903 N.W.2d 537
N.D.2017Background
- In August 2015 Haugrud and Craig formed Acquisition, LLC as 50/50 members.
- In October 2016 they executed a written agreement (in their individual capacities) in which Craig purchased Haugrud’s membership interest for $130,000 payable in two installments.
- Craig paid $10,000 (first installment) but failed to pay the $120,000 second installment due December 1, 2016.
- Haugrud sued Craig for breach of contract for the unpaid $120,000; Craig counterclaimed alleging fraud, misrepresentation, deceit, conspiracy, and sought a setoff (~$133,981.47) based on various related transactions among entities owned by the parties.
- District court granted summary judgment for Haugrud on breach (finding Craig conceded nonpayment), dismissed Craig’s counterclaims under Rule 12(b)(6) for failure to plead personal liability or veil-piercing, and imposed a $5,000 Rule 11 sanction against Craig’s counsel.
- Supreme Court affirmed summary judgment on the contract claim, reversed dismissal of counterclaims and the Rule 11 sanction, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether summary judgment on breach of contract was proper | Haugrud: contract undisputed; Craig failed to pay $120,000, so judgment as a matter of law | Craig: other related deals create factual disputes; needed discovery | Affirmed — undisputed facts showed Craig failed to pay second installment; summary judgment proper |
| Whether counterclaims alleging fraud/misrepresentation state viable claims | Haugrud: claims improperly assert corporate/entity harms as personal claims against Haugrud; no veil-piercing or standing shown | Craig: alleged direct misrepresentations and conduct by Haugrud inducing him to sign the purchase agreement and related deals; pleaded facts supporting deceit/unintentional misrep. | Reversed dismissal — counterclaims construed favorably show potential for proof of deceit/misrepresentation; legally sufficient under Rule 12(b)(6) |
| Whether Craig may assert setoff/counterclaim based on transactions involving their separate business entities | Haugrud: debts are not mutual in same legal capacity; setoff improper where claims are in representative vs individual capacities | Craig: transactions were structured to benefit Haugrud and harm Craig; seeks offset against breach claim | Court: did not decide on merits; noted setoff requires mutuality and that Craig may be able to prove a setoff on remand |
| Whether Rule 11 sanction against Craig’s counsel was proper | Haugrud: counterclaims lacked legal/ factual support; sanctions appropriate | Craig: counterclaims were legally cognizable; dismissal erroneous so sanction improper | Reversed — because dismissal of counterclaims was reversed, Rule 11 sanction was improperly imposed; remand for further proceedings |
Key Cases Cited
- Hokanson v. Zeigler, 900 N.W.2d 48 (N.D. 2017) (standard for summary judgment)
- Gaede v. Bertsch, 891 N.W.2d 760 (N.D. 2017) (standard for Rule 12(b)(6) dismissal)
- Collection Ctr., Inc. v. Bydal, 795 N.W.2d 667 (N.D. 2011) (setoff requires mutuality and same legal capacity)
- Monster Heavy Haulers, LLC v. Goliath Energy Servs., LLC, 883 N.W.2d 917 (N.D. 2016) (LLC and members are separate entities; members not generally personally liable)
- Wills v. Schroeder Aviation, Inc., 390 N.W.2d 544 (N.D. 1986) (an agent cannot evade personal liability for torts personally committed)