Watts v. Magic 2 x 52 Management, Inc.
816 N.W.2d 770
N.D.2012Background
- In 2007, Limited Partners filed a derivative action on behalf of Magic Partnership against Magic Corporation, B K Properties, Herslip Construction, and Kenneth Herslip over Denny’s restaurant development in Minot, ND.
- Limited Partners sought removal of Magic Corporation as general partner and damages for fiduciary breach, plus piercing the corporate veil and punitive damages against Herslip and others.
- District court after a bench trial removed Magic Corporation as GP, awarded damages against Magic Corporation, Herslip Construction, and B K Properties, and denied punitive damages and veil piercing.
- May 2010 amended judgment awarded specified sums and costs; no party appealed the May 2010 judgment.
- June 2010 Herslip Construction and Magic Corporation filed for Chapter 7 bankruptcy; January 2011 Limited Partners filed a post-judgment motion to pierce the veil and seek punitive damages; district court denied.
- Limited Partners appealed from the district court’s denial of post-judgment relief and contends the court should pierce the veil and award punitive damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post-judgment piercing of the corporate veil and punitive damages were available without Rule 59/60 relief. | Limited Partners argue ND law supports post-judgment veil piercing and punitive damages. | District court lacked authority to revisit final judgment without Rule 59/60 relief. | No; reopening the judgment under Rule 59/60 was required. |
| Whether ND law (Chapter 13-02.1) supports post-judgment veil piercing for fraudulent transfers. | Limited Partners rely on 13-02.1 to reach personal liability for transfers. | Remedies under 13-02.1 are available only against a transfer or obligation, not to hold a shareholder personally liable in this context. | Not applicable to the post-judgment relief sought. |
| Whether Axtmann v. Chillemi and Hamilton v. Hamilton authorize post-judgment veil piercing. | Axtmann/Hamilton support post-judgment relief to pierce the veil. | These cases are distinguishable and do not authorize such relief in this action. | Distinguishable; does not authorize post-judgment veil piercing here. |
| Whether bankruptcy stay affected the post-judgment request. | Argues no stay issue impedes post-judgment relief; relief sought is independent of bankruptcy. | Automatic stay could impact proceedings against debtors in bankruptcy. | Unnecessary to address stay given denial of relief; stay discussed but not decisive. |
Key Cases Cited
- Coughlin Constr., Co., Inc. v. Nu-Tec Indus., Inc., 2008 ND 163 (ND 2008) (veil-piercing factors; burden on claimant; fact-specific review)
- Axtmann v. Chillemi, 2007 ND 179 (ND 2007) (post-judgment veil piercing distinguished; separate action)
- Hamilton v. Hamilton, 410 N.W.2d 508 (ND 1987) (equitable relief from judgment under 60(b) distinguished)
- Jablonsky v. Klemm, 377 N.W.2d 560 (ND 1985) (principles of piercing corporate veil; unfair outcomes)
- Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509 (Minn. 1979) (significant factors for piercing corporate veil)
- Intercept Corp. v. Calima Fin., LLC, 2007 ND 180 (ND 2007) (standard of review for veil-piercing findings; deference to district court)
- Carlson v. Carlson, 2011 ND 168 (ND 2011) (fraudulent transfers under 13-02.1; creditor definition; remedies under act)
- Nerland Oil, Inc. v. Nerland, 2000 ND 220 (ND 2000) (automatic stay scope; stays actions against debtors vs. non-debtors in unusual circumstances)
- Production Credit Ass’n v. Klein, 385 N.W.2d 485 (ND 1986) (automatic stay extends to actions against debtor’s property)