Court Opinion

ID: 4550278
Source: CourtListenerOpinion
Date Created: 2020-07-22 19:08:01.175814+00
Date Added: 2024-06-11T09:21:23.173585
License: Public Domain

Filed 9/22/20 by Clerk of Supreme Court

                  IN THE SUPREME COURT
                  STATE OF NORTH DAKOTA

                                2020 ND 161

McCormick, Inc., individually and derivatively
on behalf of Native Energy Construction, LLC,
and Northern Improvement Company,                    Plaintiffs, Appellees,
                                                    and Cross-Appellants
      v.
Terrance Fredericks, a/k/a Terry Fredericks,        Defendant, Appellant,
                                                      and Cross-Appellee

                                No. 20190254

Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable Thomas J. Schneider, Judge.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Opinion of the Court by Crothers, Justice.

Monte L. Rogneby (argued), and Diane M. Wehrman (appeared), Bismarck,
ND, for plaintiffs, appellees, and cross-appellants.

Jeffrey S. Rasmussen (argued), Louisville, CO, and Chad C. Nodland
(appeared), Bismarck, ND, for defendant, appellant, and cross-appellee.
                         McCormick v. Fredericks
                              No. 20190254

Crothers, Justice.

[¶1] Terrance Fredericks appeals from a district court judgment ordering him
to pay more than $1,000,000 in damages to McCormick, Inc.; Native Energy
Construction, LLC; and Northern Improvement Company. McCormick and
Northern Improvement cross-appeal from a judgment denying their motion for
a judicially supervised winding up of Native Energy. We affirm in part, reverse
in part, and remand.

                                      I

[¶2] In 2010, McCormick and Fredericks created Native Energy Construction
to engage in construction operations related to oil production. Fredericks
owned 51% of the company, and McCormick owned 49%. Fredericks was Native
Energy’s president, and McCormick and Northern Improvement provided
management services to Native Energy for a fee of 5% of Native Energy’s gross
revenues.

[¶3] McCormick and Fredericks executed a purchase agreement in April 2014
for Fredericks’ purchase of McCormick’s interest in Native Energy. Fredericks
was unable to complete the purchase. The parties did not wind up Native
Energy and the business was involuntarily dissolved by the secretary of state
in May 2015.

[¶4] In 2016, McCormick and Northern Improvement sued Fredericks,
alleging he breached contractual and fiduciary duties owed to Native Energy,
McCormick and Northern Improvement. McCormick alleged Fredericks took
distributions from Native Energy without making a corresponding distribution
to McCormick, wrongfully converted Native Energy’s assets for his own use,
made improper payments to his wife and performed other business activities
on behalf of Native Energy without McCormick’s authorization.

[¶5] Fredericks counterclaimed, alleging McCormick breached a fiduciary
duty by taking the 5% management fee from Native Energy’s gross revenues.

                                      1
Fredericks also requested a judicially supervised winding up of Native Energy
under N.D.C.C. § 10-32.1-51.

[¶6] Native Energy and McCormick each moved for partial summary
judgment. The district court granted McCormick’s and Northern
Improvement’s motion, concluding Fredericks breached a contract with
McCormick for the purchase of $168,879 worth of Native Energy equipment.
The court also concluded Fredericks individually received a $35,104 payment
due to Native Energy, he received $110,624 in distributions from Native
Energy for which no corresponding distribution was paid to McCormick, and
Native Energy failed to pay Northern Improvement $44,400 for the
transportation and reconditioning of equipment in preparation for public
auction. The court ordered Fredericks to pay $203,983 to Native Energy, and
$49,795.76 to McCormick for the distributions, and transfer $44,400 from
Native Energy’s checking account to Northern Improvement.

[¶7] The remaining issues were tried in October, 2017. That proceeding ended
in a mistrial when McCormick’s witness Steve McCormick testified on cross-
examination about the Vogel law firm’s review of master service agreements
between Native Energy and third-party oil companies. McCormick testified
Vogel was indirectly providing services for Native Energy. Fredericks moved
for a mistrial, arguing a conflict of interest existed between Vogel, McCormick
and Native Energy. The district court granted Fredericks’ motion and declared
a mistrial and disqualified Vogel from representing McCormick.

[¶8] McCormick moved for reconsideration of the district court’s decision to
disqualify Vogel. McCormick argued Vogel’s review of master service
agreements was not the same or a similar matter to this case. McCormick
asserted Vogel should not be disqualified from representing it because Native
Energy was not adverse to McCormick and Vogel did not represent Fredericks
in earlier matters. After a hearing, the court concluded Vogel had not
represented Native Energy or Fredericks and this case was not the same or
similar to Vogel’s review of master service agreements. The court concluded
Vogel was not disqualified from the case.

                                      2
[¶9] After a three-day trial in September 2018, the jury found Fredericks
breached his fiduciary duties to McCormick and Native Energy and Fredericks’
actions constituted fraud. The jury awarded McCormick $352,668.55 in
compensatory damages and $400,000 in exemplary damages.

[¶10] McCormick moved the district court for a supervised winding up of
Native Energy. Fredericks subsequently withdrew his request for a supervised
winding up and opposed McCormick’s motion. The court denied the motion and
entered a final judgment.

                                       II

[¶11] Fredericks argues the district court lacked jurisdiction to decide his
counterclaim against McCormick for breach of fiduciary duty related to the 5%
management fee. He claims the court of the Three Affiliated Tribes of the Fort
Berthold Reservation had jurisdiction because the management fee agreement
was a contract made on the reservation between Steve McCormick, a non-
Indian, and Fredericks, a tribal member.

[¶12] This Court reviews challenges to a district court’s subject matter
jurisdiction de novo when the jurisdictional facts are not in dispute. Schweitzer
v. Miller, 2020 ND 79, ¶ 6, 941 N.W.2d 571. “A party may raise the question of
subject matter jurisdiction at any time during the proceeding.” Id.

[¶13] “[T]ribal court jurisdiction is determined under the test set forth in
Montana v. United States, 450 U.S. 544 (1981).” Arrow Midstream Holdings,
LLC v. 3 Bears Const., LLC, 2015 ND 302, ¶ 10, 873 N.W.2d 16. Generally, “the
inherent sovereign powers of an Indian tribe do not extend to the activities of
nonmembers of the tribe.” Id. at ¶ 12 (quoting Montana, at 565). An exception
to the general rule is that “[a] tribe may regulate, through taxation, licensing,
or other means, the activities of nonmembers who enter consensual
relationships with the tribe or its members, through commercial dealing,
contracts, leases, or other arrangements.” Arrow, at ¶ 12 (quoting Montana, at
565).

                                       3
[¶14] Fredericks brought claims against McCormick, not a claim against Steve
McCormick individually. Fredericks’ claims against McCormick arose from his
ownership interest in Native Energy, a North Dakota limited liability
company. See Arrow, 2015 ND 302, ¶ 16, 873 N.W.2d 16 (“[I]t is not the
particular form of business entity used by a tribe or tribal member, but
whether the business entity was created under tribal law or state law that
determines if the business entity should be treated as a tribe or tribal
member.”). In addition, Fredericks has not shown how the exception to the
general rule outlined in Montana vested the tribal court with exclusive
jurisdiction over his counterclaims against McCormick. Fredericks has not
claimed the management fee between Native Energy and McCormick involved
a consensual relationship with the tribe. Under these facts, the district court
had jurisdiction to decide the parties’ claims, and this Court has jurisdiction to
decide the appeal.

                                        III

[¶15] Fredericks argues the district court erred by not providing the jury
instructions on contract law relating to the management fee. He asserts there
was no agreement for the fee.

[¶16] Jury instructions should fairly inform the jury of the law applicable to
the case and fairly cover the claims made by both sides of the case. Tidd v.
Kroshus, 2015 ND 248, ¶ 7, 870 N.W.2d 181. A district court “is not required
to instruct the jury in the exact language sought by a party if the court’s
instructions correctly and adequately inform the jury of the applicable law.”
Hildenbrand v. Capital RV Ctr., Inc., 2011 ND 37, ¶ 21, 794 N.W.2d 733. “On
appeal, we review jury instructions as a whole, and if they correctly advise the
jury of the law, they are sufficient.” Tidd, at ¶ 7. If the district court errs in its
instructions, this Court decides whether the error was harmless. Id.

[¶17] During a discussion outside the jury’s presence, Fredericks’ attorney
argued jury instructions on contract law were necessary because Steve
McCormick testified there was an oral agreement for the management fee
between himself, on behalf of McCormick, Inc., and Fredericks. McCormick’s

                                          4
attorney stated although Steve McCormick testified about an oral agreement,
contract-related instructions were not necessary because the parties’ claims
against each other were primarily breach of fiduciary duty claims.
McCormick’s attorney claimed without contract-related instructions, the jury
still could find there was no agreement for the fee and then decide whether
fiduciary duties were breached by McCormick’s receipt of the fee.

[¶18] With regard to jury instructions related to contracts, the district court
stated:

      “[T]he only instruction that really comes to my mind here is that
      based on your argument and Mr. Rogneby’s argument, is that an
      expressed contract is one the terms can be stated orally or in
      writing. An implied contract is one in which in its existence [its]
      terms are manifested by conduct.”

After more discussion, the court stated, “Overall I think this is a fiduciary duty
issue, so I’m not going to add any of those contract instructions.” The court
instructed the jury on the duties a limited liability company’s members owe to
the company and each other, such as the duty of loyalty, duty of care and duty
of good faith and fair dealing. The court also provided instructions related to
limited liability companies:

        “RELIANCE ON INFORMATION AND ACTIONS OF OTHER
                                 MANAGERS
             A manager/member of a limited liability company is entitled
      to rely on information, opinions, reports, or statements, including
      financial statements and other financial data, in each case
      prepared or presented by one or more managers or employees of
      the limited liability company the manger reasonably believes to be
      reliable and competent in the matters presented.

        PRESUMED CONSENT IF FAIL TO OBJECT AT MEETING
            A manager who is present at a meeting of the board when
      action is approved by the affirmative vote of a majority of the
      managers present is presumed to have assented to the action
      approved unless the manager votes against the action at the
      meeting.

                                        5
                                 RATIFICATION
            The managers/members of a limited liability company may
      authorize or ratify after full disclosure of all of the material facts a
      specific act or transaction that would otherwise violate the duty of
      loyalty.

         DEFENSE TO BREACH OF LOYALTY - SELF DEALING
            It is a defense to a claim of self-dealing that the transaction
      was fair to the limited liability company.”

[¶19] Fredericks asserts contract-related jury instructions were necessary
because the core issues in this case were contract claims. He argues the
management fee was not authorized by the written operating agreement
governing Native Energy. He also argues an oral agreement for the fee violated
the statute of frauds.

[¶20] McCormick sued Fredericks for breaching fiduciary duties, and
Fredericks counterclaimed, making numerous allegations McCormick
breached its duties of loyalty, competency and disclosure regarding the
management fee. Fredericks alleged in the alternative that McCormick
breached any contract allowing it to receive the fee; however, Fredericks
provided no evidence of damages suffered from the alleged breach. Fredericks’
counterclaim did not allege McCormick breached Native Energy’s operating
agreement by receiving the fee.

[¶21] McCormick presented evidence that Fredericks consented to the
management fee. Fredericks testified he started paying McCormick the fee in
2010, the fee was discussed at meetings and the meeting minutes did not show
he objected to the fee. McCormick presented evidence demonstrating it
invoiced the fee and as Native Energy’s president Fredericks paid it. The
purchase agreement executed by McCormick and Fredericks stated
McCormick was entitled to the management fee up to the date of the buyout.

[¶22] Contrary to Fredericks’ argument, the core issues in this case involved
whether either party breached fiduciary duties owed to each other and to
Native Energy. After reviewing the parties’ claims, the evidence presented and

                                         6
the jury instructions as a whole, the district court did not err in failing to
instruct the jury on contract law.

                                       IV

[¶23] Fredericks asserts the district court erred by allowing McCormick and
Northern Improvement to each have a designated corporate representative at
trial.

[¶24] We review a district court’s decision relating to sequestration of
witnesses under an abuse of discretion standard. State v. Wanner, 2010 ND
121, ¶ 13, 784 N.W.2d 143. A court abuses its discretion when it acts
arbitrarily, unconscionably, or unreasonably, it misinterprets or misapplies
the law or when its decision is not based on a rational mental process. Hoffman
v. Jevne, 2019 ND 156, ¶ 8, 930 N.W.2d 95.

[¶25] At trial, McCormick’s and Northern Improvement’s attorney designated
a representative for each entity. Fredericks requested sequestration of the
representatives during their testimony, arguing the companies were effectively
the same entity and the representatives should not be allowed to hear each
other’s testimony. The district court did not order sequestration and allowed
each company to have a corporate representative present, relying on N.D.R.Ev.
615.

[¶26] Rule 615, N.D.R.Ev., provides:

      “At a party’s request, the court must order witnesses excluded so
      that they cannot hear other witnesses’ testimony, or the court may
      do so on its own. This rule does not authorize excluding:
      (a) a party who is a natural person;
      (b) an officer or employee of a party that is not a natural person,
      after being designated as the party’s representative by its
      attorney;
      (c) a person whose presence a party shows to be essential to
      presenting the party’s claim or defense; or
      (d) a person authorized by law to be present.”

                                        7
[¶27] Under N.D.R.Ev. 615(b), each corporate plaintiff, McCormick and
Northern Improvement, was allowed to have a designated representative
present at trial. The district court’s decision to not sequester the corporate
representatives during testimony was not an abuse of discretion under
N.D.R.Ev. 615(b).

                                      V

[¶28] Fredericks contends the district court erred in granting McCormick
summary judgment. He argues the court erred by ordering him to pay
McCormick $49,795.76 of the distributions he received from Native Energy. He
claims the amount of distributions were in dispute, and the proper remedy was
to credit McCormick’s Native Energy capital account instead of ordering
Fredericks to pay McCormick for the distributions.

[¶29] “Summary judgment is a procedural device for the prompt resolution of
a controversy on the merits without a trial if there are no genuine issues of
material fact or inferences that can reasonably be drawn from undisputed
facts, or if the only issues to be resolved are questions of law.” Krebsbach v.
Trinity Hosps., Inc., 2020 ND 24, ¶ 7, 938 N.W.2d 133. On appeal, we view the
evidence in the light most favorable to the party opposing the motion. Id.
Whether the district court properly granted summary judgment is a question
of law we review de novo on the entire record. Id.

[¶30] McCormick claimed Fredericks received $110,624 in distributions from
February 2013 to March 2014. The claim was based on Fredericks’ answers to
McCormick’s request for admissions. Fredericks later disputed the amount of
distributions and submitted a transaction report showing he received $88,144
in distributions from April 2013 to March 2014. McCormick acknowledged
summary judgment was not appropriate as to the amount in dispute, but
argued summary judgment was appropriate as to the $88,144 in distributions
that Fredericks stated he received.

[¶31] In September 2017, the district court granted partial summary judgment
in favor of McCormick, ordering Fredericks to pay McCormick $54,216.05 of
the $110,624 in distributions Fredericks received. The court ordered

                                      8
Fredericks to pay Native Energy $203,983 for the purchase of Native Energy’s
equipment, and for a debt due to Native Energy. The court also ordered
Fredericks to authorize a $44,400 payment from Native Energy’s checking
account to Northern Improvement.

[¶32] Fredericks moved to reconsider, arguing the district court erred because
the amount of distributions were in dispute. In response, McCormick claimed
Fredericks admitted to receiving $110,624 in distributions, but acknowledged
a dispute existed as to $9,000 Fredericks claimed he repaid to Native Energy.

[¶33] In June 2018, the district court revised its summary judgment order,
reducing the amount of distributions Fredericks received by $9,000 as
requested by McCormick.

[¶34] McCormick first acknowledged more than $22,000 was in dispute, and
later acknowledged that $9,000 was in dispute. Despite these
acknowledgments that the amount of distributions received by Fredericks was
in dispute, the district court granted McCormick partial summary judgment.
In viewing the evidence in a light most favorable to Fredericks, the court erred
by granting McCormick summary judgment for the distributions Fredericks
received. The amount of distributions received by Fredericks is a genuine issue
of material fact.

[¶35] The district court also erred as a matter of law when it ordered
Fredericks to pay McCormick for the distributions. Chapter 10-32, N.D.C.C.,
was in effect when Fredericks received the distributions from Native Energy.
In 2015, the legislature repealed N.D.C.C. ch. 10-32 and replaced it with
N.D.C.C. ch. 10-32.1. 2015 N.D. Sess. Laws ch. 87, § 41. Under N.D.C.C. § 10-
32-63, when “a member becomes entitled to receive a distribution, the member
has the status of, and is entitled to all remedies available to, a creditor of the
limited liability company with respect to the distribution.” When Fredericks
received his distributions from Native Energy, McCormick also became
entitled to distributions and had the status of a creditor of Native Energy, not
Fredericks individually.

                                        9
[¶36] The district court erred by granting partial summary judgment to
McCormick relating to the distributions received by Fredericks. As to the
remainder of the court’s summary judgment decisions, the court did not err in
granting partial summary judgment to McCormick, ordering Fredericks to pay
Native Energy $203,983 for the purchase of Native Energy’s equipment and
for a debt due to Native Energy. The court did not err by ordering Fredericks
to authorize a $44,400 payment from Native Energy’s checking account to
Northern Improvement. We reverse paragraph 3(c) of the judgment ordering
Fredericks to pay McCormick for the distributions and remand for a
determination of the amount of distributions due to McCormick from Native
Energy.

                                       VI

[¶37] Fredericks argues the jury erred in its exemplary damages award.
Fredericks grounds his exemplary damages argument on his earlier arguments
relating to erroneous jury instructions and the district court’s summary
judgment decisions.

[¶38] The district court admitted into evidence at trial the revised order for
partial summary judgment. Fredericks did not object to its admission. “A party
must make a specific objection to evidence at the time it is offered for admission
into evidence to give the opposing party an opportunity to argue the objection
and attempt to cure the defective foundation, and to give the trial court an
opportunity to fully understand the objection and appropriately rule on it.”
May v. Sprynczynatyk, 2005 ND 76, ¶ 26, 695 N.W.2d 196. Rule 103, N.D.R.Ev.,
provides:

      “(a) Preserving a Claim of Error. A party may claim error in a
      ruling to admit or exclude evidence only if the error affects a
      substantial right of the party and:
            (1) if the ruling admits evidence, a party, on the record:
                    (A) timely objects or moves to strike; and
                    (B) states the specific ground, unless it was apparent
                    from the context;”

                                       10
[¶39] Fredericks argues the exemplary damages were erroneous because the
district court erred in its decisions relating to jury instructions and summary
judgment. We have concluded the jury instructions were not erroneous and a
portion of the summary judgment was erroneous. Although we are reversing
and remanding a portion of the summary judgment, we are not convinced the
court erred by admitting the revised order for partial summary judgment into
evidence. The exemplary damages award against Fredericks was not
erroneous.

                                     VII

[¶40] Fredericks claims the district court erred when it refused to disqualify
Vogel from the case. Fredericks argues Vogel had a conflict of interest because
it was representing Native Energy and Fredericks when Vogel reviewed
master service agreements. He asserts Vogel’s review of the agreements was
substantially related to this case.

[¶41] A district court’s decision on whether to disqualify a law firm or a lawyer
will only be reversed for an abuse of discretion. Sargent Cty. Bank v.
Wentworth, 500 N.W.2d 862, 871 (N.D. 1993).

[¶42] Rule 1.9, N.D.R. Prof. Conduct, relating to a lawyer’s duties to a former
client, states in part:

      “(b) A lawyer shall not knowingly represent a person in the same
      or a substantially related matter in which a firm with which the
      lawyer formerly was associated had previously represented a
      client
             (1) whose interests are materially adverse to that person;
             and
             (2) about whom the lawyer had acquired information
             protected by Rules 1.6 and 1.9(c) that is material to the
             matter; unless the former client consents in writing.”

[¶43] Fredericks’ claim that Vogel had a conflict of interest hinges on Steve
McCormick’s testimony in the first trial about Vogel’s review of master service

                                       11
agreements between Native Energy and third-party oil companies. McCormick
testified Vogel was indirectly providing services for Native Energy.

[¶44] The district court concluded Vogel was not disqualified from
representing McCormick. The court found McCormick hired Vogel to review
master service agreements between Native Energy and other oil companies.
The court found there was no agreement for Vogel to provide legal services to
Native Energy, and Vogel did not communicate with Native Energy or
Fredericks.

[¶45] The district court also found even if Vogel previously represented Native
Energy and Fredericks, Fredericks’ arguments failed under N.D.R. Prof.
Conduct 1.9. The court found Vogel’s review of master service agreements was
not substantially related to the present case:

            “In this case, assuming Vogel represented Fredericks, the
      Court utilizes the substantial relationship test, which presumes
      Vogel acquired confidential information concerning Fredericks
      during the course of reviewing Master Service Agreements that
      could be used against Fredericks in advocating McCormick’s
      derivative claim on behalf of Native Energy. However, after
      reviewing the record the Court finds that Vogel only reviewed the
      Master Service Agreements between [Native Energy] and other oil
      companies on behalf of McCormick. None of the Master Service
      Agreements entered into between [Native Energy] and the other
      oil companies are at issue in this case, the Plaintiffs have
      repeatedly refuted Fredericks’ claims of obtaining confidential
      information, and the Court has not received any evidence from
      either party showing that Fredericks ever communicated with
      Vogel, which would have given him the reasonable belief that
      Vogel represented him. The Court finds that Vogel is not
      representing the Plaintiffs concerning the same or a substantially
      related matter; therefore, Vogel is not disqualified under Rule 1.9.”

[¶46] After reviewing the record, we conclude the district court did not abuse
its discretion in refusing to disqualify Vogel. The court made a reasoned
decision and did not act arbitrarily or unconscionably in deciding Vogel could
continue to represent McCormick.

                                       12
                                     VIII

[¶47] Fredericks argues the district court committed errors in its order for final
judgment and final judgment.

                                        A

[¶48] Fredericks claims the court erred in the order for final judgment when it
stated the jury awarded exemplary damages for actual and constructive fraud.

[¶49] The jury found by clear and convincing evidence that Fredericks’ actions
constituted actual and constructive fraud. The jury awarded McCormick
$400,000 in exemplary damages. The jury’s verdict does not explicitly state it
awarded exemplary damages because of Fredericks’ fraud. However, under
N.D.C.C. § 32-03.2-11(1), in an action for the breach of an obligation not arising
from contract, a jury may award exemplary damages when it clearly and
convincingly finds a defendant committed “oppression, fraud, or actual malice.”

[¶50] Reading the verdict as a whole, one may logically conclude the jury
awarded exemplary damages because it found Fredericks’ actions constituted
fraud. The court did not err by stating the jury awarded exemplary damages
for actual fraud.

[¶51] Normally, constructive fraud will not support a claim for exemplary
damages. Under N.D.C.C. § 32-03.2-11(1), exemplary damages are available
only “in an action for the breach of an obligation not arising from contract.” In
Erickson v. Erickson, 2010 ND 86, ¶ 9, 782 N.W.2d 346, this Court held
“Because constructive fraud negates a party’s apparent consent to the
formation of a contract, the claim can succeed only if a party was misled before
or while entering a contract.” However, here Fredericks did not object to the
jury being instructed on constructive fraud, did not object to the jury verdict
that included a finding on constructive fraud, and did not object to
McCormick’s argument that exemplary damages were warranted at least in
part due to constructive fraud. Therefore, constructive fraud supporting
exemplary damages became law of this case, and the district court did not err
entering judgment accordingly. See Erickson v. Brown, 2008 ND 57, ¶ 27, 747

                                       13
N.W.2d 34 (“On this record, the law of the case and the posture of the issues
raised by the parties in this appeal militate against any such change in the law
[regarding distinctions between fraud and deceit] in this proceeding.“).

                                       B

[¶52] Fredericks also asserts the district court erred in its final judgment by
ordering him to pay $352,668.55 in compensatory damages to Native Energy
and McCormick. Fredericks argues the award should have been awarded solely
to Native Energy. The final judgment awarding compensatory damages to
Native Energy and McCormick is consistent with the jury’s verdict. The court’s
final judgment relating to compensatory damages was not erroneous.

                                      IX

[¶53] McCormick argues the district court abused its discretion when it denied
McCormick’s post-trial motion for judicial supervision of Native Energy’s
winding up.

[¶54] Under N.D.C.C. § 10-32.1-51(5)(a), a court may order judicial supervision
of the winding up of a dissolved limited liability company if a member applies
and establishes good cause. When a court may do something, it is generally a
matter of discretion. Hoffman, 2019 ND 156, ¶ 8, 930 N.W.2d 95.

[¶55] McCormick’s motion included an affidavit from McCormick’s chief
financial officer stating he was familiar with Native Energy’s accounting and
bank records. He stated that according to Native Energy’s records, Northern
Improvement and McCormick were Native Energy’s only known creditors.

[¶56] Fredericks argues McCormick failed to satisfy statutory requirements
for a judicially supervised winding up, such as providing notice to outstanding
or potentially unknown creditors under N.D.C.C. § 10-32.1-53. The record does
not demonstrate whether Native Energy published a notice to unknown
creditors: moreover, publishing a notice to creditors under N.D.C.C. § 10-32.1-
53 is not required for the judicial winding up of a limited liability company.
Even when done, publishing notice is not mandatory. See N.D.C.C. § 10-32.1-

                                      14
53(1) (“A dissolved limited liability company may publish notice of its
dissolution and request persons having claims against the company to present
them according to the notice.”). Rather, publishing notice affects how and how
long creditors may bring claims. See N.D.C.C. § 10-32.1-53(3) and (4).

[¶57] The district court denied McCormick’s motion without explanation. “This
Court cannot perform its appellate function if we are unable to understand the
rationale underlying the district court’s decision.” In re Estate of Nelson, 2015
ND 122, ¶ 8, 863 N.W.2d 521. We need to know the reasons for the court’s
decision before we can intelligently rule on the issues, and if the court does not
provide an adequate explanation of the evidentiary and legal basis for its
decision we are only left to speculate whether the court appropriately applied
the law. Id.

[¶58] We do not know why the district court denied McCormick’s motion. The
court’s order is silent as to whether McCormick established good cause for a
judicially supervised winding up of Native Energy. We therefore reverse and
remand for further proceedings.

                                       X

[¶59] The parties’ remaining arguments are either without merit or not
necessary to our decision. The portion of the final judgment ordering
Fredericks to pay McCormick $49,795.76 is reversed and remanded for
proceedings consistent with this opinion. The remainder of the final judgment
is affirmed. The judgment denying McCormick’s motion for a judicially
supervised winding up of Native Energy is reversed and remanded for further
proceedings.

[¶60] Daniel J. Crothers
      Lisa Fair McEvers
      Gerald W. VandeWalle
      Jerod E. Tuft
      Jon J. Jensen, C.J.

                                       15