Larson v. Midland Hospital Supply, Inc.
2016 ND 214
| N.D. | 2016Background
- Midland Hospital Supply was a family‑owned ND corporation; Richard Larson was majority shareholder and president; Stephen Larson and two sisters were minority shareholders.
- A buy‑sell agreement required shareholders offering shares to first offer them pro‑rata to other shareholders or the corporation.
- In 1999 Richard told minorities the company would purchase their shares; Richard personally purchased the sisters’ shares instead; Stephen declined to sell.
- Midland loaned Richard money to buy the sisters’ shares; financial statements and K‑1s later reflected Richard’s increased shareholdings while Stephen’s percentage remained at ~11%.
- Midland sold assets in 2007 to Kreisers; Midland paid liabilities, ProHealth’s outstanding receivable was repaid by Richard, and remaining liquidation proceeds (and interest) were distributed pro rata; Stephen received ~11.0465% of distributions and interest.
- Stephen sued in 2013/2014 alleging breach of fiduciary duty, breach of buy‑sell agreement, self‑dealing, improper salary, conversion, unjust enrichment, and related claims; after a bench trial the court dismissed the complaint with prejudice, finding most claims time‑barred and that Stephen was paid for his interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether claims based on the sisters’ share sale and alleged misallocation of ownership accrued and are barred by the 6‑year statute of limitations | Larson: discovery rule tolled accrual until 2007 sale; fiduciary relationship and trust in Richard excused earlier inquiry | Midland/Richard: discovery rule triggers when plaintiff had facts that would put reasonable person on inquiry (spring 2000 financials and K‑1s) | Court: accrual occurred by spring 2000; claims related to ownership interest are time‑barred |
| Whether equitable estoppel prevents assertion of the statute of limitations | Larson: Richard concealed facts and breached fiduciary duty; plaintiff lacked means to discover truth and relied on Richard | Midland/Richard: Stephen received financials and had means to discover the truth; no concealment that prevented inquiry | Court: estoppel not proven — Stephen had knowledge/means to learn the truth by 2000 |
| Whether sales to ProHealth at ~5% markup constituted breach of fiduciary duty/self‑dealing | Larson: ProHealth was not a preferred customer; Midland’s typical markup was much higher (20–26%), so discounts and unpaid receivables harmed Midland | Midland/Richard: ProHealth bought ~half its inventory, incurred no commission or freight costs, accepted substitutions and direct ordering; lower markup reasonable under circumstances | Court: factual findings that 5% markup was not unreasonable are supported; no breach proven |
| Whether Richard’s salary from Midland was excessive given time spent on ProHealth | Larson: Richard was paid large aggregate salary and devoted significant time to ProHealth; salary effectively overcompensated by work split | Midland/Richard: salary comparable to market for size; Richard testified he spent little time on ProHealth; experts supported reasonableness | Court: trial court crediting defendants’ evidence was not clearly erroneous; salary not excessive |
| Whether Stephen was fully compensated in the 2007 liquidation (including interest on ProHealth receivable) | Larson: he was shortchanged; did not receive full share of funds/interest | Midland/Richard: proceeds used to pay liabilities; Richard paid ProHealth receivable and interest; accountants calculated interest and Stephen received his pro rata share | Court: record supports finding Stephen received 11.046512% of distributions and his share of interest; he was paid |
Key Cases Cited
- Serv. Oil, Inc. v. Gjestvang, 861 N.W.2d 490 (N.D. 2015) (bench‑trial findings of fact reviewed for clear error; conclusions of law fully reviewable)
- Brash v. Gulleson, 835 N.W.2d 798 (N.D. 2013) (standard for appellate review of bench trials and credibility findings)
- Wells v. First Am. Bank W., 598 N.W.2d 834 (N.D. 1999) (application of discovery rule to toll accrual of claims)
- Jones v. Barnett, 619 N.W.2d 490 (N.D. 2000) (notice of facts prompting inquiry equates to knowledge for accrual; plaintiff must promptly pursue legal rights)
- J. Geils Band Emp. Ben. Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245 (1st Cir. 1996) (even with fiduciary relationship, plaintiffs must exercise reasonable diligence once storm warnings exist)
- Hayden v. Medcenter One, Inc., 828 N.W.2d 775 (N.D. 2013) (elements of equitable estoppel relevant to tolling limitations)