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Midwest Renewable Energy, LLC v. American Engineering Testing Inc.

Supreme Court of Nebraska

March 17, 2017

Midwest Renewable Energy, LLC. appellant,
v.
American Engineering Testing, Inc., et al., appellees.

         1. Judgments: States. Whether the law of Nebraska or that of another state controls the disposition of an issue by a Nebraska court is an issue of law.

         2. Jurisdiction: Statutes. Subject matter jurisdiction and statutory interpretation present questions of law.

         3. Equity: Quiet Title. A quiet title action sounds in equity.

         4. Equity: Appeal and Error. On appeal from an equity action, an appellate court resolves questions of law and fact independently of the trial court's determinations.

         5. Corporations: Partnerships. In cases concerning limited liability companies, courts look to the principles of corporate law when addressing areas of similar functions, because a limited liability company is a hybrid of the partnership and corporate forms.

         6. Corporations: Actions. At common law, a corporation's capacity to sue or be sued terminates when the corporation is legally dissolved.

         7. Corporations: Limitations of Actions: Abatement, Survival, and Revival. Where a survival statute continues the existence of a corporation for a certain period after its dissolution for purposes of defending and prosecuting suits, no action can be maintained by or against it after the expiration of that period.

         8. Abatement, Survival, and Revival. A survival statute operates on the right or claim itself.

         9. Corporations: States. The internal affairs doctrine is a conflict-of-laws principle which recognizes that only one state should have the authority to regulate a corporation's internal affairs-matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders-because otherwise, a corporation could be faced with conflicting demands.

         10. Corporations. Neb. Rev. Stat. § 21-155 (Reissue 2012) incorporates the comments of the Revised Uniform Limited Liability Company Act, which it was patterned after.

         11. Corporations: States. Neb. Rev. Stat. § 21-155 (Reissue 2012) codifies the internal affairs doctrine, Restatement (Second) of Conflict of Laws § 302 (1971), for limited liability companies.

         12. Corporations: States: Limitations of Actions. The Restatement (Second) of Conflict of Laws § 302 (1971) applies during the life of the corporation and the winding-up process only. Once the effective date of dissolution has passed and the corporation is legally dissolved, however, the Restatement (Second) of Conflict of Laws § 299 (1971) governs.

         13. Corporations: States. Under Neb. Rev. Stat. § 21-155 (Reissue 2012), courts apply the dictates of the Restatement (Second) of Conflict of Laws § 299 (1971) to require that the laws of a fully dissolved foreign limited liability corporation's state of incorporation governs its amenability.

         14. Statutes: States. When the interpretation of another state's statute is a question of first impression, courts must interpret the statute by applying the statutory interpretation standards of that state.

         15. Judgments: Liens. The lien of a judgment is merely an incident of the judgment and may not exist independently of the judgment. It cannot be assigned unless the judgment which it secures is also transferred.

         16. Judgments: Actions: Assignments. A judgment, as a chose in action, is assignable.

         17. Assignments: Words and Phrases. An assignment is a transfer vesting in the assignee all of the assignor's rights in the property which is the subject of the assignment.

         18. Assignments: Actions. The assignee of a chose in action acquires no greater rights than those of the assignor, and takes it subject to all the defenses existent at the time.

         19. Assignments: Actions: Parties. The assignee of a chose in action is the proper and only party who can maintain the suit thereon. The assignor loses all right to control or enforce an assigned right against the obligor.

         20. Parties. Neb. Rev. Stat. § 25-323 (Reissue 2016) makes it the court's duty to require an indispensable party be added to the litigation sua sponte when one is absent and statutorily deprives a court of the authority to determine a controversy absent all indispensable parties.

         21. Jurisdiction: Words and Phrases. Subject matter jurisdiction includes a court's power to hear and determine a case in the general class or category to which the proceedings in question belong, but it also includes a court's power to determine whether it has the authority to address a particular question within a general class or category that it assumes to decide or to grant the particular relief requested.

         22. Jurisdiction: Parties: Waiver. The absence of an indispensable party to a controversy deprives the court of subject matter jurisdiction to determine the controversy and cannot be waived.

         23. Jurisdiction: Appeal and Error. When a lower court lacks the power, that is, the subject matter jurisdiction, to adjudicate the merits of a claim, issue, or question, an appellate court also lacks the power to determine the merits of the claim, issue, or question presented to the lower court.

         24. Parties: Equity: Appeal and Error. When it appears that all indispensable parties to a proper and complete determination of an equity cause were not before the district court, an appellate court will remand the cause for the purpose of having such parties brought in.

         25. Parties: Words and Phrases. Necessary parties are parties who have an interest in the controversy, and should ordinarily be joined unless their interests are separable so that the court can, without injustice, proceed in their absence.

         26.__:__. An indispensable party to a suit is one whose interest in the subject matter of the controversy is such that the controversy cannot be finally adjudicated without affecting the indispensable party's interest, or which is such that not to address the interest of the indispensable party would leave the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience.

         27. Parties: Equity: Final Orders. All persons whose rights will be directly affected by a decree in equity must be joined as parties in order that complete justice may be done and that there may be a final determination of the rights of all parties interested in the subject matter of the controversy.

         28. Parties: Words and Phrases. All persons interested in the contract or property involved in a suit are necessary parties, and all persons whose interests therein may be affected by the decree in equity are indispensable parties.

         Appeal from the District Court for Lincoln County: Richard A. Birch, Judge. Vacated and remanded with direction.

          Dean J. Jungers for appellant.

          William J. Troshynski, of Brouillette, Dugan & Troshynski. PC, L.L.O., for appellees.

          Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy. Kelch, and Funke, JJ.

          FUNKE, J.

         I. INTRODUCTION

         This appeal concerns a quiet title action brought in the district court for Lincoln County by the appellant, Midwest Renewable Energy, LLC (Midwest Renewable), against several entities and all known and unknown parties claiming an interest in its real property located in Lincoln County, Nebraska. Western Ethanol Company, LLC (Western Ethanol), was one of the named parties alleged to claim an interest in the real estate.

         Western Ethanol obtained a judgment lien on Midwest Renewable's Lincoln County property after transcribing a California judgment against Midwest Renewable with the district court and filing a writ of execution on that judgment. Before Midwest Renewable filed its quiet title action, Western Ethanol dissolved and transferred its assets to its members. Douglas Vind, the managing member of Western Ethanol, claimed that Western Ethanol transferred the Midwest Renewable judgment to him, but he was never made a party to the litigation.

         After a trial on the merits, the court ruled that Western Ethanol's judgment had been assigned to Vind and that the judgment lien against the real estate owned by Midwest Renewable in Lincoln County was still valid and subsisting. The court then dismissed with prejudice Midwest Renewable's action regarding Western Ethanol. Midwest Renewable filed a motion to alter or amend the court's order, which the court substantively overruled. Midwest Renewable appeals.

         In order to consider this appeal, we must determine whether Western Ethanol, as a limited liability company, was amenable to the present action; whether Vind was an indispensable party to the controversies; and whether the court had subject matter jurisdiction to determine if the judgment and the judgment lien were assigned and remained valid and subsisting.

         We hold that Western Ethanol was amenable to suit under Nevada law. Further, we decide that Vind was an indispensable party to the controversies decided by the court. Accordingly, his absence from the litigation deprived the court of subject matter jurisdiction over the issues of whether the judgment and the judgment lien were assigned and whether they were still valid and subsisting. Because the court erred in not making Vind a party to the action sua sponte, we vacate the court's memorandum opinion and judgment and remand the cause with direction to make Vind a party.

         II. BACKGROUND

         Western Ethanol was a limited liability company formed under Nevada law and registered in California. In September 2010, it obtained a judgment against Midwest Renewable in California for $30, 066.59, plus interest and costs. Western Ethanol transcribed the foreign judgment with the district court for Lincoln County in November 2010 and filed a writ of execution on the judgment in September 2011.

         Western Ethanol filed its articles of dissolution in Nevada on November 12, 2013, and a certificate of cancellation in California on November 21, both effective on December 31. In both documents, Vind attested that Western Ethanol had distributed all of its assets to its members.

         In September 2014, Midwest Renewable filed a petition to quiet title claims to its Lincoln County property, an ethanol manufacturing facility in Sutherland, Nebraska. In its petition, Midwest Renewable named nine specific entities, the property, and '"all persons having or claiming any interest in said real estate, real names unknown, '" under Neb. Rev. Stat. § 25-21, 113 (Reissue 2016). Western Ethanol was one of the named parties.

         On February 5, 2015, Midwest Renewable filed a motion for partial summary judgment against Western Ethanol and a motion for default judgment against all parties who had failed to answer or otherwise plead. Both motions were heard on February 23. At the hearing on Midwest Renewable's motion for partial summary judgment, an affidavit executed by Vind-alleging that Western Ethanol had transferred its Midwest Renewable judgment to Vind-was entered into evidence. The record does not reflect that Vind filed an assignment of the judgment with the district court in the prior case where the judgment had been transcribed or provided notice of the assignment to Midwest Renewable. Neither Vind, the other parties, nor the court made Vind a party to the litigation.

         The court entered a default judgment against three of the named parties and all of the unknown parties for failing to answer the complaint. The court denied Midwest Renewable's motion for partial summary judgment against Western Ethanol. Midwest Renewable settled with the other parties. The matter proceeded to trial against Western Ethanol as the only remaining defendant.

         At trial, the court found, under Nevada law, that Western Ethanol could defend itself against the action by entering an appearance and asserting that its judgment lien had been assigned to Vind. The court also found that Western Ethanol had transferred its interest to Vind and that "he was then the interested party."

         The court went on to address the merits of the quiet title action, because it determined that "the validity of any lien interest . . . Vind has in real estate of [Midwest Renewable] is dependent upon validity of Western Ethanol's judgment lien against [Midwest Renewable]. . . . Vind's interest in the property flows directly from the interest of Western Ethanol." The court stated that neither Western Ethanol's dissolution nor the failure to provide notice of the assignment to Midwest Renewable canceled the judgment lien. Therefore, the court ruled that the judgment lien "is and continues to be a valid and subsisting judgment lien against real estate owned by [Midwest Renewable] in Lincoln County, Nebraska." Accordingly, the court dismissed the quiet title action against Western Ethanol with prejudice.

         Midwest Renewable then filed a motion to alter or amend the judgment, arguing that Nebraska law allows a corporation to continue defending itself only during the winding-up process and that the court had already quieted the lien in Vind's name when it issued its default judgment against unnamed parties. The court overruled the motion, relying on its earlier order.

         III. ASSIGNMENTS OF ERROR

         Midwest Renewable assigns, reordered and restated, as error the court's findings that (1) Western Ethanol owned the judgment in question on the date of trial and (2) the judgment and the judgment lien against Midwest Renewable's Lincoln County property are valid and subsisting. Additionally, it ...


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