Court Opinion

ID: 9807703
Source: CourtListenerOpinion
Date Created: 2023-08-31 20:13:42.043555+00
Date Added: 2024-06-11T11:52:13.280629
License: Public Domain

CROTHERS, Justice,
dissenting.
[¶ 35] I respectfully dissent. I would affirm because the district court did not err as a matter of law in refusing to permit Susan White to intervene in the foreclosure action against the limited liability company. As a result, the district court also did not err disregarding Susan White’s filings when ruling on the plaintiffs dispositive motion. <
I
[¶ 36] The majority holds, “[T]he district court erred in failing to address whether Susan White was entitled to intervene as a matter of right.” Majority opinion at ¶ 25. That is true as far as the statement goes; however, it does not explain why the district court denied intervention.
[¶ 37] The district court’s order denying the motion to intervene included the following history:
“The members of T.P. Motel are Ross White and Susan White. Ross and Susan were married at the time the contract was created and are now in the midst of a divorce action in the Superior Court of California for Orange County.
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“On July 16, 2013, White [the contract for deed vendor and Ross White’s parents] filed a complaint with this court against T.P. Motel, seeking a judgment for the amount due White under the terms and conditions of the Contract. White also requested that the Contract be cancelled and possession of the property (T.P. Motel) be given to White free and clear of all claims of T.P. Motel. “In June 2013, Susan [W]hite petitioned the Superior Court of California for the County of Orange, seeking to take over management of T.P. Motel. On July 26, 2013, the California court denied Susan’s request. When again it convened on July 29, 2013, the court finalized its earlier decision to prohibit Susan from taking over management.
“On August 19, 2013, T.P. Motel, by its member and operating manager, Ross White, answered Plaintiffs Complaint. On August 16, 2013, Susan White, attempting to act on behalf of T.P. Motel, answered Plaintiffs’ [sic] complaint, counterclaimed against Glen and Loretta White, and crossclaimed against Ross White. The answer/Counterclaim/Crossclaim was not filed with this court until September 26, 2013. On September 16, 2013, T.P. Motel, through Ross White, made a motion to dismiss Susan White’s crossclaim against him. On October 10, 2013, Glen and Loretta White responded to Susan White’s counterclaim against them.”
[¶ 38] The district court concluded: “Ross White filed copies of the California judgments along with his affidavit in response to Susan’s Motion to Intervene. • Those judgments specifically deny Susan’s request to take over management of the business. Even if this court considered Permissive Intervention, subsection 3 of that statute requires that the court consider delay and prejudice that would result from the intervention: ‘In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties’ rights.’ N.D.R.Civ.P. 24.
“Ross was given the right to manage the LLC by the California judgment entered *925in September 2013 and filed with this court on December 30, 2013. To allow Susan to intervene would prejudice Ross’s right.
“In order to satisfy the Full Faith and Credit clause and the Intervention statute, this court denies Susan White’s Motion to Intervene.
“Because it has jurisdiction over issues relating to T.P. Motel’s membership and management by virtue of the divorce action initiated there, California has the [cjapacity to address the issues of intervention.”
[¶ 39] These findings and conclusions of law show that the district court did not ignore the intervention question. Rather, Susan White initiated a divorce in California. The North Dakota district court that was presiding over the foreclosure action recognized the California divorce court was exercising jurisdiction over “issues relating to T.P. Motel’s membership and management” and gave those holdings what it called “full faith and credit.” If we look behind the face of the district court’s order and inspect the underlying California orders on which the district court relied, it appears they were not as sweeping as the district court suggested. One divorce court order denied Susan White’s request to take over management of the LLC, but required all business income be deposited into an account and reported to Susan White. Another granted Ross White authority to make normal business payments after disclosure to Susan White. From these holdings the district court reasonably could have concluded Ross White was granted management authority over the LLC. But even if they did not, the fact remains that this is a third party’s foreclosure action that Susan White is trying to transform into a vehicle to obtain control over a North Dakota limited liability company. Such a dispute should not be part of this proceeding and, on this basis, I would affirm the district court’s order denying Susan White’s motion to intervene.
II
[¶ 40] I also would affirm when this case is examined as a question of intervention under N.D.R.Civ.P. 24(a)(2).
[¶ 41] On appeal of an order regarding intervention of right, we review findings of fact made by the district court under the clearly erroneous standard of review, but the ultimate question whether a party has a right to intervene is a fully reviewable question of law. Fisher v. Fisher, 546 N.W.2d 354, 355 (N.D.1996). No party argues that factual issues remain or that remand for fact-finding is necessary. Therefore, our inquiry is whether the moving party satisfied the legal requirements of Rule 24(a)(2).
[¶ 42] The majority and I agree on the law applicable to a motion to intervene as a matter of right. They paraphrase the requirements as follows:
“In order to intervene as a matter of right under N.D.R.Civ.P. 24(a)(2), Susan White must show: (1) she has an interest relating to the subject matter of the litigation; (2) the interest may be impaired as a result of the litigation; and (3) the interest is not adequately protected by an existing party to the litigation.”
Majority opinion at ¶ 25. To advance the discussion, I will presume that prong three is satisfied in favor of intervention and that the existing party to the litigation, the LLC, will not adequately protect the LLC’s interest. However, that is only one of three required prerequisites to intervention. Chiglo v. City of Preston, 104 F.3d 185, 187 (8th Cir.1997) (“The intervenor must satisfy all three parts of the test” under Rule 24(a)(2).). The other two prongs are not satisfied because Susan *926White does not have an interest relating to the litigation subject matter and because she has no qualifying interest impaired by the litigation.
A
[¶ 48] To satisfy prong one, Susan White had the burden of establishing she owned an interest relating to the subject matter of the litigation. N.D.R.Civ.P. 24(a)(2). The extent of an interest the movant must own is not articulated in Rule 24. The North Dakota rule is adopted from the parallel federal rule so that federal court interpretations are highly persuasive. Fisher, 546 N.W.2d at 355. In Fisher, this Court considered federal precedent and held:
“In United States v. Union Elec. Co., 64 F.3d 1152, 1161 (8th Cir.1995), the court explained the interest required to support intervention of right under Rule 24(a), F.R.Civ.P.:
‘The applicant for intervention must have an interest in the subject matter of the litigation, i.e., an interest that is “direct,” as opposed to tangential or collateral. Furthermore, that intérest must be “recognized,” i.e., both “substantial” and “legally protectable.” ’
“A ‘direct’ interest is one that is not ‘remote’ or ‘contingent.’ A ‘legally pro-tectable’ interest is one that ‘the substantive law recognizes as belonging to or being owned by the applicant-.’ A party who qualifies as a ‘real party in interest’ under Rule 17(a), F.R.Civ.P., is a party with a ‘legally protectable’ interest.”
Fisher, at 356 (internal citations omitted).
[¶ 44] Here, the majority acknowledges the salient facts:
“The subject matter of this lawsuit is the cancellation of a contract for deed for the purchase of real property between T.P. Motel and Glen and Loretta White on the basis of an alleged default. Susan White, as a 50 percent owner and member of T.P. Motel, has an ownership interest in the company that is a party to the contract for deed. Susan White’s membership interest in T.P. Motel is personal property. N.D.C.C. § 10-32-28.”
Majority opinion at ¶ 26. The majority further recognized, “Susan White does not have an ownership interest in the real property that is subject to the contract for deed.” Id. Rather, “Susan White has an ownership interest in the entity that is allegedly in default under the contract for deed.” Id.
[¶ 45] The clear requirement in Fisher is that the interest supporting intervention be “direct” and “recognized,” i.e., both “substantial” and “legally protectable” “as belonging to or being owned by the applicant.” 546 N.W.2d at 356. Susan White’s 50 percent personal property interest in the limited liability company that owns the T.P. Motel does not qualify in any respect. Her property ownership is not legally sufficient because it is not direct. Rather, she owns part of the company that holds equitable title to the property being foreclosed. See Johnson v. Finkle, 2013 ND 149, ¶ 17, 837 N.W.2d 132 (Under a “contract for deed,” “[t]he purchaser holds equitable title and generally has the right to the use and possession of the property.”).
[¶ 46] Susan White also fails the interest test because her property ownership in the LLC is not legally protectable as part of the lawsuit in which she seeks intervention. The lawsuit is to foreclose a contract-for-deed vendee’s equitable interest in real estate. Susan White owns part of the company that owns that vendee’s interest. She owns no part of the real estate, and by intervention she could not gain ownership of that real estate. N.D.C.C. § 10-32-28(1) (“A member has no interest *927in specific limited liability company property.”). Her intervention therefore was properly denied. See Meridian Homes Corp. v. Nicholas W. Prassas & Co., 683 F.2d 201, 204 (7th Cir.1982) (intervention properly denied where intervenor claims only indirect half interest in joint venture profits).
[¶ 47] One also must note the similarity of words in North Dakota Rule 24(a)(2) regulating intervention and in Civil Rule 19 for required joinder of a party. Rule 24(a)(2), N.D.R.Civ.P., requires intervention for an applicant who “claims an interest relating to the property or transaction that is the subject of the action.” Rule 19(a)(1)(B), N.D.R.Civ.P., requires joinder to a lawsuit of a party who “claims an interest relating to the subject of the action.” We are required to harmonize rules and read similar provisions similarly. See Desert Partners IV, L.P. v. Benson, 2014 ND 192, ¶ 9, 855 N.W.2d 608 (“When interpreting court rules, we apply principles of statutory construction to ascertain intent. First, we determine intent by looking to the language of the rule and giving words their plain, ordinary, and commonly understood meaning. Additionally, we construe rules ‘to harmonize related provisions to give meaning to each provision if possible.’ ”) (internal citations omitted).
[¶48] Few, if any, courts would have difficulty concluding under N.D.R.Civ.P. 19 that a LLC member is not a required or “indispensable” party to an action to foreclose the LLC’s interest in a contract for deed. Indeed, such a conclusion would run counter to the “limited liability” function and purpose of the LLC. See N.D.C.C. § 10-32-29 (generally no personal liability of LLC members). Yet, under a different rule using nearly the same words, the majority concludes the LLC owner has a legal right to intervene in a lawsuit solely related to foreclosure of the LLC’s contract for deed. In my view, the disparate treatment of the same words in neighboring rules of civil procedure does not enjoy the support of logic or the rules of construction and interpretation.
B
[¶ 49] To satisfy prong two of Rule 24, Susan White must establish that her interest in the property subject to litigation in which she seeks intervention “is so situated that disposing of the action may as a practical matter impair or impede the mov-ant’s ability to protect its interest.” N.D.R.Civ.P. 24(a)(2). The majority concludes this prong is satisfied because “Susan White’s value of her membership interest in T.P. Motel may be impaired.” Majority opinion at ¶ 27. I respectfully submit the majority’s answer is too simple.
[¶50] The underlying litigation is to foreclose the LLC’s real property interest. The question is whether the LLC is in default under its contract for deed. The only reason for Susan White to intervene is for a collateral reason — to attempt to manage the LLC differently than Ross White so as to attempt to preserve the LLC’s principal asset by curing the default. Although intervention might permit Susan White to alter the result in the foreclosure action, I believe that means-justifies-the-end line of thought ignores both the rulings in place and the reason behind the intervention of right rule.
[¶ 51] First, allowing intervention in this case will stand for the proposition that feuding entity owners can move their dispute into the middle of a third party’s lawsuit. At best, such an untoward result is only tangentially related to allowing the movant to protect their legitimate property interests.
[¶ 52] Second, as a matter of precedent, allowing intervention as a matter of law in this case poses a serious threat to *928orderly governance of legal entities with disagreement among fractional owners. Non-governing owners have statutory and common law rights by which they can protect their interests. See Fisher, 546 N.W.2d at 358. In the corporate setting, those rights include protection of dissenter’s rights, dissolution of the entity and even a separate action for breach of fiduciary duty. Id. Most, .if not all, of these rights have been extended to fractional owners of other legal entities. See, e.g., Red River Wings, Inc. v. Hoot, Inc., 2008 ND 117, ¶ 26, 751 N.W.2d 206 (fiduciary duty exists between limited and general partners); N.D.C.C. § 10-32-29(3) (limited liability company subject to veil piercing same as corporation). The ability to vindicate those rights through separate proceedings support a conclusion Susan White did not carry her burden of showing that her interest in the foreclosure litigation is impaired or impeded without intervention.
[¶ 53] A noted treatise explains:
“[C]ourts have found that neither practically nor legally would the movant’s interest be impaired or impeded by a disposition of the action and they have accordingly denied intervention of right for failure to satisfy this requirement. This has occurred, for example, when the court finds that the would-be inter-venor could protect his interest in a separate action; the practical disadvantage of filing a separate suit and perhaps duplicating some of the efforts in the ongoing action are not sufficient to meet the criteria of the rule.”
7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1908.2 (2007) (footnotes omitted). See also Shea v. Angulo, 19 F.3d 343, 347 (7th Cir.1994) (alleged partner could bring individual action and would not suffer impairment to claim for partnership proceeds if denied opportunity to intervene in partnership’s suit for breach of security trading agreement); Rigco, Inc. v. Rauscher Pierce Refsnes, Inc., 110 F.R.D. 180, 183 (N.D.Tex.1986) (intervention as of right denied where shareholder’s claimed injury was derivative of corporation’s injury). Here, Susan White can recoup any alleged loss of value in the LLC by a separate action against Ross White for breach of fiduciary duty, or she could recover in the California divorce the value of her LLC interest lost through Ross White’s waste or dissipation of marital assets. See Vai v. Bank of Am. Nat’l Trust & Savings Ass’n, 56 Cal.2d 329, 15 Cal.Rptr. 71, 364 P.2d 247, 255 (1961) (explaining husband is under a fiduciary duty with respect to his wife’s interest in community property under his control and management). Because of her ability to vindicate any loss of value of her ownership rights through other means, she cannot satisfy the second prong of the Rule 24(a) test requiring that the lack of intervention impede or impair those rights.
Ill
[¶ 54] For the reasons stated, I would conclude Susan White failed to establish she was entitled to intervene in the contract for deed foreclosure action. Based on that ruling, her filings in the action were properly disregarded and the evidence before the district court warranted foreclosure of the contract for déed. I therefore would affirm.
[¶ 55] LISA FAIR McEVERS, J., concurs.