SNAPS Holding Company v. Leach, 2017 ND 140

Background

In 2011 SNAPS purchased IDA of Moorhead stock from Jim Leach and other shareholders; the stock purchase agreement allocated responsibility for the pending Reed Danuser litigation: SNAPS would pay the first $100,000, sellers would pay any excess.
SNAPS executed a $770,000 promissory note to sellers as part of the purchase; SNAPS later claimed $277,500 remained due on the note.
A 2012 North Dakota judgment in the Danuser suit awarded Danuser over $820,000 against IDA and Jim Leach; SNAPS paid Danuser more than $619,000.
An Arizona court later held SNAPS was the alter ego of IDA and ruled SNAPS could not domesticate or enforce the Danuser judgment against Jim Leach in Arizona, citing prohibition on contribution between intentional joint tortfeasors.
SNAPS sued the sellers in North Dakota to enforce the stock purchase agreement indemnity; sellers counterclaimed SNAPS breached the promissory note.
The district court: (a) found the indemnity language unambiguous and the sellers liable for amounts over $100,000, (b) found Jim had authority to sign for other shareholders, (c) dismissed SNAPS’ claims against Jim and Steve on res judicata grounds based on the Arizona ruling, and (d) allowed SNAPS a recoupment credit for unpaid promissory-note balance when calculating damages against Elizabeth Leach.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the stock purchase agreement required sellers to reimburse SNAPS for Danuser payments above $100,000	The agreement unambiguously makes sellers responsible for amounts exceeding $100,000	(Elizabeth) contended the agreement did not create an indemnity obligation to reimburse sellers	Court: Agreement unambiguous; sellers must reimburse amounts paid over $100,000
Whether Jim Leach had authority to bind Elizabeth and other sellers when signing the agreement	SNAPS: Jim had actual authority based on shareholder/board authorization and meeting minutes	Elizabeth: She did not consent to the indemnity term and any authority to bind her should be in writing under the statute of frauds	Court: Finding of agency not clearly erroneous; Jim had authority to do what was necessary to sell the stock; no written authorization required
Whether the Arizona judgment precludes SNAPS’ North Dakota claims (res judicata)	SNAPS: Arizona ruling addressed enforcement of the Danuser judgment in Arizona and did not resolve contract claims in ND	Jim/Steve: Arizona decision barred relitigation; stock purchase agreement could have been raised there	Court: Res judicata does not bar SNAPS’ ND contract claims against Jim and Steve; reversed district court’s dismissal
Whether SNAPS could recoup its unpaid promissory-note obligation against its damages claim	SNAPS: Its cessation of note payments was defensive recoupment arising from the same transaction	Sellers: SNAPS breached note and cannot recoup	Court: Recoupment is proper (defensive, same-transaction) and district court correctly reduced SNAPS’ recovery by the unpaid note balance

Key Cases Cited

Bendish v. Castillo, 812 N.W.2d 398 (N.D. 2012) (contract interpretation reviewed de novo; give effect to parties’ mutual intent)
Minex Resources, Inc. v. Morland, 467 N.W.2d 691 (N.D. 1991) (describes equitable doctrine of recoupment: defensive, same-transaction reduction of plaintiff’s recovery)
Grinnell Mut. Reinsurance Co. v. Center Mut. Ins. Co., 658 N.W.2d 363 (N.D. 2003) (indemnity obligations may arise expressly or by implication; need not be written)
Johnson v. Haugland, 303 N.W.2d 533 (N.D. 1981) (indemnity may be implied; need not be an express written contract)
Lagerquist v. Stergo, 752 N.W.2d 168 (N.D. 2008) (agency findings are factual and reviewed for clear error)
Lucas v. Porter, 755 N.W.2d 88 (N.D. 2008) (res judicata bars relitigation of claims or claims that could have been raised between same parties or their privies)
Riverwood Commercial Park, L.L.C. v. Standard Oil Co., Inc., 729 N.W.2d 101 (N.D. 2007) (further discussion of claim preclusion and its scope)