Wells Fargo Rail Corp. v. Black Iron, LLC (In re Black Iron, LLC)
| Decision Date | 10 January 2020 |
| Docket Number | Bankruptcy No. 17-24816,Adversary Proceeding Number: 17-2094 |
| Parties | In re: Black Iron, LLC, Debtor(s) Wells Fargo Rail Corporation and Helm-Pacific Leasing, Plaintiffs, v. Black Iron, LLC; CML Metals Corporation; PIC Railroad, INC., and Gilbert Development Corporation, Defendants. |
| Court | U.S. Bankruptcy Court — District of Utah |
Honorable William T. Thurman
This matter came before the Court by way of Black Irons, LLC's (herewithin "Black Iron") Motion Under Federal Rules of Bankruptcy Procedure 7052, 9023 & 9024, ("Black Iron's Motion") and Wells Fargo Rail Corporation's (herewithin "Wells Fargo") Motion to Alter or Amend Findings of Fact and Conclusions of Law in Memorandum Decision and to Amend the Judgment ("Wells Fargo's Motion"). The Court conducted oral argument on the matter, the Honorable William T. Thurman, presiding. Ellen Ostrow and David Jordan appeared on behalf of Black Iron, Troy Arambura and Bret Evans appeared on behalf of Wells Fargo, and Brian Rothschild appeared on behalf of Michael Conboy. The Court reviewed the relevant pleadings and heard argument thereto and incorporates its findings of fact and conclusions of law in this memorandum.
The jurisdiction of the Court is properly invoked under 28 U.S.C. §§ 157(b) and 1334. Wells Fargo's claims against Black Iron are core proceedings pursuant to 28 U.S.C. § 157 (b), and Wells Fargo's remaining claims are proceedings that may be heard and determined by this Court pursuant to 28 U.S.C. § 157(c). The parties had filed multiple lawsuits in state court and district court. On Aug. 21, 2017, Judge Jill Parrish of the United States District Court for the District of Utah (the "District Court") referred such claims to this Court and the parties have consented to the jurisdiction of the Court to determine the claims and defenses asserted in the above-captioned adversary proceeding. This referral included all contract claims and state law claims in the previously-filed lawsuits. Accordingly, this Court sits as a trial court as if tried in the state court or in the District Court. Indeed, this Court must follow the substantive law of the state of Utah in providing for relief in this matter. However, since it is here in this Court, certain bankruptcy rules apply which the court will address hereafter. The jurisdiction of this Court is not disputed and is hereby determined to be present.
Venue is determined by the Court to be proper pursuant to the provisions of 28 U.S.C. § 1409. Venue is laid in the United States Bankruptcy Court for the District of Utah. Notice of the hearing on these motions is determined to be adequate.
This matter comes before the Court by way of two separate motions pursuant to Rule 59 of the Federal Rules of Civil Procedure which has been adopted as Rule 9023 of the Bankruptcy Rules to alter or amend the Court's findings of fact and conclusions of law. Black Iron and Wells Fargo filed oppositions to each other's motions, and Michael Conboy filed a partial joinder to the opposition of Wells Fargo's Motion only to the extent of the issue of the lien on Black Iron's property. The parties have also filed appeals or intend to file an appeal depending on the outcome of these motions with the District Court. The motions can best be summarized as follows: Black Iron believes the judgment against it should be reduced by offsetting certain cost savings; Wells Fargo believes it is entitled to an attachment lien against Black Iron's property which the Court did not allow, that it is entitled to an award of pre-judgment interest and that it should be awarded its attorneys fees.
The Court believes it is appropriate to provide a brief synopsis of the facts which will put its ruling into perspective. Beginning in June 2010, Helm Financial Corporation, Wells Fargo's predecessor-in-interest, and Helm-Pacific entered into four lease agreements with CML Metals Corporation (herewithin "CML Metals") and CML Rail Road for the use of 540 railcars and 4 locomotives. CML Metals used the railcars and locomotives on a mine which it owned near Cedar City, Utah. CML Metals ceased mining operations in October 2014; however, it began looking for a buyer of the mine prior to shutting down its operations. CML Metals would eventually find a purchaser, Gilbert Development Company (herewithin "GDC"), and entered into an asset purchaseagreement that was finalized on April 2, 2015. Shortly before the closing on the sale, GDC assigned most of its interest in the asset purchase agreement to a newly formed entity, Black Iron.
Prior to the mine closing, CML Metals ceased making payments required under the four leases. CML Metals negotiated a deferment agreement in order to make the mine more marketable for potential buyers. The railcars and locomotives remained on the property transferred from CML Metals to GDC then to Black Iron. After the sale, Wells Fargo made efforts to retrieve the railcars and locomotives; however, it was unsuccessful in its efforts. Three years later, after petitioning this Court for a writ of replevin, Wells Fargo was able to sell the railcars and locomotives to a third party.
In the present suit, Wells Fargo claimed the following: first, that CML Metals owed damages for failing to make payments under the lease agreements, and for other amounts owed to Wells Fargo under the leases. Second, that the transfer in which CML Metals transferred substantially all of its assets to GDC, and thence to Black Iron, was a transfer that is voidable under the Uniform Fraudulent Transfer Act ("UFTA"), Utah Code Ann. § 25-6- 1 et seq. Third, that Black Iron converted the railcars and locomotives when it prevented Wells Fargo from retrieving them. There were some other issues addressed, which are the subject of the current motions. The Court found on summary judgment that Black Iron converted the railcars and locomotives and reserved determination of damages for trial. Black Iron asserted claims and damages against Wells Fargo for storage fees and trespass. The Court dismissed those claims on summary judgment [Memorandum Decision/Opinion and Order, Docket. No. 80, Case No. 17-2088].
On June 24, 2019 to July 2, 2019, this Court conducted a trial among Wells Fargo, Black Iron, and GDC. At the conclusion of trial, the Court directed the parties to submit post-trial briefsand took the matter under advisement. On August 30, 2019, the Court issued its decision by way of a memorandum decision ("Memorandum Decision"). Memorandum Decision After Trial, Docket No. 591. The Court awarded Wells Fargo's under its UFTA claim the sum of $2,618,680.44 against both GDC and Black Iron. See Docket No. 592. Additionally, the Court awarded Wells Fargo conversion damages against Black Iron in the amount of $7,885,584. Id.
Black Iron's Motion originally sought to reduce the conversion damages against it from $7,885, 584 to $4,270,648. Black Iron believes the basis for this reduction lies on the theory that any claim of Wells Fargo should be offset for certain cost savings. The cost savings are argued to be for not having to remove and store the railcars and locomotives after the conversion date. Black Iron bases the amount of the reduction on testimony from Wells Fargo's expert, Pat Mazzanti, regarding the value of the equipment and Defendant's Exhibit 425, which is a chain of internal emails regarding storage and removal costs. The value of the equipment as of August 2015 was $11.5 million and the Court reduced this by the sale proceeds of $3,614,416. Black Iron believes that the Court should further reduce this by the hypothetical costs of removal ($1,659,776), the inbound switch to storage costs ($81,000), and storage costs ($1,874,160). Black Iron withdrew its claim for a reduction of storage costs at oral argument, reducing the amount which it seeks to reduce the conversion damages from $3,614,936 to $1,740,776 - which would reduce the total conversion damages to $6,144,808.
Wells Fargo's Motion seeks to amend the finding of facts and corresponding judgment as to three separate issues. First, Wells Fargo believes that the Court errored when it declined to grant Wells Fargo an attachment on any of the assets CML Metals transferred to Black Iron. In the Court's Memorandum Decision, it reasoned that such a remedy was unavailable because Wells Fargo failed to seek relief from the automatic stay. Wells Fargo argues that relief from the stay isnecessary only when a creditor pursues collection remedies outside of the Bankruptcy Court. Here, Wells Fargo argues that it pursued an attachment remedy inside the Bankruptcy Court through this adversary proceeding. Because it sought the lien or attachment within the Bankruptcy Court, seeking relief from the automatic stay would have been superfluous so it argues; had Wells Fargo sought relief from the stay, it would have ended up doing exactly what it did here - obtain its remedies against Black Iron in this adversary proceeding.
Next, Wells Fargo believes the Court should alter the final judgment to include pre-judgment interest as to the conversion damages. Wells Fargo argues that the Court was mistaken in its ruling that Wells Fargo "did not request prejudgment interest" on its conversion claim. See Memorandum Decision, Docket No. 591, Page 48. It further argues that prejudgment interest is compulsory component of conversion damages, see Henderson v. For-Shor Co., 757 P.2d 465, 468 (Utah Ct. App. 1988), and it is part of the relief that Wells Fargo has been seeking since the initiation of this adversary proceedings.
Finally, Wells Fargo believes that the Court was incorrect in...
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