McColl Farms, LLC v. Pflaum
2013 ND 169
| N.D. | 2013Background
- McColl Farms, LLC (majority owner Cynthia; minority members Aaron McColl and Katie Watson) and Aaron sued Lisa Pflaum in Dec 2011, alleging she (alone or with Aaron) converted/misappropriated >$650,000 from company accounts between 2007–2009. Aaron was an employee and divorced Pflaum in 2009; he died during proceedings (May 2012 notice of death).
- Pflaum moved to dismiss under Rule 12(b)(6) (or alternatively for summary judgment) and sought Rule 11 sanctions; plaintiffs sought partial summary judgment with an attorney affidavit attaching bank records.
- The district court struck the attorney’s affidavit for lack of personal knowledge, excluded Aaron’s affidavit and related hearsay in Cynthia’s affidavit (not statements against interest), dismissed nearly all claims (unjust enrichment, misappropriation, racketeering) on 12(b)(6) and later granted summary judgment on conversion, and awarded $14,500 in attorney fees under Rule 11. Final judgment entered Dec 10, 2012.
- McColl Farms appealed; this Court reviews 12(b)(6) de novo on pleadings and summary-judgment issues de novo on the record; sanctions reviewed for abuse of discretion.
- Supreme Court affirmed dismissal of misappropriation, racketeering, and conversion claims; reversed dismissal of unjust enrichment and reversed the sanctions award; remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether action or sanctions as to Aaron McColl could proceed after his death / standing to challenge those rulings | McColl Farms argued the action did not continue against Aaron after death without substitution and sanctions against his estate were improper | Pflaum argued court could continue and impose sanctions; contested appeal status | McColl Farms lacked standing to challenge rulings as to Aaron; Aaron/estate did not appeal, so those rulings as to him were not before the Court |
| Whether unjust enrichment claim should be dismissed under Rule 12(b)(6) because an adequate legal remedy (conversion) exists | McColl Farms: unjust enrichment may proceed in the alternative; conversion might fail so equity should remain available | Pflaum: unjust enrichment unavailable because remedy at law (conversion) exists; dismissal warranted | Reversed: dismissal of unjust enrichment was error — the claim could potentially be proven and should not be dismissed solely because a legal remedy was pleaded |
| Whether misappropriation and racketeering claims were adequately pleaded | McColl Farms: pleaded misappropriation and racketeering based on alleged theft, forgery, pattern of acts | Pflaum: misappropriation theory is redundant/limited to trade-secret context; racketeering lacked particularity, no convictions or probable cause alleged | Affirmed dismissal of misappropriation (statutory/limited context) and racketeering (conclusory pleading; no prior convictions or probable-cause allegations; needs predicate criminal acts pleaded with particularity) |
| Whether district court properly granted summary judgment on conversion by excluding key affidavits/bank records and hearsay | McColl Farms: attorney’s affidavit authenticated records; Aaron’s affidavit and Cynthia’s recounting were admissible (statements against interest or residual exception); genuine fact issues exist | Pflaum: attorney’s affidavit lacked personal knowledge; Aaron’s statements about Pflaum were hearsay not admissible under 804(b)(3) or 807; plaintiffs offered no admissible evidence | Affirmed summary judgment: court properly excluded attorney affidavit (no personal knowledge), properly excluded Aaron’s and Cynthia’s hearsay statements (not statements against interest re: Pflaum; residual exception inapplicable), and plaintiffs presented no admissible evidence creating a material factual dispute |
| Whether Rule 11 sanctions were proper | McColl Farms: claims had legal basis (unjust enrichment alternative) and evidentiary support would exist after discovery | Pflaum: suit was collateral attack on divorce and lacked factual/legal basis; sanctions appropriate | Reversed sanctions award: because unjust enrichment survives, imposing sanctions was an abuse of discretion; court may reconsider on remand |
Key Cases Cited
- Moseng v. Frey, 822 N.W.2d 464 (construing complaints on Rule 12(b)(6); potential for proof standard)
- Ritter, Laber & Assoc., Inc. v. Koch Oil, Inc., 680 N.W.2d 634 (defines unjust enrichment elements)
- Johnson v. Bronson, 830 N.W.2d 595 (summary judgment standard; de novo review)
- Perius v. Nodak Mut. Ins. Co., 782 N.W.2d 355 (affidavits for summary judgment must be based on personal knowledge)
- Knutson v. County of Barnes, 642 N.W.2d 910 (racketeering/racketeering pleading particularity akin to fraud)
- Rolin Mfg., Inc. v. Mosbrucker, 544 N.W.2d 132 (civil RICO/racketeering requires predicate criminal acts shown by conviction or probable cause)