437 P.3d 758
Wyo.2019Background
- North Star Energy & Construction, LLC was formed in 2011 by three Garland companies (Three Way, Hot Iron, MGM) with Alex Mantle as President; the company was initially profitable but suffered catastrophic losses in 2014 tied to an underbid project and the oil-price decline.
- In 2014 Mantle and accountant Karl Killmer negotiated a leveraged buyout structure and obtained a $3,000,000 First Northern Bank (FNB) loan secured by Mantles' securities; the parties executed a Memorandum of Understanding (MOU) on September 17, 2014 memorializing the buyout terms and Mantles' personal guaranty for $6,110,000.
- Mantle stopped performance, North Star became insolvent, the Garlands retook management, assets were auctioned, and various post-MOU transfers and reimbursements were made among North Star and Garland-related entities.
- FNB later sold its $3,000,000 North Star note to the Mantles; Mantles thereafter sued (subrogation plus tort and fraudulent-transfer theories) and the Garlands counterclaimed for breach of the MOU and fiduciary claims.
- After cross-motions for summary judgment and a bench trial, the district court: (a) awarded Mantles judgment on the subrogated note against North Star; (b) found the MOU enforceable and entered judgment against Alex Mantle on his $6,110,000 guarantee; (c) found certain transfers fraudulent under the UFTA but declined to pierce LLC veils; and (d) denied Mantles’ attorney-fee request for lack of adequate itemization.
Issues
| Issue | Mantles' Argument (Plaintiff) | Garlands' Argument (Defendant) | Held |
|---|---|---|---|
| Were defendants’ counterclaims abandoned when not refiled after amended complaint? | Mantles: failure to replead = abandonment | Garlands: counterclaims were pleaded earlier and continuously prosecuted | Not abandoned — court affirmed counterclaims remained viable |
| Is the MOU an enforceable contract (including Mantles’ personal guaranty)? | Mantles: MOU indefinite, interim, and frustrated by ANB covenants; guaranty unenforceable | Garlands: MOU contains essential terms, merger clause, mutual promises and consideration | MOU enforceable; mutual assent and consideration found; commercial frustration/mistake rejected |
| Were certain transfers fraudulent under the UFTA? | Mantles: multiple post-MOU transfers were fraudulent (actual or constructive) to defeat creditors | Garlands: most transfers were ordinary-course reimbursements or received reasonably equivalent value | Mixed: some transfers (to Gary and Ray re: pledge/tax/pledge releases) held fraudulent; many transfers (Hot Iron, MGM, mobilization, WyoDak trucks, 1401 Oil Drive sale) not fraudulent |
| Can Garlands assert equitable defenses (unclean hands/equitable estoppel) to fraudulent-transfer claims? | Garlands: equity should bar Mantles or mitigate relief | Mantles: Garlands’ own misconduct bars equitable relief | Court: equitable defenses not available to bar Mantles where Garlands’ own conduct undermined clean-hands; defenses rejected |
| Should the court pierce LLC veils to reach members or related entities? | Mantles: veil-piercing justified by transfers, intermingling, undercapitalization, and injustice | Garlands: separate entities, maintained accounts, no fraud warranting piercing | Veil not pierced as to North Star; transferred-conduct insufficient to meet GreenHunter factors; WyoDak dismissed (no ownership/control) |
| Do North Star managers owe fiduciary duties to creditors (Mantles)? | Mantles: managers deepened insolvency; fiduciary duties to creditors should apply | Garlands: duties run to the company; Wyoming LLC law does not extend such duties to creditors | Court: no fiduciary duty to creditors under Wyoming law; fiduciary duties owed to company only |
| Were Mantles’ common-law fraud claims viable? | Mantles: fraudulent scheme and misrepresentations by Garlands | Garlands: pleadings insufficient and elements not pled with particularity | Claim dismissed: summary judgment properly granted for lack of pleaded elements and W.R.C.P. 9(b) defects |
| Were Garlands’ claims against Mantle for breach of fiduciary duty direct or derivative? | Garlands: asserted direct harm from Mantle’s conduct | Mantles: any injury flowed to North Star (derivative) | Court: breach-of-fiduciary claims are derivative (owed to company); Garlands did not follow derivative-suit prerequisites; claim dismissed |
| Entitlement to attorney fees by Mantles (after subrogation judgment)? | Mantles: loan documents provide fees; entire litigation intertwined so allocation impractical | Garlands: Mantles must itemize fees by claim | Court: fees recoverable but Mantles failed to sufficiently itemize attributable fees; denial not an abuse of discretion |
Key Cases Cited
- Roussalis v. Wyoming Medical Center, 4 P.3d 209 (Wyo. 2000) (contract formation and interpreting intent by objective evidence)
- Transamerica Commercial Finance Corp. v. Naef, 842 P.2d 539 (Wyo. 1992) (guaranty law as part of contract law; guaranty consideration rules)
- GreenHunter Energy, Inc. v. Western Ecosystems Tech., 337 P.3d 454 (Wyo. 2014) (LLC veil-piercing factors and analysis)
- Gheewalla v. National Catholic Educational Programming Foundation, 930 A.2d 92 (Del. 2007) (creditors’ standing and derivative-vs-direct claims re: fiduciary duties of insolvent corporations)
- Breitenstine v. Breitenstine, 62 P.3d 587 (Wyo. 2003) (badges of fraud and proof of fraudulent intent under fraudulent-transfer law)
- Husky International Electronics, Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) (Bankruptcy Code: "actual fraud" can encompass fraudulent conveyance schemes without a false representation)
- In re Phillips, 379 B.R. 765 (Bankr. N.D. Ill. 2007) (standard of proof for actual fraud under UFTA)