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Madera v. Coker

United States District Court, D. New Mexico

August 6, 2018

BERT MADERA, MONTIE CAROL MADERA, and PITCHFORK CATTLE COMPANY, LLC, Plaintiffs,
v.
R. BRIAN COKER, SCOTT W. JOHNSON, OZARK ROYALTY CO., LLC, and CHIRON FINANCIAL, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

         THIS MATTER comes before the Court upon Plaintiffs' Emergency Motion for a Temporary Restraining Order, Lien Voidance, or Lien Cancellation, filed July 9, 2018 (Doc. 7). Having reviewed the parties' pleadings and the applicable law, the Court finds that Plaintiffs' Motion is well-taken and, therefore, is GRANTED IN PART.

         BACKGROUND

         This matter arises from a contract dispute as to whether Defendants are entitled to a fee for the potential sale of certain real and personal property of Pitchfork Cattle Company, LLC. Plaintiffs own a 35, 000 acre cattle ranch called Pitchfork Ranch, located in Lea County, New Mexico. Plaintiffs own mostly the surface interests, and make money by entering into contracts with oil companies for surface use, services, and water.[1] Plaintiffs and Defendants entered into an Engagement Agreement related to certain services in the advertising and sale of the Pitchfork ranch properties. Defendants claimed to have contacted hundreds of entities on behalf of the Plaintiffs. See Doc. 6-4. The Plaintiffs subsequently fired the Defendants after an allegedly botched sale of mineral rights. Sometime later, Plaintiffs entered into a purchase agreement to sell their remaining property interests with the primary oil company that conducts oil and gas operations on their land.

         After learning of the sale, Defendant Chiron Financial, LLC filed a “Notice of Agreement”, dated June 12, 2018, and recorded said notice in the Lea County Clerk's Office on June 18, 2018. The document was acknowledged, and signed by Scott. W. Johnson as Managing Director of Chiron Financial. The Notice of Agreement attaches the seven page Engagement Agreement, which lists a 5% fee amount. The Notice of Agreement provides:

Notice is hereby given that on the 2nd day of October, 2017, Bert Madera and Montie Carol Madera, of the Pitchfork Cattle Company, LLC, (collectively the “Company”), whose address is 125 Bellavia Circle Drive, Ruidoso, NM, entered into a written Engagement Agreement with Chiron Financial LLC and Ozark Royalty Co. LLC, (hereinafter “Advisors”), for services related to the sale of some or all of the Company's real property and other assets, located in Lea County, New Mexico (the “Subject Properties”).
Under the Engagement Agreement, Advisors agree to act as the exclusive investment bankers and exclusive providers of investment banking services related to the sale of some or all property belonging to the Company for an initial period of six (6) months, in return for compensation as provided for in Paragraph B of the Engagement Agreement, to include the obligation of paying the agreed upon fee for a sale of the Subject Properties which consummates within twelve (12) months of termination of the Engagement Agreement. Chiron Financial LLC contacted hundreds of persons and entities related to the sale of the Subject Properties. A copy of the executed Engagement Agreement is attached hereto as Exhibit “A.”

Doc. 6-4, p. 1.

         Plaintiffs filed a complaint in the Fifth Judicial District Court, Lea County, State of New Mexico, on June 27, 2018, seeking a declaration of rights under the Engagement Agreement. Doc. 1-1. This state case was removed on July 2, 2018. Doc. 1. Because Plaintiffs did not realize that Chiron Financial had recorded the Notice of Agreement, Plaintiffs filed an Amended Complaint on July 9, 2018, asserting the following claims: Declaration that the Plaintiffs Do Not Owe Chiron or Johnson Compensation for the Sale of the Ranch (Count 1); Declaration that Plaintiffs do not owe Ozark or Coker Compensation for the Sale of the Ranch (Count 2); Slander of Title Against Chiron (Count 3); Tortious Interference with Contract against Chiron (Count 4); and Action for Voidance or Cancellation of Title Encumbrance, or for an Injunction Ordering Immediate Release Thereof (Count 5). Doc. 6.

         At the same time, Plaintiffs filed an emergency motion for relief, seeking three alternate forms of relief: (1) Lien Voidance under NMSA § 48-1A-8; (2) Lien Cancellation under NMSA §§ 48-12-6 or 48-2-9, or (3) a preliminary injunction voiding, cancelling, or ordering the release of the Notice of Agreement. Doc. 7.

         As part of their request for relief, Plaintiffs included affidavits discussing the Notice of Agreement. David A. Pyeatt, president and owner of Elliot & Waldron Title & Abstract Co., Inc., the title company involved in the sale, filed a declaration stating that the “Notice of Agreement seeks to notify the public, including future purchasers of the Ranch of the obligation of the Plaintiff to pay certain amounts to Defendants at closing of any sale of the Ranch.” Doc. 12-2.

         He stated in the declaration that “[t]he Defendant's Notice of Agreement is an adverse matter affecting the title to the Ranch. E&W is prohibited from ignoring or insuring over the Notice of Agreement pursuant to NMAC 13.14.18.11D without exception to the Notice of Agreement, therefore a release of the Notice of Agreement has been required.” Doc. 12-2.[2] Mr. Pyeatt also testified that the Notice of Agreement constituted an “adverse matter”, i.e., a document affecting title to the properties[3], for which he could not issue title insurance, but had to issue an exception. Mr. Pyeatt stated that the sale could go through if either (1) the purchaser accepts an exception to title policy for the Notice of Agreement, or (2) a release of the Notice of Agreement is recorded. Doc. 12-2.

         At the hearing on July 12, 2018, the Court heard argument from Plaintiffs and Defendant Chiron Financial. To comply with the requirements of the Lien Protection Efficiency Act, the Court issued an Order to Show Cause why the purported Notice of Agreement, recorded in Lea County, should not be stricken as a “nonconsensual common law lien”, pursuant to NMSA § 48-1A-8, 9. See Docs. 13, 20. The Orders to Show Cause allowed Defendants to present argument on why the Notice of Agreement should not be stricken as a nonconsensual common law lien, and allowed Plaintiffs to respond.

         The Court held the Order to Show Cause hearing on August 2, 2018. At the evidentiary hearing, the Court heard testimony from Mr. Pyeatt, and argument from Plaintiffs and Defendants Chiron Financial and Ozark Royalty. Because Defendant Chiron Financial threatened to sue the title company, Plaintiffs have offered (at the insistence of the title company) to deposit in the Court's registry the claimed sales fee, and included such language in a proposed order tendered to the Court.

         DISCUSSION

         I. Choice of Law Provision.

         Preliminarily, Defendant Chiron Financial argues that the Court must apply Texas law, based on a choice of law provision in the Engagement Agreement. However, for purposes of ruling on the Emergency Motion, the Engagement Agreement is not at issue. Instead, the Court must decide the effect of, and any remedy for, the filing of the “Notice of Agreement” in the real property records of Lea County, New Mexico. Therefore, this narrow in rem issue must be decided according to New Mexico law.[4]

         II. Avoidance of Notice of Agreement pursuant to NMSA § 48-1A-8, 9.

         Plaintiff seeks to declare the Notice of Agreement void ab initio as an invalid pursuant to NMSA § 48-1A-8.

         A. Defendants have no valid interest in the real properties or sales proceeds.

         At its core, this case presents a simple issue. All parties agree that Defendants have no interest in, or claim to, the Pitchfork Ranch's real properties or proceeds, and at most Defendants have in personam contract claims against Plaintiffs.[5] Defendant Chiron Financial states that “the notice neither encumbers property as a security nor asserts that Pitchfork owes a debt.” Doc. 26.

         Despite not holding any apparent valid interest in the properties, Defendant Chiron Financial filed the “Notice of Agreement.” Defendant Chiron Financial states, in theory, that its Notice of Agreement is insufficient to prevent the sale or even assert an interest in the sales proceeds. However, instead of releasing the Notice of Agreement, stipulating to these facts to effectuate closing, or agreeing to an escrow of the claimed sales fee as offered by Plaintiffs, Defendants continue to assert an amorphous, undefined interest - something that is enough to cloud title but that allegedly falls short of being a lien that can be declared void pursuant to NMSA § 48-1A-9. This strategy is intended to hold the sale hostage and force Plaintiffs to settle without adjudicating the underlying ...


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