Midwest Renewable Energy v. American Engr. Testing

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
06/15/2017 05:13 PM CDT
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Nebraska Supreme Court A dvance Sheets
296 Nebraska R eports
MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 73Midwest R enewable Energy, LLC,
appellant, v.
A merican Engineering
Testing, Inc., et al., appellees.
___ N.W.2d ___
Filed March 17, 2017. No. S­-16-122.
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 inter-
pretation 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 appel-
late court resolves questions of law and fact independently of the trial
court’s determinations.
5. Corporations: Partnerships. In cases concerning limited liability com-
panies, 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 corpora-
tion 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 author-
ity 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.
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MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 7310. 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 author-
ity 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 cat-
egory 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
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MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 73particular 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 deter-
mine 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 indispen­
sable 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 can-
not be finally adjudicated without affecting the indispensable party’s
interest, or which is such that not to address the interest of the indis-
pensable 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 deter-
mination 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 indispen­
sable parties.
Appeal from the District Court for Lincoln County: R ichard
A. Birch, Judge. Vacated and remanded with direction.
Dean J. Jungers for appellant.
William J. Troshynski, of Brouillette, Dugan & Troshynski,
P.C., L.L.O., for appellees.
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MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 73Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy,
K elch, 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 sev-
eral 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 judg-
ment. 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.
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MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 73We 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 dis-
tributed 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 peti-
tion, 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
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MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 73motion for partial summary judgment, an affidavit executed
by Vind—alleging that Western Ethanol had transferred its
Midwest Renewable judgment to Vind—was entered into evi-
dence. The record does not reflect that Vind filed an assign-
ment 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 remain-
ing 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
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Cite as 296 Neb. 73to continue defending itself only during the winding-up proc­
ess 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 ear-
lier 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 judg-
ment and the judgment lien against Midwest Renewable’s
Lincoln County property are valid and subsisting. Additionally,
it assigns error to (3) the court’s dismissal of its complaint
against Western Ethanol.
IV. STANDARD OF REVIEW
[1,2] 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.1 Subject matter jurisdiction and statutory interpre-
tation present questions of law.2
[3,4] A quiet title action sounds in equity.3 On appeal from
an equity action, an appellate court resolves questions of law
and fact independently of the trial court’s determinations.4
V. ANALYSIS
1. Western Ethanol Is A menable
Under Nevada Law
Midwest Renewable argues that under Nebraska law,
Western Ethanol has dissolved and completed its winding up,
so it is no longer a legal entity capable of defending itself.
1
Nebraska Nutrients v. Shepherd, 261 Neb. 723, 626 N.W.2d 472 (2001),
abrogated in part on other grounds, Sutton v. Killham, 285 Neb. 1, 825
N.W.2d 188 (2013). See, also, Coral Prod. Corp. v. Central Resources,
273 Neb. 379, 730 N.W.2d 357 (2007).
2
In re Estate of Evertson, 295 Neb. 301, 889 N.W.2d 73 (2016).
3
Burnett v. Maddocks, 294 Neb. 152, 881 N.W.2d 185 (2016).
4
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MIDWEST RENEWABLE ENERGY v. AMERICAN ENGR. TESTING
Cite as 296 Neb. 73Alternatively, Midwest Renewable contends that if Nevada
law applies, Western Ethanol would have to be defended on
behalf of its trustees, in their name, because it is no longer a
legal entity.
Western Ethanol argues that under Nevada law, it may
defend itself against a lawsuit in its name for 2 years after
filing its articles of dissolution. It contends that the capacity
to sue or be sued after dissolution is part of the winding-up
process and that winding up is an internal affair of a limited
liability company. Western Ethanol argues that, accordingly,
Nevada law should control because Nebraska allows a foreign
limited liability company’s state of formation to govern its
internal affairs.
(a) Amenability of Western Ethanol
Is Dependent on Which State’s
Survival Statute Applies
[5] We have not addressed the issue of whether a dissolved
limited liability company is amenable to suit. However, we
have addressed the issue concerning corporations.5 In cases
concerning limited liability companies, we have looked 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
[6] In Christensen v. Boss,7 we considered a corporation’s
amenability to suit after voluntary dissolution. We stated:
At common law a corporation’s capacity to sue or
be sued terminates when the corporation is legally dis-
solved. . . .
Where a corporation has in fact been dissolved and no
longer exists as a legal entity, the rule of its incapacity to
5
See, Van Pelt v. Greathouse, 219 Neb. 478, 364 N.W.2d 14 (1985);
Christensen v. Boss, 179 Neb. 429, 138 N.W.2d 716 (1965).
6
See Steinhausen v. HomeServices of Neb., 289 Neb. 927, 936, 857 N.W.2d
816, 826 (2015).
7
Christensen, supra note 5.
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Cite as 296 Neb. 73sue or be sued applies regardless of the mode of dissolu-
tion whether by judicial decree or otherwise. . . . In the
absence of statutory provisions to the contrary no action
at law can be maintained by or against it as a corporate
body or in its corporate name.8
[7,8] In Van Pelt v. Greathouse,9 we interpreted Nebraska’s
former survival statute that permitted corporations to maintain
actions by or against them after dissolution.10 We clarified the
effect of survival statutes by stating:
[W]here 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. In other words, while a statute of limita-
tions relates to the remedy only and not to substantive
rights, . . . a survival statute operates on the right or
claim itself.11
There are two types of survival statutes. The first type
“grant[s] corporations the power to sue and be sued as part of
their general winding up powers.”12 The second “enabl[es] suits
to be brought against, and defended by, a dissolved corporation
independent from the corporation’s winding up activities and
powers.”13 Both types are “a limitation on the existence of the
corporation itself.”14
Both Nebraska and Nevada have survival statutes for lim-
ited liability companies. Nebraska’s statute extends companies’
8
Id. at 435, 138 N.W.2d at 720. Accord Eiche v. Blankenau, 253 Neb. 255,
570 N.W.2d 190 (1997).
9
Van Pelt, supra note 5.
10
See Neb. Rev. Stat. § 21-20,104 (Reissue 1983).
11
Van Pelt, supra note 5, 219 Neb. at 486, 364 N.W.2d at 20.
12
16A William Meade Fletcher, Fletcher Cyclopedia of the Law of
Corporations § 8144 at 313-14 (rev. ed. 2012).
13
Id. at 314.
14
Christensen, supra note 5, 179 Neb. at 439, 138 N.W.2d at 722. See,
generally, 16A Fletcher, supra note 12, § 8144.
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Cite as 296 Neb. 73ability to sue and be sued as part of the winding-up powers.15
Nevada’s statute, on the other hand, extends the existence
of companies’ ability to sue and be sued independently of
the winding-up process, even after the winding-up process
is complete.16 Specifically, § 86.505(1) permits a dissolved
limited liability company to continue to sue and be sued for 2
years after it has filed its articles of dissolution when the suit
could have been initiated before the filing.
Here, Western Ethanol filed its articles of dissolution on
November 12, 2013, which began its winding-up process. On
December 31, the effective date of the articles of dissolution,
Western Ethanol’s winding-up process was complete. This
action was initiated in September 2014. Accordingly, under
Nebraska law, Western Ethanol would no longer be a legal
entity capable of defending or enforcing its rights and any
judgment against it would be unenforceable. However, under
Nevada law, Western Ethanol would be able to defend itself,
because its judgment lien was created before its dissolution and
this action was initiated within 2 years of Western Ethanol’s
filing its articles of dissolution.
(b) Nevada’s Survival Statute
Applies Under Internal
Affairs Doctrine
[9] To determine whether Nebraska’s or Nevada’s survival
statute should apply, we must consider the internal affairs
doctrine. 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 corpora-
tion and its current officers, directors, and shareholders—
because otherwise, a corporation could be faced with conflict-
ing demands.17
15
Neb. Rev. Stat. § 21-148(b) (Reissue 2012).
16
Nev. Rev. Stat. § 86.505 (2015).
17
Johnson v. Johnson, 272 Neb. 263, 720 N.W.2d 20 (2006).
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Cite as 296 Neb. 73[10,11] As to limited liability companies, the internal affairs
doctrine is codified under Neb. Rev. Stat. § 21-155 (Reissue
2012). Section 21-155 provides: “(ULLCA 801) (a) The law
of the state or other jurisdiction under which a foreign limited
liability company is formed governs: (1) the internal affairs
of the company[.]” While § 21-155 references the Uniform
Limited Liability Company Act,18 the language of the statute
and the section number referenced both show, instead, that
it was patterned after the Revised Uniform Limited Liability
Company Act,19 which was adopted by Nebraska in 2011.20
Accordingly, the Legislature incorporated the revised act’s
comments explaining each section.21 In the comments to the
revised act,22 the drafters referenced the Restatement (Second)
of Conflict of Laws § 302.23
The codification of the internal affairs doctrine for corpora-
tions, Neb. Rev. Stat. § 21-20,172 (Reissue 2012), also incor-
porates § 302 of the Restatement through the model code the
Legislature adopted.24 In Johnson v. Johnson,25 we explained
§ 302 as follows:
[It] recognizes that the local law of the state of incorpo-
ration applies to internal affairs, except in the unusual
case where, with respect to the particular issue, some
other state has a more significant relationship to the
occurrence and the parties, in which case, the local
law of the other state will be applied. Where “internal
18
See Unif. Limited Liability Company Act (1996), 6C U.L.A. 393 (2016).
19
See Rev. Unif. Limited Liability Company Act (2006), 6C U.L.A. 223
(2016).
20
See 2010 Neb. Laws, L.B. 888.
21
See Johnson, supra note 17.
22
Rev. Unif. Limited Liability Company Act, supra note 19, §§ 106 and 801.
23
Restatement (Second) of Conflict of Laws § 302 (1971).
24
See, Johnson, supra note 17; 4 Model Business Corporation Act Ann.
§ 15.05(c), official comment (3d ed. 2002).
25
Johnson, supra note 17, 272 Neb. at 272, 720 N.W.2d at 28-29.
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Cite as 296 Neb. 73affairs” are concerned . . . the local law of the state of
incorporation will be applied unless application of the
local law of some other state is required by reason of
the overriding interest of that other state in the issue to
be decided.
The Restatement (Second) of Conflict of Laws also con-
tains a provision that specifically addresses choice of law in
the context of deciding which law should apply to a dissolved
corporation’s continuation for the purpose of suing or being
sued.26 Section 299 states:
[S]tatutes commonly provide that for a period of time
after the termination or suspension of the corporate exis-
tence, suits may be brought by or against the corpora-
tion. . . .
A corporation whose existence has been terminated
or suspended will usually be permitted to exercise in
another state such powers as are accorded it by the state
of incorporation even though the other state does not give
similar powers to domestic corporations.27
Section 299 goes on to also address its interaction with § 302,
stating:
A considerable period of time may elapse between the
institution of the proceeding and the effective date of the
termination or suspension of the corporate existence. The
legal effect of acts done by the corporation during this
period of time is determined in accordance with the law
selected by application of the rules of §§ 301-302.28
[12,13] Accordingly, the Restatement itself clarifies that
§ 302’s exception to the internal affairs doctrine applies dur-
ing the life of the corporation and the winding-up process
only. Once the effective date of dissolution has passed and the
corporation is fully dissolved, however, at that point, § 299 is
26
Restatement, supra note 23, § 299. See, also, Restatement (First) of
Conflict of Laws § 158, comment c. (1934).
27
Restatement, supra note 23, § 299, comment e. at 295-96.
28
Id., comment h. at 297.
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Cite as 296 Neb. 73applicable. Therefore, under § 21-155, the internal affairs doc-
trine requires that the law of a fully dissolved foreign limited
liability corporation’s state of incorporation govern its amena-
bility. This conclusion is supported both by other courts that
have adopted the use of § 299 specifically29 and by courts that
have generally held that the law of the state of incorporation
should apply to fully dissolved corporations.30
Western Ethanol was fully dissolved as of December 31,
2013. Therefore, we apply Nevada’s statute to determine
Western Ethanol’s capacity to sue or be sued. As discussed
above, this action commenced within 2 years of Western
Ethanol’s filing its articles of dissolution. Therefore, it may
defend itself in the present action.
(c) Western Ethanol May Defend
Itself in Its Name
Midwest Renewable also argues that Nevada law requires
the action be defended in the name of the dissolved com-
pany’s trustees.
Nev. Rev. Stat. § 86.541(2) (2015) states:
The manager or managers in office at the time of dissolu-
tion . . . are thereafter trustees of the dissolved company,
with full power to prosecute and defend suits, actions,
proceedings and claims of any kind or character by or
against the company . . . and to do every other act to wind
up and liquidate its business and affairs, but not for the
purpose of continuing the business for which the com-
pany was established.
[14] Nevada courts have not interpreted § 86.541. When
the interpretation of another state’s statute is a question of
first impression, we must interpret the statute by applying the
standards of Nevada law.31 Under Nevada law, “­ [s]tatutory
29
Lilliquist v. Copes-Vulcan, Inc., 21 A.3d 1233 (2011).
30
In re All Cases Against Sager Corp., 132 Ohio St. 3d 5, 967 N.E.2d 1203(2012); 16A Fletcher, supra note 12, § 8142.
31
See Coral Prod. Corp., supra note 1.
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Cite as 296 Neb. 73language must be given its plain meaning if it is clear and
unambiguous.”32 Further, the “court ‘cannot expand or modify
. . . statutory language’ to impose requirements the Legislature
did not.”33 Additionally, it is a general principle of law that stat-
utes in derogation of the common law are strictly construed.34
Nevada has recognized that at common law, a corporation’s
capacity to be sued terminates at dissolution.35 Accordingly,
statutes authorizing postdissolution action against companies
should be strictly construed.
The plain language of § 86.541(2) gives trustees the full
power to defend suits on behalf of a dissolved company.
However, there is no requirement that a dissolved company’s
defense must be pursued solely by its trustees in their name.
We cannot read such a requirement into the statute. Therefore,
Western Ethanol is entitled to defend itself in its name.
2. District Court Lacked Subject M atter Jurisdiction
to Determine Whether Judgment and Judgment
Lien H ad Been Assigned to Vind and Whether
They Were Still Valid and Subsisting,
Because Vind Is Indispensable Party
to Such Controversies
Midwest Renewable argues that Western Ethanol has no
interest in the judgment because it transferred all of its assets,
including the judgment, to Vind and its other members on
or before December 31, 2013. Accordingly, it contends that
Western Ethanol’s claim should be quieted against its Lincoln
County property. Further, Midwest Renewable argues that as
32
Pacific Western Bank v. Eighth Jud. Dist., ___ Nev. ___, ___, 383 P.3d
252, 255 (2016).
33
Wingco v. Gov’t Emps. Ins. Co., ___ Nev. ___, ___, 321 P.3d 855, 856
(2014).
34
Shadow Wood HOA v. N.Y. Cmty. Bancorp., ___ Nev. ___, 366 P.3d 1105(2016).
35
Canarelli v. Dist. Ct., 127 Nev. 808, 265 P.3d 673 (2011), citing 16A
Fletcher, supra note 12, § 8142.
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Cite as 296 Neb. 73a result of the assignment, Vind owns the judgment but his
lien on the Lincoln County property was extinguished by the
court’s default judgment against all unnamed parties.
Western Ethanol asserts that it continues to own the judg-
ment and judgment lien. While it acknowledges that its assets
were transferred upon its dissolution, including the judgment
transferred to Vind, its position is based on two arguments.
First, it contends that a transfer is not an assignment. Second, it
argues that a judgment cannot actually be transferred, because
it is not an asset. Western Ethanol, however, does admit that a
judgment is a chose in action. Additionally, Western Ethanol
argues that the judgment and the judgment lien are still valid.
(a) Western Ethanol’s Judgment and
Judgment Lien Are Assignable
[15,16] The lien of a judgment is merely an incident of the
judgment and may not exist independently of the judgment.36
Accordingly, “[t]he lien [of a judgment] cannot be assigned
unless the [judgment] which it secures is [also] transferred.”37
Black’s Law Dictionary defines a “chose in action” as the “right
to bring an action to recover a debt [or] money.”38 The law is
clear that a judgment, as a chose in action, is assignable.39
[17] 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.40 “An assignment becomes effective when it
36
Mousel Law Firm v. The Townhouse, Inc., 259 Neb. 113, 608 N.W.2d 571(2000), citing 50 C.J.S. Judgments § 552 (1997).
37
Cache Nat. Bank v. Lusher, 882 P.2d 952, 961 n.16 (Colo. 1994), citing
Lewis v. Booth, 3 Cal. 2d 345, 44 P.2d 560 (1935). Accord Goodman v.
Pence, 21 Neb. 459, 32 N.W. 219 (1887).
38
Black’s Law Dictionary 294 (10th ed. 2014).
39
State v. Holt County, 89 Neb. 445, 131 N.W. 960 (1911). See, also,
Boarman v. Boarman, 210 W. Va. 155, 556 S.E.2d 800 (2001); 46 Am.
Jur. 2d Judgments § 431 (2006). Cf. Neb. Rev. Stat. §§ 25-302 to 25-304
(Reissue 2016).
40
Krohn v. Gardner, 248 Neb. 210, 533 N.W.2d 95 (1995). See, also, Black’s
Law Dictionary 142 (10th ed. 2014) (defining “assign”).
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Cite as 296 Neb. 73is made . . . .”41 Additionally, notice of the assignment is not
essential to the validity of the assignment.42
[18,19] However, “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.”43 “The
assignee of a thing in action may maintain an action thereon in
the assignee’s own name and behalf, without the name of the
assignor.”44 Accordingly, the assignee is the proper and only
party who can maintain the suit thereon.45 Conversely, “[t]he
assignor loses all right to control or enforce an assigned right
against the obligor.”46
Western Ethanol’s argument that its judgment could not
be assigned is, therefore, without merit. Further, if Midwest
Renewable is correct in arguing that Western Ethanol’s judg-
ment was assigned, then it is also correct that Western Ethanol
has no interest in the judgment or judgment lien. Moreover,
any defenses that Midwest Renewable would have against the
validity of the judgment or judgment lien would also have
been assigned and could be raised only against the assignee.
Therefore, Vind would be the only party capable of enforc-
ing or defending the judgment and judgment lien against
Midwest Renewable.
(b) Absence of Indispensable Party Deprives
Court of Subject Matter Jurisdiction
The parties did not raise, at trial or on appeal, the issue of
whether Vind should have been made a party to this action.
41
6A C.J.S. Assignments § 89 at 446 (2016).
42
Id., § 81; 46 Am. Jur. 2d, supra note 39, § 433. See, also, Holt County,
supra note 39.
43
Cronkleton v. Hastings Theatre & Realty Corporation, 134 Neb. 168, 173,
278 N.W. 144, 147 (1938). See § 25-303.
44
§ 25-302.
45
Krohn, supra note 40. See, also, Neb. Rev. Stat. § 25-301 (Reissue 2016).
46
Ryder Truck Rental v. Transportation Equip. Co., 215 Neb. 458, 461, 339
N.W.2d 283, 285 (1983). See, also, 46 Am. Jur. 2d, supra note 39, § 439.
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Cite as 296 Neb. 73The district court, however, found that Vind, not Western
Ethanol, had the sole interest in the judgment and acknowl-
edged that the parties and Vind failed to make Vind a party to
the suit.
[20-22] 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.47 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 ques-
tion 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.48 Therefore, the absence
of an indispensable party to a controversy deprives the court
of subject matter jurisdiction to determine the controversy and
cannot be waived.49
[23,24] 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.50 “‘[W]hen 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.’”51
47
See, e.g., Cunningham v. Brewer, 144 Neb. 211, 16 N.W.2d 533 (1944).
48
See In re Interest of Trey H., 281 Neb. 760, 798 N.W.2d 607 (2011). See,
also, Robertson v. School Dist. No. 17, 252 Neb. 103, 560 N.W.2d 469(1997).
49
See Pestal v. Malone, 275 Neb. 891, 750 N.W.2d 350 (2008).
50
In re Estate of Evertson, supra note 2.
51
See Pestal, supra note 49, 275 Neb. at 896, 750 N.W.2d at 355, quoting
Whitaker v. Gering Irr. Dist., 183 Neb. 290, 160 N.W.2d 186 (1968).
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Cite as 296 Neb. 73(c) Vind Was Indispensable Party to Determining
Whether Judgment and Judgment Lien Were
Assigned to Him and Whether They
Are Valid and Subsisting
Section 25-323 codifies the concept of compulsory joinder
in Nebraska, stating, in relevant part:
The court may determine any controversy between
parties before it when it can be done without prejudice
to the rights of others or by saving their rights; but when
a determination of the controversy cannot be had without
the presence of other parties, the court must order them to
be brought in.
[25] The language of § 25-323 tracks the traditional dis-
tinction between the necessary and indispensable parties. The
South Dakota Supreme Court recently restated the traditional
difference between such parties as follows:
“‘[N]ecessary parties[]’ [are parties] who have an inter-
est in the controversy, and should ordinarily be joined
unless their interests are separable so that the court can,
without injustice, proceed in their absence[.] ‘[I]ndispen­
sable parties[]’ [are parties] whose interest is such that a
final decree cannot be entered without affecting them, or
that termination of controversy in their absence would be
inconsistent with equity.”
. . . The inclusion of a necessary party is within the
trial court’s discretion. . . . However, there is no discretion
as to the inclusion of an indispensable party.52
[26] Similarly, the first clause of our statute makes the
inclusion of necessary parties discretionary when a contro-
versy of interest to them is severable from their rights. The
second clause, however, mandates the district court order
indispensable parties be brought into the controversy. We have
long held:
An indispensable or necessary party to a suit is one whose
interest in the subject matter of the controversy is such
52
J.K. Dean, Inc. v. KSD, Inc., 709 N.W.2d 22, 25 (S.D. 2005).
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Cite as 296 Neb. 73that 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.53
While our definition of indispensable parties has often
treated necessary parties hand in hand, it is clear that this
definition was derived from the traditional definition of
indispensable parties and applies to the second clause of
§ 25-323. Therefore, this definition applies to indispensable
parties only.
[27,28] We have held that “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.”54 Based
on our distinction of parties above, we consider all persons
interested in the contract or property involved in the suit to
be necessary parties, and all persons whose interests therein
may be affected by the decree in equity to be indispen­
sable parties.
Here, Midwest Renewable seeks to quiet the title of all par-
ties interested in its Lincoln County property. It specifically
attacked the lien executed on Western Ethanol’s judgment by
naming Western Ethanol as a party to the action, having no
greater information as to the owner of the judgment. Western
Ethanol continues to assert that it is the owner of the judgment.
However, once Western Ethanol’s articles of dissolution and
Vind’s affidavit were entered into evidence at the hearing on
Midwest Renewable’s motion for partial summary judgment,
a question as to the owner of the judgment and the judgment
lien arose.
53
American Nat. Bank v. Medved, 281 Neb. 799, 806, 801 N.W.2d 230, 237
(2011).
54
Reed v. Reed, 277 Neb. 391, 399, 763 N.W.2d 686, 693 (2009).
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Cite as 296 Neb. 73The court could not make a determination as to the owner
of the judgment and the judgment lien without affecting Vind’s
ownership rights. Accordingly, he was an indispensable party
to that determination. We conclude that the district court erred
in not requiring that Vind be made a party to the action before
deciding the issue. Therefore, the court lacked subject matter
jurisdiction to make a determination as to the owner of the
judgment and the judgment lien.
Additionally, as discussed above, if Vind was assigned the
judgment and the judgment lien, then he alone could enforce or
defend them. Accordingly, the court could not make a determi-
nation as to the validity of the judgment or the judgment lien
without affecting Vind’s rights. Therefore, Vind’s absence, as
an indispensable party, deprived the court of the subject matter
jurisdiction to determine the validity of the judgment and the
judgment lien as well.
Moreover, because motions for quiet title sound in equity,
dismissing Midwest Renewable’s complaint regarding Western
Ethanol and failing to add Vind were inconsistent with equity
and good conscience, because that prevented a final deter-
mination as to whether the lien created by Western Ethanol
remained as a cloud on Midwest Renewable’s Lincoln County
property. Further, it neglected to settle Midwest Renewable’s
claim that Vind cannot enforce the lien if he owns it, because
the court’s earlier default judgment against unnamed parties in
this case also requires Vind’s participation.
Midwest Renewable claims that because it named “all per-
sons . . . real names unknown” as defendants in the caption of
its complaint and constructively served such defendants, Vind
had constructive notice of the litigation and was thus converted
into a party. We do not agree with Midwest Renewable’s
assessment of the record or the applicable law.
Contrary to Midwest Renewable’s assertion, Vind was not
an unknown person. As previously mentioned, the hearings on
Midwest Renewable’s motions for default judgment and partial
summary judgment were heard contemporaneously. At that
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Cite as 296 Neb. 73hearing, Western Ethanol introduced into evidence the affidavit
of Vind claiming he was the actual owner of the judgment.
Under these circumstances, Vind’s interest in the property was
readily apparent. In order to properly resolve or rule upon
Midwest Renewable’s rights, Vind should have been joined as
a named party.
VI. CONCLUSION
Under Nevada law, Western Ethanol remained amenable to
this action, because the cause existed prior to its dissolution
and the action was commenced within 2 years of the filing of
its articles of dissolution. Although Western Ethanol had trans-
ferred its judgment and judgment lien upon dissolution, it con-
tinues to argue that it owns both. Vind is an indispensable party
to the controversy of who owns the judgment and the judgment
lien and whether both remain valid and subsisting, because
each controversy directly affects his rights as the alleged
assignee. Accordingly, Vind’s absence deprived the court of
subject matter jurisdiction to consider those issues. Therefore,
we vacate the court’s memorandum opinion and judgment and
remand the cause with direction for the district court to order
Vind be named a party to this action.
Vacated and remanded with direction.