Danuser v. IDA Marketing Corp.
2013 ND 196
| N.D. | 2013Background
- Leach founded IDA Moorhead and delegated operations to managers; in 1994 Danuser and others formed IDA Marketing to buy Leach’s shares, aided by stock purchase, security, marketing, and escrow agreements.
- The shareholder control agreement linked the two closely held entities with shared boards and CEO, and Kruse served as president/CEO; Leach retained influence on board composition.
- A 1994-2010 pattern saw sporadic debenture payments to Leach; Danuser later loaned $97,000 to IDA Moorhead, with limited repayments.
- In 2010, Danuser was terminated as president/CEO at a board meeting orchestrated by Leach for alleged cause, and Danuser was ousted from governance.
- Stock pledged as security for Leach’s debenture was repossessed and later sold; IDA Moorhead was eventually sold for $1,180,000, while Danuser sought damages for frozen-out status and related breaches.
- District court found James Leach personally breached a fiduciary duty to Danuser and that IDA Moorhead/IDA Marketing were liable for Danuser’s loans, with damages totaling hundreds of thousands of dollars.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Leach breach fiduciary duty to Danuser as a closely held-corporation director? | Danuser asserts Leach violated 10-19.1-115 by unfairly prejudicing him. | Leach argues duties run to the corporation/shareholders collectively, not to Danuser personally. | Yes; Leach breached a fiduciary duty to Danuser under 10-19.1-115(1)(b)(3). |
| Are Leach and the corporations jointly and severally liable for damages to Danuser? | Danuser seeks damages for the oppressive conduct and resulting losses. | Leach/defendants contest the scope and allocation of liability. | Yes; district court properly imposed joint and several liability on Leach and the corporations. |
| Was the remedy fashioned by the district court appropriate under 10-19.1-85.1 and 10-19.1-115? | Danuser contends the remedy reflects fair value for his shares and losses. | Leach argues the buy-sell terms limit recoverable amounts and seeks different allocation. | Remedy found appropriate; court exercised equitable discretion within statutory authority. |
| Did the district court abuse its discretion by granting relief broader than requested? | Danuser sought equitable relief for wrongs, including personal damages. | Defendants argue relief exceeded request and applicability of buy-sell terms. | No; relief accorded was within the complaint and the court’s equitable powers. |
| Was Danuser’s direct action allowable versus a derivative action given the closely held context? | Danuser maintained a direct action for harms distinct to him. | Leach contends claims should be derivative or limited to the corporation. | Court allowed direct action under 10-19.1-115(1)(b)(3) given harm to a single shareholder in a closely held corp. |
Key Cases Cited
- Kortum v. Johnson, 2008 ND 154, 755 N.W.2d 432 (2008 ND 154) (duty to act in good faith; close-corporation protections; direct relief where unfair prejudice to shareholders)
- Lonesome Dove Petroleum, Inc. v. Nelson, 2000 ND 104, 611 N.W.2d 154 (2000 ND 104) (fiduciary duties in closely held corporations; minority protections)
- Balvik v. Sylvester, 411 N.W.2d 383 (ND 1987) (fiduciary duties and protections for minority shareholders)
- Brandt v. Sommerville, 2005 ND 35, 692 N.W.2d 144 (2005 ND 35) (abuse of discretion standard; equitable relief in 10-19.1 actions)
- Fisher v. Fisher, 1997 ND 176, 568 N.W.2d 728 (1997 ND 176) (standards for fiduciary duties and shareholder remedies in close corporations)