Wells Fargo Rail Corp. v. Black Iron, LLC (In re Black Iron, LLC), Bankruptcy No. 17-24816

594 B.R. 898

IN RE: BLACK IRON, LLC, Debtor

Wells Fargo Rail Corporation f/k/a First Union Rail Corporation and Helm Pacific Leasing, Plaintiff,

v.Black Iron, LLC; CML Metals Corporation ; P.I.C. Railroad, Inc. d/b/a CML Railroad, Inc.; and Gilbert Development Corporation, Defendant.

Bankruptcy No. 17-24816

Adversary Proceeding Number: 17-2088

(Consolidated with Adv. Pro. No. 17-2094)

United States Bankruptcy Court, D. Utah.

Signed December 4, 2018

Filed December 5, 2018

Dana T. Farmer, Durham Jones & Pinegar, Ogden, UT, Penrod W. Keith, Durham Jones & Pinegar, Ralph R. Mabey, Salt Lake City, UT, Adelaide Maudsley, Sandy, UT, for Plaintiff.

Troy J. Aramburu, Bret R. Evans, Douglas Farr, Amy F. Sorenson, Snell & Wilmer L.L.P., Salt Lake City, UT, David E. Fox, Moore & Van Allen, Morrisville, NC, Brian M. Rothschild, Parsons Behle & Latimer, Salt Lake City, UT, for Defendant.

MEMORANDUM DECISION ON DEFENDANTS/THIRD-PARTY PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT ON BLACK IRON, LLC'S CLAIMS AND MEMORANDUM IN SUPPORT (DKT. NO. 67)

WILLIAM T. THURMAN, U.S. Bankruptcy Judge

I. Introduction

The matter before the Court is the Defendants/Third-Party Plaintiffs' Motion for Summary Judgment on Black Iron, LLC's Claims and Memorandum in Support (the "Motion") filed on October 15, 2018 at Dkt. No. 67. The Defendants and Third-Party Plaintiffs in this action will be collectively referred to as "Wells Fargo Rail" and the Defendants will be collectively referred to as "Black Iron." Wells Fargo Rail seeks summary judgment in its favor dismissing all claims brought against it by Black Iron for storage fees and trespass. Black Iron filed an objection to the Motion on November 12, 2018 at Dkt. No. 71. Wells Fargo Rail filed a reply on November 21, 2018 at Dkt. No. 74.

At the hearing on the Motion held on Nov. 29, 2018, Troy Aramburu and Bret Evans appeared on behalf of Wells Fargo Rail. Dana Farmer and Blake Hamilton appeared on behalf of Black Iron. The Court heard oral argument, read the briefs filed by the parties, conducted its own independent review of the law and makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

II. Jurisdiction, Venue and Notice

The jurisdiction of this Court is properly invoked under 28 U.S.C. § 1334, and has been expressly consented to by the parties. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), and this Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. §§ 1408 and 1409. Notice of the hearing is found to be proper in all respects.

III. Standard for Summary Judgment

Under Federal Rule of Civil Procedure 56(a), which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, the Court shall grant a motion for summary judgment "if 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." Fed. R. Civ. P. 56(a).

Substantive law determines which facts are material and which are not. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Whether a dispute is genuine turns on whether the evidence is such that a reasonable fact finder could return a verdict for the nonmoving party. The court does not weigh evidence or make credibility determinations at this point, see id. at 249, 106 S.Ct. 2505, but is to decide whether there is a genuine issue for trial.

The moving party bears the burden to show that it is entitled to summary judgment. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This burden includes properly supporting its summary judgment motion as required by Rule 56(c). See Murray v. City of Tahlequah, Okla. , 312 F.3d 1196, 1200 (10th Cir. 2002). Once the moving party meets this burden, "the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter." Concrete Works of Colorado, Inc. v. City & County of Denver , 36 F.3d 1513, 1518 (10th Cir. 1994) (citations omitted).

It is under these parameters that the Court issues this decision.

IV. Factual Background

This dispute arose out of a lease transaction involving railcars and locomotives used in a mining venture near Cedar City, Utah. In general, the Court is called upon to make a determination of whether Wells Fargo Rail should be assessed storage fees for the railcars and locomotives that are on railroad tracks situated on Black Iron's land. Beginning in June 2010, Helm Financial Corporation, Wells Fargo Rail's predecessor-in-interest, and Helm-Pacific Leasing, as lessors, entered into four leases and related guaranties (the "Leases") with CML Metals Corporation ("CML Metals") and PIC Railroad, Inc. d/b/a CML Railroad, Inc. ("CML Railroad"), for 540 railcars and four locomotives (the "Equipment"). During the next four years, CML Metals used the Equipment in its mining operations and surrounding real property then-owned by CML Metals (the "Property"). In October 2014, CML Metals suspended operations and stopped paying Wells Fargo Rail the payments due under the Leases. By letter dated November 20, 2014,¹ CML Metals asked Wells Fargo Rail to forbear from exercising available remedies in order to allow CML Metals an opportunity to be sold as a going concern. The Equipment remained on CML Metals' Property while CML Metals and Wells Fargo Rail began negotiating a forbearance agreement, and several drafts were exchanged up until March 2015.² However, the forbearance agreement was never signed. It is noted that Wells Fargo Rail is not an operating railroad, but rather a vehicle for financing railcars only.

On April 2, 2015, CML Metals, through its chairman Michael Conboy, entered into an Asset Purchase Agreement ("APA") with Steve Gilbert, President of Gilbert Development Corporation ("GDC") to transfer substantially all of CML Metal's assets to GDC. On April 29, 2015, GDC assigned its rights to receive CML Metal's assets under the APA to Black Iron. GDC remained obligated for several assumed liabilities that were listed in the APA. This asset purchase transaction closed on or about May 5, 2015. Since that date, Black Iron has owned the Property upon which the Equipment is located. While the land was now owned by Black Iron, some of the railroad tracks were owned by Union Pacific Railroad Company or by CML Railroad.

Wells Fargo Rail did not know about the asset sale until after it had closed. On May 8, 2015, Steve Gilbert called Robert Bowers, an attorney representing First Union Rail Corporation (a predecessor of Wells Fargo Rail, which will be referred to simply as Wells Fargo Rail for ease of reference), and told Mr. Bowers that the railcars and locomotives would need to be removed or Black Iron would impose storage costs.³ According to Steve Gilbert's recollection, Mr. Bowers said that Wells Fargo Rail would remove the railcars. The parties have submitted numerous email messages beginning in May and continuing throughout the summer of 2015 evidencing Wells Fargo Rail's efforts to coordinate the repair teams, inspectors and other personnel necessary to remove the 540 railcars and 4 locomotives from the Property which now belonged to Black Iron. There were issues about the condition of the tracks and the railcars, and the necessity for inspections and repairs. Wells Fargo Rail had communications about finding locations to store the railcars once they were moved off Black Iron's property.⁴

In mid-August, Steve Gilbert discovered that Wells Fargo Rail intended to file a lawsuit against Black Iron. On August 20, 2015, the individual at Black Iron who had been communicating with Wells Fargo Rail about moving the railcars sent an email telling the Wells Fargo Rail personnel to "cease and desist the plan to start interaction on the cars next week" due to "legal issues pertaining to storage and security of the railcars."⁵ While there is evidence that Steve Gilbert told representatives of Wells Fargo Rail that he would charge it $100 per day per railcar for storage, there is no evidence that Wells Fargo Rail ever agreed to pay this amount. In fact, Wells Fargo Rail repeatedly stated it intended to move the railcars, not pay storage.⁶

After the "cease and desist" email, no one traveled to the Property to physically work on the railcars to implement their removal although emails dated throughout the fall of 2015 sent by and between individuals at Black Iron, Wells Fargo Rail, and Union Pacific (which owned some of the railroad tracks) contain discussion about the preparations necessary to move the railcars. This included inspecting the tracks, inspecting the railcars and locomotives, making necessary repairs to the railcars and locomotives, and arranging for personnel to travel to the property to conduct these activities. On March 15, 2016, an attorney for Black Iron sent a letter to an attorney representing Wells Fargo Rail authorizing Wells Fargo Rail to enter the Property to repair and extract the railcars and locomotives.⁷ Storage costs for the railcars were demanded in writing by letters dated April 4, 2016⁸ and July 12, 2016.⁹

Wells Fargo Rail had hired a contractor in late spring 2016 to repair and move the railcars, and while there are email communications discussing the work necessary to move the railcars, no railcars were ever actually removed from Black Iron's Property because the repair vendor hired by Wells Fargo Rail stated that repairs were necessary before the railcars could be moved.¹⁰ In July, 2016, a repair crew traveled from Missouri to Utah with the vehicles and equipment to repair and extract the railcars.¹¹ However, on August 22, 2016, Black Iron sent a letter stating that the Equipment may not be removed without payment to Black Iron in the amount of $23,058,000 for storage...