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Macquarie Bank Ltd. v. Knickel

United States Court of Appeals, Eighth Circuit

July 17, 2015

Macquarie Bank Limited, Plaintiff - Appellant,
v.
Bradley D. Knickel; LexMac Energy, L.P.; Lexar Energy, Inc.; Novus Operating Company, L.P., Defendants - Appellees, Macquarie Americas Corp., Plaintiff KHL, Inc.; Mineral Land Services, Inc., Defendants
v.
Macquarie Barnett, LLC, Third Party Defendant - Appellant; Macquarie Bank Limited, Plaintiff - Appellee, Macquarie Americas Corp., Plaintiff
v.
LexMac Energy, L.P.; Lexar Energy, Inc.; Novus Operating Company, L.P., Defendants - Appellants, Bradley D. Knickel; KHL, Inc.; Mineral Land Services, Inc., Defendants
v.
Macquarie Barnett, LLC, Third Party Defendant - Appellee

Submitted March 10, 2015

Appeals from United States District Court for the District of North Dakota - Bismarck.

For Macquarie Bank Limited, Plaintiff - Appellant (14-1683): Benjamin J. Hasbrouck, Todd E. Zimmerman, Aubrey Zuger, Fredrikson & Byron, Fargo, ND.

For Bradley D. Knickel, LexMac Energy, L.P., Lexar Energy, Inc., Novus Operating Company, L.P., Defendants - Appellees (14-1683): Hayley Ellison, David W. Elrod, Worthy Walker, Elrod, Pllc, Dallas, TX; Ronald Harvey McLean, Serkland & Lundberg, Fargo, ND.

For Macquarie Barnett, LLC, Third Party Defendant - Appellant (14-1683): Benjamin J. Hasbrouck, Todd E. Zimmerman, Aubrey Zuger, Fredrikson & Byron, Fargo, ND.

For Macquarie Bank Limited, Plaintiff - Appellee (14-1684): Benjamin J. Hasbrouck, Todd E. Zimmerman, Aubrey Zuger, Fredrikson & Byron, Fargo, ND.

For LexMac Energy, L.P., Lexar Energy, Inc., Novus Operating Company, L.P., Defendants - Appellants (14-1684): Hayley Ellison, David W. Elrod, Worthy Walker, Elrod, Pllc, Dallas, TX; Ronald Harvey McLean, Serkland & Lundberg, Fargo, ND.

For Macquarie Barnett, LLC, Third Party Defendant - Appellee (14-1684): Benjamin J. Hasbrouck, Todd E. Zimmerman, Aubrey Zuger, Fredrikson & Byron, Fargo, ND.

Before WOLLMAN, BEAM, and LOKEN, Circuit Judges.

OPINION

WOLLMAN, Circuit Judge.

Macquarie Bank Limited (Macquarie Bank) and a subsidiary brought suit against LexMac Energy, L.P. (LexMac); Novus Operating Company, L.P. (Novus); Lexar Energy, Inc. (Lexar); and Bradley Knickel, who controls all three companies (collectively, Lexar Group). Macquarie Bank and the subsidiary alleged claims of deceit, fraud, and promissory estoppel, among others, and also alleged that the corporate veil of the three companies should be pierced to hold Knickel personally liable. In their answer, LexMac, Novus, and Lexar sought declaratory judgment and alleged claims of misappropriation of trade secrets and unlawful interference with business, among others, against Macquarie Bank and third-party defendant Macquarie Barnett, LLC (Macquarie LLC), another subsidiary of Macquarie Bank. The district court[1] disposed of all claims before trial except LexMac and Novus's misappropriation claim. After a bench trial, the district court found that Macquarie Bank and Macquarie LLC had misappropriated trade secrets, and it awarded damages, prejudgment interest, and attorney's fees.

Macquarie Bank and Macquarie LLC (collectively, Macquarie) appeal. Macquarie Bank argues that its claims of deceit, fraud, and promissory estoppel should have survived summary judgment. Macquarie argues that there was insufficient evidence to establish that it had misappropriated trade secrets; that LexMac and Novus were not entitled to attorney's fees; and that the district court erred in calculating damages. Lexar Group filed a collective cross-appeal. Lexar argues that the district court's grant of summary judgment to Macquarie on Lexar's claims was procedurally and substantively improper. LexMac and Novus argue that the district court erred in calculating damages. We affirm.

I. Background

Knickel approached Macquarie Bank in 2004 about obtaining a loan for Lexar to develop certain oil and gas leases in North Dakota. During the course of negotiations, Knickel provided Macquarie Bank with certain confidential information about the leased acreage that he had assembled over the course of ten years. Ultimately, the parties agreed that Lexar would assign the leases and its interest in the confidential information to LexMac and Novus. Macquarie Bank then entered into two agreements with LexMac and Novus: the Senior First Lien Secured Credit Agreement (Credit Agreement) and the Mortgage, Assignment of Production, Security Agreement and Financing Statement (Mortgage). Lexar was not a party to the Credit Agreement or the Mortgage.

As collateral for its loan, Macquarie Bank acquired a mortgage lien and perfected security interest in the oil and gas leases and in any extensions or renewals of the leases. The confidential information that Lexar had assigned to LexMac and Novus--reserves reports on the acreage, seismic data, and geologic maps--also served as collateral. LexMac and Novus also granted a royalty interest from any oil and gas production of the leased acreage to a subsidiary of Macquarie Bank.

LexMac and Novus encountered problems developing the leases to produce oil and gas and defaulted on the loan. They completed only one well, which never became fully operational. In July 2007, Macquarie Bank issued a Notice of Default and Intent to Accelerate. Because of the lack of development or production, many of the leases serving as collateral were set to expire in the fall of 2007. Accordingly, Macquarie Bank began discussions with Knickel to ensure that the leases were renewed. According to Knickel, he agreed to renew only the leases that included automatic extension provisions. Macquarie Bank claims that Knickel assured it that he would renew all of the leases serving as collateral in the names of LexMac and Novus. Knickel renewed the leases that included automatic extension provisions in the names of LexMac and Novus. Upon the expiration of the leases without automatic extension provisions, however, Knickel entered into new leases in the name of Lexar alone. Lexar intended to develop the leases together with LexMac and Novus, since LexMac and Novus owned the confidential information about the acreage.

In October 2007, Macquarie Bank filed an action to foreclose on the leases. Judgment was entered in February 2008, declaring that LexMac and Novus's interest in the leases pledged as collateral would be sold to satisfy the debt owed to Macquarie Bank: $5,296,252.29, plus interest accruing from October 18, 2007. The judgment made no mention of the confidential information that served as collateral. Macquarie Bank assigned the judgment to Macquarie LLC, and in April 2008, Macquarie LLC purchased the leases at a sheriff's sale for a credit bid of $5.4 million. It did not seek to recover any deficiency resulting from the sale.

Most of the collateral leases had already expired by the time Macquarie LLC purchased them at the sheriff's sale, and the acreage associated with those leases was being leased by Lexar. In May 2008, Macquarie Bank filed a " Notice of Lis Pendens" on Lexar's leases of acreage associated with the expired collateral leases, seeking to establish that Lexar's leases were encumbered by the royalty interest previously granted by LexMac and Novus to Macquarie Bank's subsidiary (the district court eventually held that they were). Macquarie LLC also top leased Lexar's acreage, meaning that Macquarie LLC's leases would go into effect only if and when Lexar's leases expired because of lack of development or production.[2] Macquarie LLC also leased approximately 177 acres in the immediate area that had never been pledged as collateral, incurring $845,055 in leasing costs.

Lexar's leases expired as a result of its inability to develop the acreage. Macquarie LLC's top leases then went into effect. Macquarie LLC hired an oil and gas consulting company to evaluate the resources on the leased acreage and prepare a reserves report, which would help Macquarie LLC find a buyer for the leases. To facilitate the evaluation, Macquarie LLC gave LexMac and Novus's seismic data and geologic maps on the leased acreage to the consulting company. Around the same time, Macquarie LLC also hired a management company to help find a buyer for the leases and provided the company with LexMac and Novus's geologic maps. The management company sought bids from several interested parties and ultimately obtained a bid of $1,600 per acre from Kodiak Oil and Gas (Kodiak). The management company asked other interested parties if they would increase their bids, but none were willing to top Kodiak's bid. Macquarie LLC sold its leases to Kodiak for $8.5 million and paid the management company $820,000 for its work.

Macquarie Bank and its subsidiary initiated this lawsuit in 2008, two years prior to Macquarie LLC's ultimate sale of the leases. Lexar Group counterclaimed against Macquarie Bank and brought claims against third-party defendant Macquarie LLC. The parties filed cross-motions for summary judgment in October 2009. The district court ruled on the motions in June 2010, granting summary judgment to Lexar Group on all of Macquarie Bank's claims and allowing Lexar Group's claims of misappropriation and unlawful interference to proceed. In mid-October 2012, a week before trial was scheduled to begin, Macquarie filed a " Pretrial Memorandum," arguing that the North Dakota Uniform Trade Secrets Act preempted Lexar Group's remaining tort claims and that Lexar would not be able to survive a directed verdict because it did not own the trade secrets at issue. After the pretrial memorandum was filed, the trial was delayed and Lexar Group never responded to the memorandum. The district court later granted summary judgment to Macquarie on LexMac and Novus's claim of unlawful interference, but allowed their misappropriation claim to proceed. The district court also granted summary judgment to Macquarie on Lexar's misappropriation and unlawful-interference claims.

After a four-day bench trial on LexMac and Novus's only remaining claim--that of misappropriation--the district court found that Macquarie had misappropriated trade secrets. It awarded LexMac and Novus $1,434,945 in unjust-enrichment damages, $59,736 in actual-loss damages, $352,674 in prejudgment interest, $38,674.51 in costs, and $471,828.84 in attorney's fees and expenses.

II. Obligations Under the Credit Agreement and the Mortgage

Macquarie Bank argues that the district court erred when it determined in its summary-judgment order that neither the Credit Agreement nor the Mortgage imposed a duty on LexMac and Novus to preserve the expiring leases as collateral. The district court addressed this argument in the context of Lexar Group's action for declaratory judgment. It is not entirely clear what remedy Macquarie Bank seeks if we were to reverse the district court's interpretation of the contracts, but it suggests that a reversal would affect its liability for misappropriation as well as the damages determination. Additionally, whether LexMac and Novus had a contractual duty to preserve the leases as collateral is relevant to Macquarie Bank's deceit claim against ...


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