946 N.W.2d 728
N.D.2020Background
- In 2010 McCormick and Terrance (Terry) Fredericks formed Native Energy Construction, LLC (Fredericks 51%, McCormick 49%); McCormick and Northern Improvement provided management services for 5% of Native Energy’s gross revenues.
- Fredericks executed a 2014 purchase agreement to buy McCormick’s interest but did not close; Native Energy was involuntarily dissolved in 2015.
- McCormick and Northern Improvement sued Fredericks (2016) for breaches of contract and fiduciary duty, conversion, improper distributions and related claims; Fredericks counterclaimed that the 5% management fee breached fiduciary duty and sought judicial winding up of Native Energy.
- The district court granted partial summary judgment for McCormick/Northern Improvement on equipment purchase and certain payments, ordered Fredericks to make specified payments, and later a jury found Fredericks breached fiduciary duties and committed fraud, awarding compensatory and exemplary damages.
- Fredericks appealed multiple rulings (jurisdiction, jury instructions, evidentiary rulings, summary judgment portions, disqualification of counsel); McCormick cross-appealed the denial of judicial supervision for winding up Native Energy.
- The Supreme Court affirmed most rulings, reversed the portion of summary judgment ordering Fredericks to pay McCormick directly for disputed distributions (remanding to determine amount and proper remedy), and reversed/remanded the denial of judicially supervised winding up for further explanation/proceedings.
Issues
| Issue | Plaintiff's Argument (McCormick) | Defendant's Argument (Fredericks) | Held |
|---|---|---|---|
| Subject-matter jurisdiction (tribal court vs state court) | District court has jurisdiction over claims among members of a ND LLC | Management-fee contract formed on Fort Berthold Reservation and tribal court has jurisdiction | District court had jurisdiction; Montana framework and entity formed under state law control |
| Jury instructions on contract law for 5% management fee | Instructions on fiduciary duties sufficient; core dispute fiduciary, not contract | Contract instructions required because fee was an oral agreement and statute of frauds issue | Court did not err in refusing separate contract instructions; instructions on LLC fiduciary duties adequate |
| Sequestration — allowing corporate representatives of McCormick and Northern Improvement to remain | Representatives permitted by rule 615(b) | Representatives should be sequestered because entities effectively same and could hear testimony | Allowing designated corporate reps was not abuse of discretion under N.D.R.Ev. 615(b) |
| Partial summary judgment — distributions Fredericks received and remedy | SJ appropriate as to undisputed distributions and payment to McCormick | Amount disputed; McCormick should be credited via Native Energy capital account or treated as creditor remedy, not direct payment by Fredericks | Reversed as to the paragraph ordering Fredericks to pay McCormick $49,795.76; amount of distributions is a genuine factual issue and remedy must reflect LLC-distribution-creditor framework; other SJ rulings (equipment, $203,983, $44,400) affirmed |
| Disqualification of Vogel law firm (conflict) | Vogel did not represent Native Energy or Fredericks on matters substantially related; no disqualification needed | Vogel previously reviewed master service agreements for Native Energy and Fredericks, creating a substantial-relationship conflict | District court did not abuse discretion in refusing to disqualify Vogel; no substantial relationship shown |
| Exemplary damages (basis and admission of revised SJ order in evidence) | Exemplary award supported by jury finding of actual/constructive fraud; admission of SJ order proper | Exemplary award erroneous due to alleged earlier errors; SJ order should not have been admitted | Exemplary damages upheld; admission of revised partial SJ order not objected to properly at trial, and award stands |
| Judicial supervision of winding up (denial of McCormick’s motion) | Good cause shown; court should have explained denial and possibly ordered supervised winding up | McCormick failed to satisfy statutory notice/creditor requirements | Denial reversed and remanded for further proceedings because district court gave no explanation whether good cause was shown |
Key Cases Cited
- Montana v. United States, 450 U.S. 544 (1981) (framework for tribal court jurisdiction and exceptions for consensual relationships)
- Arrow Midstream Holdings, LLC v. 3 Bears Const., LLC, 2015 ND 302, 873 N.W.2d 16 (state-law entity formation, not tribal status, controls jurisdiction analysis)
- Schweitzer v. Miller, 2020 ND 79, 941 N.W.2d 571 (de novo review of subject-matter jurisdiction when facts undisputed)
- Tidd v. Kroshus, 2015 ND 248, 870 N.W.2d 181 (standards for jury instructions: must fairly advise jury of applicable law)
- Hildenbrand v. Capital RV Ctr., Inc., 2011 ND 37, 794 N.W.2d 733 (court need not use the exact language requested if instructions correctly state law)
- Wanner, 2010 ND 121, 784 N.W.2d 143 (abuse-of-discretion standard for witness sequestration decisions)
- Krebsbach v. Trinity Hosps., Inc., 2020 ND 24, 938 N.W.2d 133 (summary judgment standard; view facts favoring nonmoving party)
- May v. Sprynczynatyk, 2005 ND 76, 695 N.W.2d 196 (preservation of evidentiary objections required to challenge admission on appeal)
- Erickson v. Erickson, 2010 ND 86, 782 N.W.2d 346 (limitations on exemplary damages and relationship to fraud theories)
- Sargent Cty. Bank v. Wentworth, 500 N.W.2d 862 (N.D. 1993) (abuse-of-discretion review for disqualification of counsel)