Bearce v. Yellowstone Energy Development, 963 N.W.2d 299

Background

In 2006 Yellowstone obtained an exclusive option to buy 170 acres from Daniel and Debra Bearce; a contract for deed was executed in 2008 and modified in 2009. The contract included a term that the sellers would receive $100,000 in "shares" of a contemplated Yellowstone LLC tied to an ethanol plant financing.
Yellowstone abandoned the ethanol-plant plan and negotiated an oil-train loading facility on the property. In July 2010 Yellowstone told the Bearces they would receive $100,000 in ownership units "at the time shares are issued to all [Yellowstone] members." The Bearces then conveyed the property to Yellowstone.
Yellowstone’s Board approved a 3:1 units-per-$1 multiplier for early cash investors in December 2011 and again in October 2012; the Bearces’ interest was not granted either multiplier.
A unit ledger showing allocations (including the Bearces’ units without the multiplier) was issued in December 2012; the Bearces objected but Yellowstone refused to reallocate.
The Bearces sued for breach of fiduciary duty, fraudulent inducement, and breach of contract. On first appeal this Court reversed dismissal of the fiduciary claim and remanded. At the bench trial the Bearces testified they never saw the operating agreement and believed they did not receive units or become members until December 2012.
The district court found (and this Court affirmed) the Bearces did not become members until the December 2012 unit ledger; therefore Yellowstone owed no fiduciary duty to them at the times the Board voted on the multipliers in December 2011 and October 2012.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether promoters who negotiated the sale owed a fiduciary duty to the Bearces	Bearces: Yellowstone’s negotiators were promoters and thus owed fiduciary duties to sellers	Yellowstone: issue not preserved below; no fiduciary duty claim on that theory	Waived — issue not raised in trial court; cannot be raised first on appeal
Whether Yellowstone’s Board owed fiduciary duties to Bearces because Yellowstone is a closely held LLC	Bearces: as unitholders in a closely held LLC, they were owed good-faith fiduciary duties by the Board	Yellowstone: no statutory or common-law authority extends close-corporation fiduciary duties to managers/boards of LLCs	Court: decline to extend close-corporation duties to LLCs in absence of statutory directive; no fiduciary duty established on that basis
Whether Bearces were members at the time of the multiplier votes (and thus owed duties)	Bearces: units promised earlier; argue they were effectively members when the Board acted	Yellowstone: membership occurs when units appear on unit ledger per operating agreement; ledger shows membership in Dec 2012	Held: factual finding that Bearces became members in December 2012 is not clearly erroneous; Board’s multipliers were adopted before membership, so no fiduciary duty was owed at those votes

Key Cases Cited

Bearce v. Yellowstone Energy Dev., LLC, 2019 ND 89, 924 N.W.2d 791 (prior appeal reversing dismissal of fiduciary claim and remanding)
State v. Kensmoe, 2001 ND 190, 636 N.W.2d 183 (issues not raised in trial court cannot be raised first on appeal)
Brandt v. Somerville, 2005 ND 35, 692 N.W.2d 144 (recognizing statutory protections for minority shareholders in close corporations)
Fisher v. Fisher, 546 N.W.2d 354 (discussing duties owed to minority shareholders in close corporations)
Lonesome Dove Petroleum, Inc. v. Nelson, 2000 ND 104, 611 N.W.2d 154 (close-corporation fiduciary duty principles and remedies for minority shareholders)
Entzel v. Moritz Sport & Marine, 2014 ND 12, 841 N.W.2d 774 (standards for reviewing findings of fact as clearly erroneous)