Court Opinion

ID: 4709324
Source: CourtListenerOpinion
Date Created: 2021-08-05 15:11:27.28961+00
Date Added: 2024-06-11T08:06:55.555733
License: Public Domain

FILED
                                                                          IN THE OFFICE OF THE
                                                                       CLERK OF SUPREME COURT
                                                                              AUGUST 5, 2021
                                                                        STATE OF NORTH DAKOTA

                  IN THE SUPREME COURT
                  STATE OF NORTH DAKOTA

                                 2021 ND 143

Daniel T. and Debra Ann Bearce,                        Plaintiffs and Appellants
      v.
Yellowstone Energy Development,
LLC, Acting By and Through Its Board
of Directors,                                           Defendant and Appellee

                                 No. 20210010

Appeal from the District Court of Williams County, Northwest Judicial
District, the Honorable Joshua B. Rustad, Judge.

AFFIRMED.

Opinion of the Court by Tufte, Justice.

Charles L. Neff, Williston, N.D., for plaintiffs and appellants.

Kent A. Reierson (argued) and Trevor A. Hunter (on brief), Williston, N.D., for
defendant and appellee.
              Bearce v. Yellowstone Energy Development
                             No. 20210010

Tufte, Justice.

[¶1] Daniel and Debra Bearce appeal the district court’s summary judgment
in favor of Yellowstone Energy Development, LLC. On appeal, the Bearces
argue that the district court erred in concluding Yellowstone did not owe them
a fiduciary duty and that, if a duty was owed, the Yellowstone Board of
Directors did not breach its fiduciary duty. We affirm.

                                       I

[¶2] This is the second time this case has come before us. The material facts
concerning this second appeal are the same as outlined in Bearce v. Yellowstone
Energy Dev., LLC, 2019 ND 89, 924 N.W.2d 791.

[¶3] In June 2006, representatives of a business entity that would eventually
become Yellowstone went to the home of Daniel and Debra Bearce seeking to
purchase 170 acres of land owned by the Bearces. Yellowstone successfully
secured an exclusive option to purchase the land.

[¶4] In 2008, Yellowstone exercised its option to purchase the land, and the
parties entered into a contract for deed. In 2009, Yellowstone and the Bearces
modified the contract for deed to alter some of the payment terms. Both the
original contract for deed and the 2009 modified contract for deed included the
following term providing for the payment of a portion of the purchase price
with “shares” of a contemplated ethanol plant:

             In addition to the cash amounts stated above, the Sellers
      shall receive shares in the Buyer’s limited liability company
      totaling a value of $100,000.00, in the name of the Sellers, to be
      delivered following financial close of the financing for the Buyer’s
      ethanol plant to be constructed upon the above described real
      property.

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[¶5] Yellowstone subsequently abandoned its plan to build an ethanol plant
on the Bearces’ land. Yellowstone then negotiated a long-term lease with a
third party to build an oil train loading facility on the Bearces’ land.

[¶6] In July 2010, Yellowstone sent a letter to the Bearces advising them
$100,000 in “value” would be issued despite Yellowstone’s abandonment of the
plan to build an ethanol plant. The letter stated ownership units had not yet
been issued and explained the Bearces would receive their ownership interest
“at the time shares are issued to all its members.” Shortly after receiving that
letter, the Bearces executed and delivered a deed for the property to
Yellowstone.

[¶7] In December 2011, the Yellowstone Board of Directors approved a
multiplier of three units per $1 invested for individuals who had provided
initial cash investment in Yellowstone. The Bearces’ interest in Yellowstone
was not given the 3:1 multiplier. In October 2012, the Board approved a second
multiplier of three units per $1 invested for individuals who had initially
provided cash investment in Yellowstone. The Bearces’ interest in Yellowstone
was not given the second 3:1 multiplier.

[¶8] Units representing ownership interest in Yellowstone were allocated and
placed on a ledger sometime after December 4, 2012. After receiving a “unit
ledger” indicating their interest in Yellowstone would not receive the 3:1
multiplier, the Bearces objected. Despite the objection, Yellowstone refused to
apply the 3:1 multiplier to the Bearces’ interest in Yellowstone.

[¶9] The Bearces sued Yellowstone, asserting claims for breach of fiduciary
duty, fraudulent inducement, and breach of contract. Both parties moved for
summary judgment. The district court denied the Bearces’ motion for summary
judgment and granted Yellowstone’s motion for summary judgment. On
appeal, this Court affirmed the district court’s judgment dismissing the claim
for fraud and breach of contract but reversed the dismissal of the Bearces’
claim for breach of fiduciary duty and remanded for further proceedings.
Bearce, 2019 ND 89, ¶ 30.

                                       2
[¶10] On remand, a bench trial was held at which the Bearces, the chief
executive officer of Yellowstone, Robert Gannaway, and certified public
accountant for Yellowstone, Rene Johnson, testified. At the trial, Debra Bearce
testified that she and her husband never asked to see a copy of the LLC
agreement. She further testified they never knew what percentage of
ownership they were to have, they never asked how many total shares would
be issued, and they never asked how much had been invested in Yellowstone.

                                        II

[¶11] The Bearces argue that those who represented Yellowstone during
negotiations for the sale of the property were promoters of Yellowstone and, as
such, owed them a fiduciary duty. The Bearces did not raise this issue below.
This Court has consistently held that “a question not raised or considered in
the trial court cannot be raised for the first time on appeal.” State v. Kensmoe,
2001 ND 190, ¶ 17, 636 N.W.2d 183 (citation omitted). The Bearces cannot, for
the first time on appeal, raise this issue.

[¶12] The Bearces also argue the Board owed them a fiduciary duty to act with
good faith. They argue this duty was owed to them because Yellowstone is a
closely held company and they were unitholders at the time the Board voted
on the 3:1 split. A “closely held limited liability company” is defined as a
company “that does not have more than thirty-five members.” N.D.C.C. § 10-
32-02(10) (now codified at N.D.C.C. § 10-32.1-02(7)). The unit ledger reveals
there are 23 members of Yellowstone. Therefore, Yellowstone is a closely held
company. Although Yellowstone may satisfy this statutory definition of “closely
held limited liability company,” the Bearces point to no statutory provision
providing for fiduciary or other duties applicable to closely held limited liability
companies.

[¶13] “We have recognized that N.D.C.C. ch. 10-19.1 provides significant
protection for minority shareholders in a close corporation.” Brandt v.
Somerville, 2005 ND 35, ¶ 7, 692 N.W.2d 144 (citing Fisher v. Fisher, 546
N.W.2d 354, 358 (N.D. 1996)). We have “said N.D.C.C. ch. 10-19.1 ‘imposes a
duty upon officers, directors, and those in control of a corporation to act in good

                                         3
faith, and affords remedies to minority shareholders if those in control act
fraudulently, illegally, or in a manner unfairly prejudicial toward any
shareholder.’” Id. (quoting Lonesome Dove Petroleum, Inc. v. Nelson, 2000 ND
104, ¶ 30, 611 N.W.2d 154). The Bearces provide no authority, and we can find
none, where a court has extended the duties that directors of a corporation owe
to minority shareholders in a close corporation to the managing members or
board of a limited liability company under the Uniform Limited Liability
Company Act. See Doherty v. Country Faire Conversion, LLC, 2020 IL App (1st)
192385, ¶¶ 41-47 (concluding nonmember may not bring breach of fiduciary
claim against a limited liability company or its manager under Uniform
Limited Liability Company Act); Revised Unif. Ltd. Liab. Co. Act § 409 cmt.
(distinguishing duties owed by members of limited liability company from
fiduciary duties that arise in other contexts). In the absence of a statutory
directive, we decline to extend the duties under law applicable to close
corporations to closely held limited liability companies.

[¶14] The date the Bearces acquired their interest in Yellowstone and became
members is a finding of fact. This Court reviews findings of fact under the
clearly erroneous standard of review. N.D.R.Civ.P. 52(a)(6). “A finding of fact
is clearly erroneous if it is induced by an erroneous view of the law, if there is
no evidence to support it, or if, after review of the entire record, we are left with
a definite and firm conviction a mistake has been made.” Entzel v. Moritz Sport
& Marine, 2014 ND 12, ¶ 6, 841 N.W.2d 774 (citations omitted).

[¶15] A person becomes a member of a limited liability company as provided
in the operating agreement. See N.D.C.C. § 10-32.1-27(4). Sections 4.2 and 4.3
of the operating agreement state that no person becomes a member of
Yellowstone until that person is “listed with the appropriate number of Units
on the Unit Ledger.” The only such Unit Ledger where any member’s units,
including the Bearces’, were listed was the Unit Ledger issued in December of
2012. The letter sent to the Bearces prior to the close of the property stated
that their units would be issued “at the time shares [sic] are issued to all
[Yellowstone’s] members.” The letter also stated that Yellowstone had not yet
issued units to its members as of the date of the letter, July 20, 2010. All units

                                         4
in the company, including the Bearces’ units, were allocated in December 2012.
The Bearces presented no evidence that any units had been allocated prior to
December 2012. Daniel Bearce testified they did not receive their units until
December 2012 and did not believe they were members of Yellowstone until
that time. The district court’s finding that the Bearces did not acquire their
interest in Yellowstone until December 2012 is not clearly erroneous.

[¶16] Because only a member can sue for the relief sought here, and because
the Bearces did not become members until December 2012, Yellowstone did
not owe the Bearces a fiduciary duty prior to that time. The Board voted on the
3:1 multiplier for the seed money investors in December 2011 and October
2012, prior to the Bearces being issued their units. The Bearces have failed to
show that, at the time the Board voted on the multipliers, the Board owed them
a fiduciary duty that was breached by the passage of the multiplier.

                                     III

[¶17] Because the Bearces have failed to show that the Board owed them a
fiduciary duty that was breached by the passage of the multiplier, we affirm
the judgment.

[¶18] Jon J. Jensen, C.J.
      Gerald W. VandeWalle
      Daniel J. Crothers
      Jerod E. Tufte

[¶19] The Honorable Lisa Fair McEvers disqualified herself and did not
participate in this decision.

                                      5