Articles Posted in Business Law

by
Charles Erwin appeals from an amended judgment entered in favor of Alerus Financial, N.A., for $5,265,653.09. Starting in 2012 Alerus made a series of loans totaling more than $15 million to Diverse Energy Systems, LLC. The loan agreement specified "Events of Default," including the failure to pay the indebtedness, the insolvency of the borrower or guarantor or the commencement of bankruptcy proceedings. Erwin was Diverse's chief executive officer, and he signed multiple personal guaranties, promising to be personally responsible for payment of up to $4 million of Diverse's debt owed to Alerus. In September 2015 Diverse filed for bankruptcy. In May 2016 Alerus sued Erwin for breach of contract and unjust enrichment, alleging Diverse was in default under the loan agreement and Erwin failed to make payment on the amount due under the guaranties. Alerus alleged Diverse's indebtedness exceeded $12 million and under the guaranties Erwin was liable for at least $4 million in principal and interest. On September 6, 2016, Erwin filed an answer to Alerus' complaint. Alerus moved for summary judgment, arguing Diverse defaulted on its loan obligations and Erwin breached the guaranty contracts by failing to pay the amounts due under the guaranties. Alerus also filed an affidavit in support of its motion from an Alerus employee, which it claimed showed the total outstanding principal and interest on the loans to Diverse. Erwin argued on appeal to the North Dakota Supreme Court the district court abused its discretion by failing to rule on his motion to amend his answer and entering judgment without allowing him to conduct discovery on Alerus' damage claims. Finding no reversible error, the Supreme Court affirmed the amended judgment. View "Alerus Financial, N.A. v. Erwin" on Justia Law

by
Merritt Charles Horning III; Riggers Store Holdings, LLC; Riggers Store 1, LLC; Chase Merritt Management, Inc.; Chase Merritt, LP; and Racers Store Management, LLC (collectively the "Horning defendants") appealed a district court order denying their motion to compel arbitration of Raymond Melendez's lawsuit against them. The issues in this appeal centered on whether Melendez's claims against the Horning defendants concerning the operation of a convenience store in Williston were arbitrable under an arbitration clause in an operating agreement for Riggers Store Holdings. After review, the North Dakota Supreme Court concluded the district court erred in deciding Melendez's claims were not arbitrable, and reversed the order denying arbitration and remanded for entry of an order compelling arbitration. View "Melendez v. Horning III" on Justia Law

by
Counce Energy BC #1, LLC, appealed the judgment entered on a jury verdict awarding Continental Resources, Inc., $153,666.50 plus costs and disbursements for breaching its contract with Continental by failing to pay its share of expenses to drill an oil and gas well, and dismissing with prejudice Counce's counterclaims. Because the district court lacked subject matter jurisdiction over Continental's breach of contract action and Counce's counterclaims, the North Dakota Supreme Court vacated the judgment. View "Continental Resources, Inc. v. Counce Energy BC #1, LLC" on Justia Law

by
P&P Industries, LLC, d/b/a United Oilfield Services, and Pauper Industries, Inc., appealed a judgment entered in favor of Continental Resources, Inc., after a jury returned a verdict finding United and Pauper's conduct constituted fraud but they did not breach their contracts with Continental. Continental was an oil producer; United and Pauper provided transportation, water hauling, and related services and materials to Continental in North Dakota. Pauper signed a Master Service Contract with Continental, and United signed a Master Service Contract. Continental sued United and Pauper, seeking damages for claims of breach of contract, tortious breach of contract, breach of fiduciary duty, fraud, and deceit. Continental alleged United and Pauper violated state and federal limits and regulations on the number of hours a truck driver may drive; they violated Continental's employee policies, and engaged in improper and fraudulent billing. After a hearing, the district court denied United's motion for summary judgment on Continental's claims; denied Continental's motion for summary judgment on United's breach of contract, promissory estoppel, and tortious breach of contract counterclaims; and denied Continental's motion for summary judgment on its fraud and breach of contract claims. The court granted Continental's motion for summary judgment against United's breach of fiduciary duty and constructive fraud counterclaims. The court also granted summary judgment on Continental's motion related to damages and ruled, if United prevailed at trial, its damages would be limited to the net profits it could have earned during the 30-day termination notice period, overall expenses of preparation, and its expenses in pursuit of reasonable efforts to avoid or minimize the damaging effects of the breach. United unsuccessfully moved for reconsideration of the damages issue. A jury trial was held. In deciding Continental's claims, the jury found neither United nor Pauper breached its contract obligations to Continental, both United and Pauper's conduct was fraudulent or accompanied by fraud, both United and Pauper's conduct was deceitful or accompanied by deceit, and the jury awarded Continental $2,415,000 in damages for its claims against United but did not award Continental any damages for its claims against Pauper. In deciding United's counterclaims, the jury found Continental breached its contract with United, but Continental was excused from performing based on United's prior material breach, United's failure to perform a condition precedent, United's fraud or deceit, and equitable estoppel. Judgment on the jury's findings was entered against Pauper. Continental was awarded its costs and disbursements against United and Pauper, jointly and severally. United and Pauper argued on appeal to the North Dakota Supreme Court that the verdicts were inconsistent and the district court erred in limiting the amount of damages United could seek on its counterclaim. The Supreme Court reversed, finding the "verdict is inconsistent and perverse and cannot be reconciled." The matter was remanded for a new trial. View "Continental Resources, Inc. v. P&P Industries, LLC I" on Justia Law

by
Jesse Craig appealed a judgment awarding TJ Haugrud $120,000 plus interest on Haugrud's breach of contract claim against Craig, dismissing Craig's counterclaims against Haugrud, and sanctioning Craig's attorney $5,000. Haugrud and Craig formed Acquisition, LLC, for the purpose of developing, owning and managing real estate, and each were 50 percent owners of the limited liability company. In October 2016, Haugrud and Craig entered into a written agreement for Craig to purchase Haugrud's interest in the company for $130,000 payable in two installments. Craig paid $10,000 by November 1, 2016 for the first installment, but did not pay the $120,000 second installment which was due by December 1, 2016. Haugrud sued Craig for breach of contract seeking the unpaid installment of $120,000. Craig filed a counterclaim against Haugrud alleging actual fraud, constructive fraud, deceit, unintentional misrepresentation, and civil conspiracy in connection with the parties' business dealings, including transactions between their respective business entities that were not made parties to the lawsuit. The district court granted summary judgment on Haugrud's breach of contract claim because Craig "conceded" he failed to make the second installment payment required by the contract. The court also dismissed Craig's counterclaims for failure to state claims upon which relief can be granted because Craig "treats [Haugrud] as an individual with respect of his sole interest" in the limited liability companies, Craig "made no allegation to pierce the corporate veil," and Craig "treats his own interest" in the limited liability companies "as giving rise to personal claims" which belong to the separate entities. The court further found Craig's "attempt to make [Haugrud] responsible as a shareholder of a corporation, the obligations of the corporation, is not grounded in law" and awarded Haugrud $5,000 in attorney fees as a sanction assessed against Craig's counsel. After review, the North Dakota Supreme Court affirmed the district court's grant of summary judgment on Haugrud's breach of contract claim. The Court reversed dismissal of Craig's counterclaims on the pleadings and the sanction, and remanded for further proceedings. View "Haugrud v. Craig" on Justia Law

Posted in: Business Law, Contracts

by
William and Rhonda Kulczyk appealed a district court judgment dismissing their complaint seeking to foreclose a mortgage against Tioga Ready Mix Co. The court held res judicata barred the Kulczyks' foreclosure action on the basis of previous litigation between the parties. After review, the North Dakota Supreme Court reversed and remanded, concluding res judicata did not bar the Kulczyks' foreclosure action against Tioga Ready Mix. View "Kulczyk v. Tioga Ready Mix Co." on Justia Law

by
Stephen Zundel appealed a district court judgment declaring Loren and Richard Zundel complied with a lease relating to grain and farm equipment storage, declaring the lease remained in effect, and dismissing Stephen's eviction action against Loren and Richard Zundel. Loren and Richard Zundel cross-appealed the judgment awarding them $21,182 in attorney's fees and costs. Edwin Zundel and his sons, Loren, Richard, Stephen, and Donald, used the bin site at issue in this appeal in varying amounts. Edwin leased the bin site to his sons at an annual rate of $400. The lease also included provisions regarding the use of the property, repairs, and default. The lease provided the bin site was to be used primarily for storing crops, farming equipment, and farming supplies. The lease provided the term of the agreement was the life of all tenants. The family partnership subsequently conveyed the bin site to Stephen and he became the landlord under the lease. A dispute arose in 2014 after Stephen demanded additional rent of $400 from each tenant. Loren and Richard refused to pay and expressed their position that the total annual rent was $400 from all tenants. Stephen also demanded that repairs be made to the bin site. The district court ruled the bin site lease did not violate N.D.C.C. 47-16-02, finding the bin site lease was not a lease of agricultural land in part because "[i]n the lease . . . the parties agree that this land is not suitable for farming." The court also decided the use of the leased property was not for agricultural purposes. The North Dakota Supreme Court agreed with the district court's conclusion that the property covered by the bin site lease was not agricultural land; the bin site lease plainly stated the leased property was not suitable for farming. The lease also excluded pasture land from the property covered by the lease. The district court made numerous findings relating to repairs on the bin site. Those findings were supported by the record on the basis of Loren and Richard's testimony. The Court concluded the trial court did not clearly err in finding Loren and Richard maintained the bin site in good condition and did not breach the bin site lease. However, the Court concluded the trial judge abused his discretion in finding Stephen's counterclaim relating to N.D.C.C. 47-16-02 was frivolous, therefore that part of the judgment awarding Loren and Richard attorney's fees was reversed. The case was remanded to the district court to redetermine the award of attorney's fees related to the frivolous counterclaims disposed of on the motion for judgment on the pleadings. View "Zundel v. Zundel" on Justia Law

by
An indemnification agreement need not be in writing, and an agent's authority to enter into an indemnification agreement need not be in writing. Jim Leach (“Leach”) and Elizabeth Leach appealed a district court judgment awarding money damages to SNAPS Holding Company after ruling they breached a stock purchase agreement with SNAPS. SNAPS cross-appealed the dismissal of its breach of contract claims against Leach. Leach was the chief operating officer and majority shareholder of IDA of Moorhead Inc. Leach negotiated with Sanjay Patel, president and CEO of SNAPS, to sell IDA to SNAPS. During negotiations the parties discussed the effect of an employee lawsuit on the potential sale. The parties agreed SNAPS would be responsible for the first $100,000 of expenses associated with the lawsuit, and Jim Leach and IDA would be responsible for that portion exceeding $100,000. At a shareholders and board of directors meeting, the IDA shareholders and board of directors authorized the sale of IDA's stock to SNAPS for $1,180,000. A district court ruled IDA wrongfully terminated the employee and Leach breached a fiduciary duty. Leach and the selling shareholders of IDA refused to pay the employee lawsuit judgment. The employee filed the judgment against Leach in Arizona, and subsequently assigned the judgment to SNAPS and IDA. Leach objected to the filing of the judgment against him in Arizona. An Arizona court ruled SNAPS and IDA could not enforce the judgment against Leach in Arizona. The court concluded SNAPS exercised total control over the management and activities of IDA and was the alter ego of IDA. The Arizona court concluded both Arizona and North Dakota law prohibited contribution between intentional joint tortfeasors; therefore, allowing IDA to obtain contribution from Leach, its co-intentional joint tortfeasor, was prohibited in Arizona. SNAPS sued Leach and the other former IDA shareholders after they failed to pay the employee judgment. The North Dakota Supreme Court concluded the proceeding in Arizona relating to the filing of the employee judgment and SNAPS' lawsuit in North Dakota relating to the stock purchase agreement were based on different factual circumstances, and as such, not barred by res judicata. The Court reversed and remanded that part of the district court's order granting summary judgment in favor of Jim Leach that found otherwise. The Court also reversed and remanded that part of the judgment dismissing SNAPS' claims against Jim Leach. The Court affirmed in all other respects. View "SNAPS Holding Company v. Leach" on Justia Law

by
Rick Snider and Janan Snider, doing business as RJ Snider Construction ("Snider"), appealed the grant of summary judgment, forfeiting a construction lien against the property that formerly housed the Dickinson Elks Lodge later owned by private investors, the Dickinson Elks Building, LLC ("DEB"), and prohibiting Snider from recording additional liens against the property without performing additional work. The North Dakota Supreme Court was not convinced that perfecting a lien amounted to creating a lien, as argued by the Sniders. As such, the Court concluded that when a Court declares a lien is deemed forfeited or satisfied, the right to the lien for the construction services or materials provided is deemed forfeited, not just the document recording the lien and establishing its priority. The district court correctly interpreted N.D.C.C. 35-27-25 in concluding the statute barred Snider from recording another construction lien against DEB's property for the same work. The district court also correctly concluded Snider forfeited its construction lien created and attached as a matter of law under N.D.C.C. sections 35-27-02 and 35-27-03 when it failed to comply with DEB's demand to enforce the lien. View "Snider v. Dickinson Elks Building, LLC" on Justia Law

by
Stephen Larson appealed when his case against Midland Hospital Supply, Inc. ("Midland"), Midland ProHealth, Inc. ("ProHealth") and Richard Larson was dismissed. Midland was a North Dakota corporation engaged in the wholesale, resale distribution and sale of medical supplies until dissolved in 2007. The Larson family owned all of the shares of the corporation. Richard Larson was the majority shareholder and the president of the company and his brother, Stephen Larson, and their two sisters were minority shareholders. The company had a buy-sell agreement requiring any shareholder desiring to sell, transfer or encumber their shares to first offer them to the other shareholders on a pro-rata basis. If the shareholders did not purchase the offered shares, the company could redeem them. If the company or shareholders did not purchase the shares, they could be sold to any party. In May 1999 Richard sent the minority shareholders a letter indicating the company wanted to purchase their shares by July 1999. The two sisters agreed to sell their shares. Stephen declined the offer. Richard personally purchased the sisters' shares, increasing his ownership interest in the company. In 1994 Richard Larson set up ProHealth, a retail company selling medical supplies, of which Richard was the president and sole shareholder. ProHealth purchased approximately half of its inventory from Midland. It had an outstanding accounts receivable with Midland by 2001. By the end of 2006 ProHealth owed Midland approximately $1,600,000. In August 2007, the full amount of the accounts receivable was paid. Interest on the receivable was paid in August 2008. Stephen sued for breach of fiduciary duty, conflict of interest, negligence, breach of shareholder buy-sell agreement, misappropriation, conspiracy, conversion, action for accounting and unjust enrichment. The summons and complaint were served in June 2013, and the action was filed in September 2014. The trial court held that Stephen's case against Midland and his brother was barred by statute of limitations. After review, the Supreme Court affirmed, concluding the statute of limitations barred Stephen's claims related to his ownership interest in Midland and the district court did not err finding he was paid for his interest in Midland. View "Larson v. Midland Hospital Supply, Inc." on Justia Law