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Morris v. Rowallan Alaska, Inc (09/30/2005) sp-5945
Morris v. Rowallan Alaska, Inc (09/30/2005) sp-5945
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| CLAUDE H. MORRIS, JR.,
| ) |
|
| ) Supreme Court No. S-
11325 |
|
Appellant, | ) |
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| ) Superior Court
No. |
|
v. | ) 3AN-01-5295
CI |
|
| ) |
|
ROWALLAN ALASKA, INC., | ) O P I N I
O N |
|
ROWALLAN MINE PARTNERSHIP, | ) |
|
GOLD HILL MINING CO., | ) [No. 5945
- September 30,
2005] |
|
ANNETTE R. McDONALD, and | ) |
|
ASCENSION LLC, | )
|
|
| ) |
|
Appellees. | )
|
|
| ) |
|
|
|
|
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Peter A. Michalski, Judge.
Appearances: Joan Travostino, Preston Gates &
Ellis, LLP, Anchorage, for Appellant. Carl
J.D. Bauman, Hughes Thorsness Powell
Huddleston & Bauman, LLC, Anchorage, for
Appellee Annette McDonald.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
Did the superior court err in granting defendant
McDonald summary judgment after two co-defendants filed for
bankruptcy protection? Morris, the plaintiff below, contends
that the automatic stay triggered by the bankruptcy filings
should have also stayed the action against the non-debtor
defendant McDonald. Because there is an insufficient identity of
interest between McDonald and the debtor defendants, we reject
Morriss argument. However, because there was a genuine issue of
material fact about the legal relationship among the co-
defendants, summary judgment should not have been granted.
Accordingly, we reverse.
II. FACTS AND PROCEEDINGS
Claude H. Morris owns mining claims located north of
the Denali Highway in the Talkeetna Recording District. He sued
the owners and developers of neighboring claims on various
theories including breach of contract and trespass. The events
giving rise to these claims began in 1998.
On October 14, 1998 the previous owner of the
neighboring claims entered into a sales agreement to convey the
claims to ANNETTE R. MCDONALD et.al., D.B.A. GOLD HILL MINING
COMPANY. The agreement, which contained the terms of sale and
payment schedule, was signed by McDonalds son William pursuant to
a power of attorney. William also signed a $450,000 promissory
note.
The parties dispute whether McDonald or the Gold Hill
Mining Company subsequently owned the claims. At the time of
contract, Gold Hill was not a separate legal entity; McDonald
concedes that it was incorporated in Alaska at a later date.1
The various documents relating to the sale were inconsistent in
their descriptions of the new owner: (1) ANNETTE R. MCDONALD
et.al., D.B.A. GOLD HILL MINING COMPANY on the sales agreement;
(2) ANNETTE R. MCDONALD ET.AL. DBA GOLD HILL MINING on the
promissory note and on the forty-eight separate Quit Claims Deeds
(dated February 23, 1999); (3) Annette R. McDonald, et al., in
the Water Rights Quitclaim Deed and the Release and Assumption of
Liability and Transfer of NPDES Permit (both dated February 24,
1999); and (4) simply ANNETTE R. McDONALD on the Quit Claim Deed
to subsequent purchaser Ascension, LLC (dated June 23, 2000).
In short, between February 1999 and June 2000, either
McDonald or Gold Hill owned the neighboring claims. During this
period, Gold Hill actively mined the neighboring claims. After
June 2000, Ascension, LLC owned and also actively mined the
claims.2 Morris alleged that he entered into a contract in June
1999 with two agents of Gold Hill. In exchange for drilling
services and obtaining Bureau of Land Management permits and
reclamation plan approval, Morris agreed to allow defendants to
place tailings, overburden, and mine workings from defendants
claims on plaintiffs mining claims.
In January 2002 Morris filed an amended complaint
against McDonald, Gold Hill, and Ascension.3 The complaint set
forth four causes of action: (1) breach of the June 1999
contract; (2) breach of Gold Hills BLM-approved mining plan,
which resulted in the diversion of a creek allegedly causing
damage to Morriss claims; (3) foreclosure of a lien on real
property;4 and (4) trespass.
On July 14, 2003 Gold Hill and Ascension filed
bankruptcy petitions in the District of Connecticut. On August
13, 2003 McDonald moved for summary judgment against Morris,
contending that she acted only in a representative capacity for
Gold Hill and that no claims for personal liability had been
asserted. Morriss opposition argued that McDonald was the record
owner of the claims, but he otherwise did not respond
substantively to her arguments. Rather, he argued that a ruling
on McDonalds motion would violate the automatic stay bankruptcy
provision, 11 U.S.C. 362(a).
Superior Court Judge Peter A. Michalski granted summary
judgment to McDonald without discussion on September 24, 2003.5
The superior court subsequently denied Morriss motion for
reconsideration and granted final judgment on November 24, 2003.
Morris appeals.
III. STANDARD OF REVIEW
We review a grant of summary judgment de novo and adopt
the rule of law that is most persuasive in light of precedent,
reason, and policy. To obtain summary judgment, the moving party
must prove the absence of a genuine factual dispute and its
entitlement to judgment as a matter of law. All reasonable
inferences of fact are drawn in favor of the nonmoving party.6
IV. DISCUSSION
A. The Automatic Stay Triggered by the Bankruptcy Filings
of McDonalds Co-Defendants Did Not Stay McDonalds
Motion for Summary Judgment.
Morris contends that the bankruptcy filings by Gold
Hill and Ascension resulted in an automatic stay of any decision
regarding their non-debtor co-defendant McDonald. The automatic
stay provision of the Bankruptcy Code is found in 11 U.S.C.
362(a), which provides in relevant part:
[A] petition filed under [the Bankruptcy
Code] operates as a stay, applicable to all
entities, of
(1) the commencement or continuation . .
. of a judicial, administrative, or other
action or proceeding against the debtor that
was or could have been commenced before the
commencement of the case under this title, or
to recover a claim against the debtor that
arose before the commencement of the case
under this title;
. . . .
(3) any act to obtain possession of
property of the estate or of property from
the estate or to exercise control over
property of the estate . . . .
It is clear that this language results in an automatic stay of
proceedings against debtor defendants. The purpose of this
provision is
to protect the debtor from an uncontrollable
scramble for its assets in a number of
uncoordinated proceedings in different
courts, to preclude one creditor from
pursuing a remedy to the disadvantage of
other creditors, and to provide the debtor
and its executives with a reasonable respite
from protracted litigation, during which they
may have an opportunity to formulate a plan
of reorganization for the debtor.[7]
Courts have read 362(a)(1) and 362(a)(3) in some instances to
establish a stay against non-debtor co-defendants as well. These
subsections will be considered in turn.
1. 11 U.S.C. 362(a)(1)
Morris primarily relies on 362(a)(1), which upon a
filing stays the commencement or continuation . . . of a
judicial, administrative, or other action or proceeding against
the debtor . . . . This subsection has been narrowly construed,
and generally applies to the debtor, not to third-party
defendants or co-defendants.8 However, a limited exception
exists for certain unusual circumstances.9 The seminal case on
this issue, A.H. Robins Co. v. Piccinin, explains that these
circumstances arise when there is such identity between the
debtor and the third-party defendant that the debtor may be said
to be the real party defendant and that a judgment against the
third-party defendant will in effect be a judgment or finding
against the debtor.10 In other words, it is when the debtor and
nondebtor are so bound by statute or contract that the liability
of the nondebtor is imputed to the debtor by operation of law.11
There are numerous cases finding that certain
relationships between co-defendants do not rise to the level of
the identity of interest needed to apply the stay to a non-debtor
co-defendant. The stay has been deemed inapplicable to
defendants who are independently liable, as, for example, where
the debtor and another are joint tort feasors or where the
nondebtors liability rests upon his own breach of duty.12 Nor
does the stay generally apply to codebtors, guarantors, sureties,
insurers . . . debtors principals . . . partners, officers,
directors, shareholders, or employees of the debtor.13
The classic example of unusual circumstances where
there is sufficient identity of interest involves a suit against
a third-party who is entitled to absolute indemnity by the debtor
on account of any judgment that might result against them in the
case.14 Thus, the provision could stay a suit against officers or
directors of a corporate debtor that was obligated to indemnify
them for personal liability incurred while serving the
corporation.15 In that scenario, the judgment against the
officers or directors would be indistinguishable from a judgment
against the corporate debtor. Beyond this situation, courts have
been reluctant to employ or extend this doctrine.16
Morris argues that the adjudication of McDonalds
summary judgment should have been stayed under 11 U.S.C.
362(a)(1) because the motion arose out of litigation with Gold
Hill, and the grant of her motion affected Gold Hill. However,
he fails to put forth any argument on how his case resembles the
unusual circumstances the law requires for a non-debtor
defendant.17 There is no allegation in his briefing nor
suggestion in the record that the relationship between Gold
Hill/Ascension and McDonald was one of absolute indemnification.
Instead, Morriss complaint alleged that the defendants were
jointly and severally liable. As explained above, a joint
tortfeasor is independently liable and lacks an identity of
interest with its co-defendant. The joint tortfeasor is
therefore not protected by the bankruptcy filing of a co-
defendant.18 Morriss own pleading establishes that a 362(a)(1)
stay of his action against McDonald would have been improper. We
therefore reject his contention under this subsection.
A court may also grant a stay on equitable grounds when
an absent bankrupt party is an indispensable party in the
proceeding against the non-debtor defendant. We have stated:
Except in unusual circumstances, an automatic
bankruptcy stay under 11 U.S.C. 362(a)
applies to the debtor alone and not to non-
bankrupt co-defendants. Therefore, severance
of the bankrupt defendant from non-bankrupt
co-defendants is allowable unless the
bankrupt defendant is indispensable to the
action.[19]
Civil Rule 42 grants trial courts the discretion to sever any
claim or party, and Rule 19(b) lists the factors a court shall
consider to determine if an absent party is indispensable.
Bankruptcy courts have also used these factors to consider
whether to stay an action against a non-debtor defendant on
equitable grounds.20
However, Morris made no showing that either Gold Hill
or Ascension was an indispensable party to McDonalds summary
judgment motion. The closest he came was to argue that he faced
a risk of inconsistent results as to who was the true owner of
the neighboring claims. But Morris offered no support for his
proposition that a mere risk of inconsistent results mandates a
stay. When this factor is considered in these situations, courts
normally look for the risk of inconsistent relief for defendants,
not plaintiffs.21 This comports with the purpose of the 362 stay
to protect debtor defendants.22 As Morris failed to put forth any
other reasons why Gold Hill or Ascension were indispensable
parties, the superior court properly declined to grant a stay on
these grounds.23
2. 11 U.S.C. 362(a)(3)
Automatic stays are issued under 362(a)(3) for any act
to obtain possession of property of the [bankruptcy] estate or of
property from the estate or to exercise control over property of
the estate. Property in the bankruptcy context includes all
legal or equitable, tangible or intangible, interests of the
debtor in property as of the commencement of the case.24 While
Morris does not cite to this subsection directly, he hints at its
underlying legal premise and discusses cases relying on it.
Because he has insufficiently argued this point, we consider it
waived.25 We also note that there is no dispute that Ascension
not McDonald owned the neighboring claims after June 2000. A
determination of liability or no liability against McDonald
therefore does not interfere with any property presently involved
in a bankruptcy proceeding.
B. The Superior Court Erred in Granting McDonalds Motion
for Summary Judgment.
Morris next contends that the superior court erred in
granting summary judgment on the merits. McDonald successfully
moved for summary judgment below, arguing that she never owned
the neighboring claims in her personal capacity, that she never
acted for Gold Hill in anything but a representative capacity,
and that Morris failed to assert any claims against McDonald
personally.
Rather than responding on the merits, the bulk of
Morriss opposition brief related to the automatic stay argument
under bankruptcy law. However, he did contest McDonalds
assertion that she was never the owner of the claims, stating
that her name appears as record owner. He elaborated on this
contention in his subsequent motion for reconsideration, stating
that [t]he material question in this matter is who owned the
mining claims that are the subject of this lawsuit beginning
February 1999 and that Gold Hill is a sole proprietorship name
used by Annette McDonald.
On appeal, McDonald suggests that she was entitled to
summary judgment based upon Morriss minimal statements in
opposition to the merits of her summary judgment request. We
reject this argument. A party is not entitled to summary
judgment merely because its motion goes uncontested.26 To obtain
summary judgment, the moving party must prove that there is no
genuine issue as to any material fact and that it is entitled to
judgment as a matter of law.27 Morriss statement that her name
appears as the record owner was sufficient to alert the superior
court that he contested an issue of material fact that is,
whether McDonald owned the land.
We conclude that the superior court erred in granting
summary judgment because McDonald did not carry her burden of
demonstrating the absence of a genuine issue of material fact.
The issues raised by Morris whether McDonald personally owned
the neighboring claims during some of the key events described in
the complaint and whether she acted solely in a representative
capacity for Gold Hill remain unresolved.28 As explained below,
McDonalds pleadings and attached documents, when viewed in the
light most favorable to Morris, did not demonstrate that she
acted solely in a representative capacity.
First, the October 1998 sales agreement and promissory
note were entered into, respectively, by ANNETTE R. MCDONALD
et.al., D.B.A. Gold Hill Mining Company and ANNETTE R. MCDONALD
ET.AL. DBA GOLD HILL MINING. However, by McDonalds own
admission, at that point Gold Hill was not an incorporated entity
in Alaska. McDonald has presented no documentation to show that
she acted as a promoter or in a representative capacity for a pre-
incorporated entity. Similarly, there is no evidence in the
record that Gold Hill ratified or assumed the obligations of this
transaction after its incorporation. There is also no indication
whether the payments on the promissory note were made by McDonald
or by Gold Hill.
Second, the sales agreement and the promissory note
were signed by McDonalds son, William, pursuant to a power of
attorney. The power of attorney document authorized William to
act on McDonalds behalf, not on behalf of the Gold Hill entity.
There is no mention of Gold Hill in the power of attorney
document. These facts support the view that McDonald entered
into the sales contract and promissory note in her personal
capacity.
Third, the February 1999 quitclaim deeds refer to the
grantee as Annette R. McDonald et. al. DBA Gold Hill Mining. In
this description of the grantee, Gold Hill Mining lacks any term
designating its existence as a corporate entity, such as
Corporation or Company.29 The address listed for the grantee is
inconclusive regarding the true grantee the corporate address
for Gold Hill is the same as McDonalds personal address.
Moreover, the facts are unclear as to whether Gold Hill was
incorporated in Alaska at that time. While McDonalds motion for
summary judgment alleged that Gold Hill was properly incorporated
on October 20, 1998, she offered no documentary evidence to
support this claim. We have noted that [a]ssertions of fact in
unverified pleadings and memoranda cannot be relied upon in a
motion for summary judgment.30 The quitclaim deeds leave open the
possibility that McDonald was acting in her personal capacity.
Fourth, and finally, the documents relating to the June
2000 conveyance of the claims to Ascension strongly support the
view that McDonald owned the claims in her personal capacity
during the preceding time period. The quitclaim deed for that
conveyance and the filing with the Alaska Recorders Office both
referred to the grantor as simply Annette R. McDonald, with no
mention of Gold Hill. Similarly, a letter from Ascensions
attorney to the Bureau of Land Management shortly after the
conveyance purports to remit fees for the transfer of claims
formerly held by Annette R. McDonald.
In light of these documents and the absence of other
documents that could have supported McDonalds position that she
acted solely in a representative capacity, we conclude that the
issue of ownership presents a genuine issue of material fact.
As McDonald failed to carry the burden in resolving this
contested issue (and given that McDonald was the party better
suited to put forth relevant documents to explain her
relationship with the debtor defendants), we reverse the grant of
summary judgment by the superior court.
V. CONCLUSION
Because federal bankruptcy law does not require the
superior court to stay its hand in ruling on a motion pertaining
to a non-debtor co-defendant, the superior court did not err in
proceeding. However, because material facts are in dispute
concerning McDonalds status, we REVERSE the superior courts grant
of summary judgment.
_______________________________
1 McDonalds motion for summary judgment and her brief to
this court posit that the date of Gold Hills incorporation in
Alaska was October 20, 1998. No documentary evidence has been
offered to support this date.
2 The briefing suggests that Ascension, LLC is
essentially a reorganized version of Gold Hill.
3 Morris had also sued Rowallan Alaska, Inc. and Rowallan
Mine Partnership, entities that had owned and developed the
claims before the conveyance to McDonald/Gold Hill. The Rowallan
defendants were dismissed by stipulation, presumably because the
complaint was limited to post-conveyance events.
4 Morris alleged that he provided labor services and
materials under the June 1999 contract but remained
uncompensated. Accordingly, on September 1, 2000 he filed a lien
on the neighboring claims. Citing AS 34.35.125, AS 34.35.050,
and AS 34.35.140, Morris sought foreclosure of the owners
interests to satisfy his judgment.
5 State courts have at least concurrent jurisdiction with
bankruptcy courts to consider the applicability of an automatic
stay. In re Mann, 88 B.R. 427, 430 (Bankr. S.D. Fla. 1988).
6 Powell v. Tanner, 59 P.3d 246, 248 (Alaska 2002)
(citations omitted).
7 A.H. Robins Co. v. Piccinin, 788 F.2d 994, 998 (4th
Cir. 1986). Morriss assertion of the stay in this case is far
removed from any of these policy concerns. First, the statute
was intended to protect debtors, not plaintiffs. Second, he
seeks to invoke the stay against a non-debtor defendant.
8 Id. at 999.
9 Id.
10 Id. (emphasis added).
11 Id. (quoting In re Metal Center, 31 B.R. 458, 462
(Bankr. D. Conn. 1983)).
12 Id. Courts have consistently rejected stays for joint
tortfeasors. See, e.g., Williford v. Armstrong World Indus.,
Inc., 715 F.2d 124, 126-28 (4th Cir. 1983); Lynch v. Johns-
Manville Sales Corp., 710 F.2d 1194, 1198-99 (6th Cir. 1983);
Wedgewood v. Fibreboard Corp., 706 F.2d 541, 544-46 (5th Cir.
1983).
13 9B Am. Jur. 2d Bankruptcy 1583 (1999) (collecting
cases for each type of co-defendant).
14 Piccinin, 788 F.2d at 999 (emphasis added).
15 1 David G. Epstein, Steve H. Nickles & James J. White,
Bankruptcy 3-10, at 135-36 (1992) (discussing Piccinin, 788 F.2d
at 998-99).
16 See id. at 136 n.11 (The courts . . . will never agree
to apply the Piccinin rule if the debtor is not absolutely bound,
by contract or law, to indemnify or otherwise reimburse the non-
debtor.) (citing cases).
17 Rather than argue an identity of interest between Gold
Hill/Ascension and McDonald, Morris contends that a ruling on
McDonalds motion affected the debtor defendants, because a
decision in her favor necessarily was a decision that Gold Hill
owned the claims in 1999, and not McDonald. Morriss argument is
not only factually dubious, it is also based on an erroneous
legal standard. For example, he states without support that
[a]ny continuation of a proceeding which affects a debtor in a
bankruptcy proceeding is stayed by 11 U.S.C. 362. But whether
the debtor defendant is affected is simply not the correct legal
test, as explained above.
Along these lines, Morris creates an either/or
situation: The ownership belongs to one or the other. A decision
for one party necessarily affects the other because there is no
third option. Morriss either/or argument mistakenly places Gold
Hill/Ascension and McDonald in adverse positions, whereas to
obtain a stay with regard to McDonald, the law requires Morris to
show that Gold Hill/Ascension and McDonald have essentially the
same interest, such that a judgment against McDonald is
tantamount to a judgment against Gold Hill/Ascension. Morriss
line of argument is insufficient under bankruptcy law.
18 See, e.g., Piccinin, 788 F.2d at 999; Lynch v. Johns-
Manville Sales Corp., 710 F.2d 1194, 1198-99 (6th Cir. 1983).
19 Patterson v. State, Dept of Agric., 880 P.2d 1038, 1044
n.12 (Alaska 1994) (citing Cushman & Wakefield, Inc. v. Backos,
129 B.R. 35, 36 (Bankr. E.D. Pa. 1991)).
20 See, e.g., Terry v. Chauffeurs, Teamsters & Helpers,
Local 391, 81 B.R. 394, 397-98 (Bankr. M.D.N.C. 1987)
(considering whether bankrupt defendant was indispensable party
under Rule 19 of Federal Rules of Civil Procedure). The Alaska
and federal versions of Rule 19 are essentially identical.
21 See, e.g., id.; Piccinin, 788 F.2d at 1000.
22 See supra note 7 and accompanying text.
23 Our conclusion that Gold Hill and Ascension were not
indispensable parties is limited to the proceeding on the summary
judgment motion brought by McDonald. Thus, if Morris later tries
to sever his claims against McDonald and solely proceed against
her while the other defendants remain in bankruptcy proceedings,
the trial court may consider anew whether Gold Hill and Ascension
are indispensable parties to the action.
24 See 11 U.S.C. 541(a)(1); Piccinin, 788 F.2d at 1001
(emphasis added).
25 Adamson v. Univ. of Alaska, 819 P.2d 886, 889 n.3
(Alaska 1991) ([W]here a point is given only cursory statement in
the argument portion of a brief, the point will not be considered
on appeal.).
26 See Hinsberger v. State, 53 P.3d 568, 572 (Alaska
2002); Dome Labs. v. Farrell, 599 P.2d 152, 159 n.24 (Alaska
1979). Because Civil Rule 56(e) requires uncontested motions for
summary judgment to be granted only if appropriate, trial courts
must still consider whether the law entitles the moving party to
summary judgment.
27 Powell v. Tanner, 59 P.3d 246, 248 (Alaska 2002).
28 Because the causes of action in the complaint are
premised on conduct, not mere ownership, it is not necessarily
the case that McDonald would be liable if she indeed owned the
land. However, if the lower court should find that she was the
true owner, her role in this case is transformed from an ordinary
corporate officer to something more complicated such as, for
example, an owner, a partner, a lessor, or a licensor. If she
was just acting as corporate officer, she generally would not be
liable for the acts of her corporation. See, e.g., Carver v.
Quality Inspection & Testing, Inc., 946 P.2d 450, 455 (Alaska
1997) (citing 3A Fletcher Cyclopedia of the Law of Private
Corporations 1117 (rev. ed. 1994)). On the other hand, if her
role went beyond a mere representative capacity, Morriss
complaint can be viewed as alleging personal liability against
McDonald for the wrongdoing of the developers.
29 The Alaska Corporations Code is unequivocal that a
corporate name must contain the word corporation, company,
incorporated, or limited, or an abbreviation of one of those
words. AS 10.06.105(a).
30 Martinez v. Ha, 12 P.3d 1159, 1162 n.11 (Alaska 2000)
(quoting Jennings v. State, 566 P.2d 1304, 1309-10 (Alaska
1977)).
