcy Code. The Debtor and [Missouri Breaks] will be discharged from any and all claims to the fullest extent allowed under 11 U.S.C. § 1141.

The reorganization plan also addressed the preservation and transfer of claims:

On the Effective Date, any and all claims and causes of action of the Debtor shall be preserved and transferred to [Missouri Breaks], including without limitation claims and actions for preferential transfer(s), fraudulent conveyance(s), avoidable post-petition transfers, turnover of estate property, monetary damages, equitable subordination, avoidance of transfers, or other actions at law or equity which may exist in favor of the Debtor against its current management, insiders, including Frank Woodside or any other party and [Missouri Breaks] shall have full standing to pursue such actions on its own behalf as if it were the Debtor, with no adverse affect or diminution on such actions whatsoever resulting from such transfer or from confirmation of this Plan.

The reorganization plan gave the interest holders and Missouri Breaks "the right to review all proofs of Claims filed in this Case and file objections to or motions to subordinate such Claims prior to any deadline established by the Court which objections, to the extent necessary, may be litigated by [Missouri Breaks] after Confirmation of this Plan, except as set forth specifically herein."

[¶ 5] About one year after the reorganization plan was confirmed by the bankruptcy court, Cawley made a motion in the bankruptcy court to determine his claims. Missouri Breaks and other interest holders objected to Cawley's motion. Missouri Breaks argued granting Cawley's motion would delay closure of the bankruptcy case, Cawley's "claims depend solely on state law," and that "grounds exist for both mandatory and discretionary abstention under 28 U.S.C. § 1334(c)(2) and (1)." Missouri Breaks informed the bankruptcy court that the "Objectors will be commencing suit in state court to resolve the claims of Thomas Cawley and others in the Missouri Breaks Unit No. 1 well." The record does not disclose the bankruptcy court's action on Cawley's motion, but the parties apparently reached an agreement on a state court forum for resolution of Cawley's claims. In March 2006, Cawley recorded his 5% working interest in Missouri Breaks' 50% working interest in the well.

[¶ 6] Missouri Breaks filed this state court quiet title action in September 2006 to resolve any competing claims of ownership in the well. Cawley answered and filed a motion for summary judgment claiming that he had a 5% working interest in Missouri Breaks' 50% working interest in the well and that he was owed $26,000 he had loaned Athens/Alpha before the bankruptcy filing. Missouri Breaks filed a cross-motion for summary judgment, which the district court granted. The court concluded that Cawley's claims were barred by res judicata and that his failure to record the 5% working interest before Athens/Alpha filed for bankruptcy voided any interest he may have had in the well. A final judgment was entered resolving all claims in the quiet title action.

II

[¶ 7] Cawley argues the district court erred in rejecting his claims to a 5% working interest in Missouri Breaks' 50% working interest in the well and for repayment of $26,000 in loans to Athens/Alpha plus interest.

791 N.W.2d 38

[¶ 8] The standard of review for summary judgment is well established:

"Summary judgment is a procedural device for the prompt resolution of a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. A party moving for summary judgment has the burden of showing there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. In determining whether summary judgment was appropriately granted, we must view the evidence in the light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the record. On appeal, this Court decides whether the information available to the district court precluded the existence of a genuine issue of material fact

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