Union Tank Car Co. v. Maxwell

UNION TANK CAR COMPANY, Plaintiff, v. W. KEITH MAXWELL; NUDEVCO PARTNERS, LLC;NUDEVCO PARTNERS HOLDINGS, LLC;ASSOCIATED ENERGY SERVICES, LP; COPROTECTION, LLC;RETAILCO ACQUISITION CO, LLC; NMD HOLDINGS LLC(f/k/a SOLANDRI INVESTMENTS, LLC);NUDEVCO MIDSTREAM DEVELOPMENT, LLC(f/k/a MARLIN MIDSTREAM SERVICES, LLC);XCALIBUR LOGISTICS, LLC; AES VENTURES, LLC(f/k/a SPARK ENERGY VENTURES, LLC);NUDEVCO RETAIL HOLDINGS, LLC; NUDEVCO RETAIL,LLC; XCAL HOLDINGS, LLC (f/k/a BESTBUY ENERGY, LLC);NUDEVCO MIDSTREAM LAND COMPANY, LLC;AND AES VENTURES HOLDINGS, LLC(f/k/a MOBIL DOC, LLC), Defendants.

CIVIL ACTION NO. H-19-1421

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

May 21, 2021

MEMORANDUM AND OPINION

This case and a prior case litigated in the state courts in Illinois seek payments due under a lease and guaranty. General Electric Railcar Services Corporation (GE Railcar), leased railcars to Ponderosa Petroleum Company. (Docket Entry No. 1 at 9; Docket Entry No. 84 at 7). The plaintiff, Union Tank Car Company, and the two of the entity defendants, NuDevco Partners Holdings LLC (NuDevco), and Associated Energy Services, LP (Associated Energy), acquired interests in the lease through assignments, taking on substantial liability. NuDevco, Associated Energy, and other entity defendants then engaged in a series of cash and asset transfers, allegedly without consideration, at the direction of the individual defendant, Keith Maxwell, who directly or indirectly owned or controlled all the entity defendants. The result, alleges Union Tank Car, the plaintiff, is that the entity defendants and Keith Maxwell owe it over $2 million in damages and unpaid rent under the lease and guaranty.

The parties cross-move for summary judgment, raising four sets of issues: (1) whether Union Tank has standing to sue NuDevco for breach of the guaranty agreement; (2) whether an Illinois judgment entitles Union Tank to unpaid rent and expenses; (3) whether Union Tank can recover against each of the defendants for fraudulent transfers; and (4) whether Associated Energy's commercial-frustration defense fails as a matter of law.

Based on the pleadings; the motions, replies, and responses; the summary judgment record; the arguments of counsel at a hearing held on April 1, 2021; and the law, this court grants and denies in part the cross-motions for summary judgment. The reasons are set out in detail below.

I. The Summary Judgment Record

GE Railcar leases and manages a fleet of railcars. Associated Energy, which provides services to energy companies, leased 47 railcars from GE Railcar to haul petroleum products for its customers. (See Docket Entry No. 1 at 9; Docket Entry No. 81-5 at 2-3; Docket Entry No. 84 at 8). The lease and its riders, executed on April 1, 2015, required Associated Energy to pay GE Railcar monthly rent for each leased railcar. (Docket Entry No. 1 at 10; Docket Entry No. 84 at 9; Docket Entry No. 81-1 at 1).

NuDevco, then Associated Energy's parent company, signed a guaranty for the lease in March 2015. (Docket Entry No. 92-1). NuDevco is a holding company that Keith Maxwell indirectly owns, as he does the other entity defendants. (See Docket Entry No. 1 at 15; Docket Entry No. 84 at 9; Docket Entry No. 102); (see also Docket Entry No. 81-4 at 1-5). In September2015, Associated Energy stopped paying rent to GE Railcar and attempted to return the railcars it had leased. (Docket Entry No. 1 at 12; Docket Entry No. 81-2 at 12-13 ¶¶ 33, 36; Docket Entry No. 84 at 12).

Union Tank Car owns railway equipment and railcars that it offers for lease. On September 30, 2015, Union Tank bought the rights and assets under Associated Energy's railcar lease from GE Railcar. (Docket Entry No. 1 at 12; Docket Entry No. 84 at 11; see generally Docket Entry No. 93-1). Union Tank's purchase of the GE Railcar/Associated Energy lease from GE Railcar granted Union Tank "all rights under [c]ustomer [a]greements" and "all causes of action against third parties to the extent Related to the US Tank Car Assets," (Docket Entry No. 93-1 § 2.01(b)), as "exist[ing] immediately prior to the Asset Closing." (Id. at § 2.01). Union Tank sought the payments due under the lease from the guarantor, NuDevco, one of the entities that Maxwell indirectly owned or controlled. See Union Tank Car Co. v. NuDevco Partners Holdings, LLC, 2019 IL App (1st), 123 N.E.3d 1177, 1181; (Docket Entry No. 84 at 9). NuDevco did not pay. (Docket Entry No. 45 at ¶ 19).

In 2016, Union Tank sued NuDevco in Illinois state court to enforce the guaranty for the railcar lease payments. (Docket Entry No. 1 at 13; Docket Entry No. 84 at 12; see generally Docket Entry No. 81-5). In 2017, the Illinois court entered judgment for Union Tank, finding that NuDevco breached the guaranty agreement and awarding damages. (Docket Entry No. 81-5 at 8, 10; Docket Entry No. 81-6 at 5). The Illinois final judgment required NuDevco to pay Union Tank over $1.4 million in damages, plus prejudgment and postjudgment interest. (Docket Entry No. 1 at 7, 14; Docket Entry No. 81 at 7-9; Docket Entry No. 81-6 at 5). The Illinois court did not award Union Tank damages for future rent because rent acceleration is not allowed under Illinois law.(Docket Entry No. 1 at 15; Docket Entry No. 81-5 at 9); see also Union Tank Car, 123 N.E.3d at 1188.

NuDevco claims that it is insolvent, and it did not pay the Illinois court judgment. (Docket Entry No. 1 at 7; Docket Entry No. 84 at 12). During postjudgment discovery in the Illinois case, Union Tank learned of a series of transactions that it alleges show that NuDevco's insolvency resulted from fraud orchestrated by Maxwell and implemented through the defendant entities that he owns or controls. (Docket Entry No. 1 at 15-18; see Docket Entry No. 84 at 8-11). The record details many cash and LLC transfers in 2015 from NuDevco Holdings to the other defendant entities. (See Docket Entry 1 at 15-19; Docket Entry Nos. 85-2, 85-3, 93-7 (documenting the various LLC transfers); Docket Entry Nos. 93-8, 85-4 (documenting the various cash transfers)). According to Union Tank, badges of fraud abound. (Docket Entry No. 92 at 17-20). According to the defendants, explanations showing valid transactions abound.

By August 3, 2015, about a month before Associated Energy abandoned the railcars, NuDevco had no assets, (Docket No. 84 at 10-12), and only $3,045 in cash. (Docket Entry No. 93-8 at 24). NuDevco and the other defendants explain the transfers that resulted in NuDevco's insolvency as part of a "corporate reorganization." (Docket Entry No. 84 at 9). By September 28, 2015, NuDevco had no cash. (See Docket Entry No. 93-8 at 26-27). NuDevco explains the cash transfers by its operation as a holding company, which "distribute[s] cash to its operating companies on an as-needed basis to fund their operating expenses." (Docket Entry No. 84 at 9).

In April 2019, Union Tank filed this lawsuit to collect the unpaid Illinois judgment and to seek additional damages for the rent that became due between the Illinois judgment and the expiration of all abandoned railcar leases. (Docket Entry No. 1 at 15). Union Tank argues that Associated Energy breached the master lease, NuDevco breached the guaranty, and Maxwell, incollaboration with the entity defendants he controls, fraudulently transferred assets to avoid paying the damages. (Id. at 20-24). Union Tank asks for three equitable remedies as well as damages: (1) an attachment for $2,352,745.46 (the amount of the Illinois judgment without interest and with unpaid rent; (2) an injunction to prevent the defendants from transferring that amount; and (3) the appointment of a receiver to locate and preserve the $2,352,745.46 that Union Tank seeks. (Id. at 24-28).

The parties cross-moved for partial summary judgment, responded, and replied. (Docket Entry Nos. 81, 84, 92, 94, 96, 97). They dispute whether: (1) Union Tank has standing to sue NuDevco for breaching the guaranty; (2) the Illinois judgment has preclusive effect so as to entitle Union Tank to unpaid rent and expenses under the lease and guaranty; (3) Union Tank can recover against each of the defendants for the allegedly fraudulent transfers; and (4) whether Associated Energy's commercial-frustration defense fails as a matter of law. (See Docket Entry No. 81 at 1-2); (Docket Entry No. 84 at 3-5); (Docket Entry No. 92 at 2); (Docket Entry No. 94 at 12-13). Each issue is discussed below under the applicable legal standards.

II. The Summary Judgment Standard

Summary judgment is proper when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." See Shepherd on Behalf of Est. of Shepherd v. City of Shreveport, 920 F.3d 278, 282-83 (5th Cir. 2019) (quoting Fed. R. Civ. P. 56(a)). "A fact is material if it would affect the outcome of the case" and "a dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Warren v. Fed. Nat'l Mortg. Ass'n, 932 F.3d 378, 882-83 (5th Cir. 2019) (quotations omitted). The moving party "always bears the initial responsibility of informing the district court of the basis for its motion," and identifying the record evidence "which it believes demonstrate[s]the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

When the nonmovant has the burden of proof at trial, "the movant may merely point to the absence of evidence and thereby shift to the nonmovant the burden of demonstrating that there is an issue of material fact warranting trial." Kim v. Hospira, Inc., 709 F. App'x 287, 288 (5th Cir. 2018) (per curiam) (alteration omitted) (quoting Nola Spice Designs, L.L.C. v. Haydel Enters. Inc., 783 F.3d 527, 536 (5th Cir. 2015)). The moving party must show the absence of a genuine issue of material fact, but it need not negate the elements of the nonmovant's case. Austin v. Kroger...