Coughlin Construction Co. v. Nu-Tec Industries, Inc.

Knecht,” reweigh not we do testimony 2008 ND 163 tо the give regard due and we the evidence CO., CONSTRUCTION COUGHLIN judge the witnesses’ opportunity court’s INC., Appellee, Plaintiff and Constr., H. Edward Schwartz credibility. ¶15, 6, 733. There support in this record is evidence INDUSTRIES, INC., Ronald NU-TEC give did not findings that Knecht court’s Rudy Balzer, Balzer, James Bal J. to Doeden and that signs letters zer, Appellants, Defendants and established the extrinsic evidence was not intended to document transfer ownership interest give Doeden an individually, Nordin, Nils Defendant. are not left with a signs and letters. We No. 20070311. the court made definite and firm conviction give finding Knecht did not a mistake Supreme Court of North Dakota. transfer Doeden and the property not to transfer intended document Sept. signs in the and letters Knecht’s interest findings those We conclude to Doeden. erroneous, and under those not an

findings, did not have owner- Doeden disputed property. in the We

ship interest did not clear- conclude

therefore

ly finding Stubstad did convert err property

Doeden’s

III our resolution of the Because of

[¶ 21] issue, necessary it is not

conversion argument about dam- Doeden’s

address attorney or fees.

ages

TV district court We affirm the

[¶ 22]

judgment. WALLE, VANDE GERALD W. BOHLMAN, S.J.,

C.J., MARY BRUCE MAKING, CAROL

MUEHLEN KAPSNER, DALE V.

RONNING

SANDSTROM, JJ., concur. E. The Honorable BRUCE S.J.,

BOHLMAN, sitting place J., CROTHERS, DANIEL J.

Honorable

disqualified. Hankla, McGee, Dobrovolny, P.

Collin Minot, N.D., for Dobrovolny, Backes & plaintiff appellee. Lillehaug, Maring A. Williams

Duane Office, N.D., Fargo, for defendants Law appellants. SANDSTROM, Justice. (“Nu- Industries, Inc. Balzer, Balzer,

Tec”), Rudy J. Ronald appeal judgment Balzеr James Coughlin awarding amended (“Coughlin”), Company, Inc. Construction costs, for damages, and fees They contract. breach of construction denying their an order appeal from also con- findings. We amended motion for damages court’s award of clude the district is not erroneous and the Coughlin court did used the 24-inch HDPE pipe piercing pulled err veil of and installed an addi- tional 300 feet of iron pipe. Nu-Tec. affirm. ductile We In July sued Nu- I damages Tec for on the basis theories of contract, breach of guarantee, negli- May Coughlin, On as the gence. Coughlin sought compensation for contractor, general entered into a contract installing the cost of the remainder of the City (cid:127)with the of Minot to construct line, 24-inch water it per- the work Underpass Project 16th Railroad Street equipment provided, formed and it and for for approximately Coughlin million. $3.1 acceleration costs incurred. Coughlin also Nu-Tec, accepted a from as a bid subcon- sought pierce corporate the veil of Nu- tractor, to install two replacement 600-foot Tec and hold its personally shareholders project water lines on the for approximate- liable. $99,000. ly plans specifications The and During trial, [¶ 5] bench Nu-Tec authorized the use directional drilling argued the pipe 24-inch became stuck be- install the new water lines with 20-inch cause of unanticipated soil conditions. high-density and 24-inch polyethylene Coughlin presented expert testimony that (“HDPE”) pipe. Although Nu-Tec was to the pipe became stuck because Nu-Tec Coughlin install the pipe, was responsible failed to add water pipe ballast to the and for purchasing pipe and fusing the pull tried to it through ground with together parties’ sections under the stan- under-powered machinery. The district agreement. dard Coughlin subcontract court found the opinion Coughlin’s ex- supplied pipe the HDPE in 50-foot sec- pеrt witness was persuasive more and tions, it single which fused into 600-foot ruled Nu-Tec had breached its subcon- pieces before began Nu-Tec installation. tract Coughlin with failing perform. began [¶ Nu-Tec ‍‌​‌​​​‌​​‌​​‌‌‌​​​​​​​‌‌‌‌‌‌​‌​​​​‌‌‌‌​​‌​‌​​​​​‍installing 3] the wa- The $119,675.85 Coughlin awarded 24, ter lines on June 2002. Nu-Tec suc- damages $31,446.15 fees, and in costs and cessfully installed the 20-inch HDPE wa- for a total plus inter- ter line pipe but problems encountered est. The court also ruled it appropri- was while attempting to install the 24-inch pierce ate to Nu-Tec, veil of pipe. On June the 24-inch pipe closely-held family corporation consisting approximately became stuck at one-half of Balzers, of the and held the jointly Balzers way through the pull. During 600-foot liable for judgment. The court denied month, the following Nu-Tec unsuccessful- Nu-Tec’s motion to amend the findings ly attempted to or install extract the 24- judgment. and inch pipe ground. from the Coughlin, ex- [¶ jurisdiction 6] district court had ercising rights its under the subcontract Const, VI, under 8, N.D. § art. agreement, notified Nu-Tec that it was § N.D.C.C. 27-05-06. The appeal of Nu- terminating employment and that Nu- Tec and the is timely Balzers under Tec obligated would to pay be the costs 4(a). N.D.R.App.P. juris- This Court has Coughlin incurred for installing the re- Const, VI, diction under §§ N.D. art. pipe. mainder the 24-inch Coughlin 6, § and N.D.C.C. 28-27-01. completed installation of the 24-inch water II

line with employees its own and equipment using open trench techniques construction and the argue Balzers pipe ductile iron couplers. fusion the district court erred аas matter of law Second, appellants’ impermis- it N.W.2d damages, because awarding recovery attorney is not the same attor appeal a double on sibly granted trial, 24- ney of the them at represented the installation who completing for appeal is limited to new counsel on pipe. inch counsel would have prior same issues that the Balzers ar Nu-Tec and Wiest, E.g., v. able raise. State been installing twice for paid gue Coughlin ¶ 6 2, 812; n. 2001 ND 632 N.W.2d it because received pipe feet of the 300 Greenwood, 738, 743 Klem v. 450 N.W.2d for com City of Minot payment (N.D.1990). Third, this Court does work, it was part pleting raised for the first time address new issues of its full amount damages for the awarded Mining River appeal. E.g., Coal Knife installa completing the expenses for extra 606, Neuberger, v. Co. it have tion, kept amount would (N.D.1991). example, For Robert Re paid work. otherwise ¶ 14, Co., Inc., Inv. 1998 ND Aircraft 32-03-36, § which lying on N.D.C.C. claimed the appellant person can recover “no part, states in in a repair damages for cost of tort amount damages for the breach greater amount by reduced the sal case should have been person could have obligation than the of an and vage engine, propeller, value of an thereof,” performance by the full gained to core. This declined address Court re Coughlin impermissibly they contend for the because a “reduction value issue $27,000 than it would have more ceived trial,” at and salvage sought wаs not perform Nu-Tec’s full through received “ that were questions not consider ‘[w]e do ance of the contract. and that presented not to the trial court the Balzers and ” [¶ 9] appeal.’ time on are raised for the first expressly acknowledge issue was not this Bender, ND (quoting Id. Messer v. 1997 court in the district any point raised at ¶ 291). 103, 10, The situation 564 N.W.2d damages contend “the but proceedings, other no different. As with this case is very by parties both framed ‘battle’ was trial, objections during a issues that аrise duty court had a to and the general terms” in the district must be raised damages to proper law on the correctly apply appellate to issues for preserve court those ar damages to the facts and measure of review. damages calculation. at a correct rive at- reject appellants’ We persuasive, not because argument This is the first time this issue for tempt to raise well-established it conflicts with several it. decline to addrеss appeal First, their appellate review. principles judges that district court argument implies correct arrive at obligated to Ill regardless input damages amount of argue the Balzers Nu-Tec and However, parties. objections by the to erroneously failed off- the district “engage who “are not ferrets”

judges for the value damages by set the record for evi unassisted searches They claim pipe. 24-inch the unused position.” litigant’s support to dence dam- duty mitigate to Coughlin, under its ¶ Noack, 2007 ND v. State pipe. the unused ages, should have sold Moreover, not review we do N.W.2d by the injured “A novo, person but apply de damages issue duty has wrongful acts another of review. clearly standard erroneous ¶ damages and Boeder, or minimize the mitigate 2007 ND v. E.g., Hanson ‘protect must himself if he can do so with selling that pipe? you Could have sold at trifling reasonable exertion or expense, that pipe to city, county, another or can delinquent recover from the party may someone who have needed 300 or not, such he only damages as could of plastic 350 feet pipe? ” effort, Boeder, reasonable have avoided.’ A I seriously doubt I could’ve ¶20, 8, 2007 ND 727 N.W.2d 280 (quoting pipe sold as water anyone. Estate, v. Lochthowe C.F. Peterson “A per choice between two ¶40, 21, 120). ND Whether a missible views conflicting is evidence good-faith party has made a effort miti- clearly Barth, erroneous.” Barth v. gate damages finding is a of fact that will ¶91, 13, 593 N.W.2d 359. con We be appeal only set aside on if it clearly clude the district court did not err de Larson, v. erroneous. Ruud 392 clining to offset the damage by award (N.D.1986). finding A of fact is $13,000 for Coughlin’s alleged failure to if erroneous it is induced an mitigate damages. law, erroneous view of the if there ‍‌​‌​​​‌​​‌​​‌‌‌​​​​​​​‌‌‌‌‌‌​‌​​​​‌‌‌‌​​‌​‌​​​​​‍is no it, if, to support evidence or after review of [¶ 15] Nu-Tec and the Balzers record, the entire we are left with a defi- also claim failed mitigate nite and firm conviction a mistake has damages it rejected because Nu-Tec’s al Olson, Thompson been made. 2006 ND leged offer to redrill the 24-inch water ¶54, 10, 711 N.W.2d 226. line. Coughlin contended that Nu-Tec did not propose any redrilling options, [¶ 13] Nu-Tec the Balzers were, options those any event, in rely on unfeasi testimony Ronald Balzer’s that in ble. Nu-Tec contended Coughlin July approximately simply 2002 300 feet 24- of rejected its plans workable inch for pipe completing HDPE could purchased be “for the 24-inch water Minot,” line. The freighted to district court Coughlin and found: made no to attempt sell the pipe. leftover

However, president the of Coughlin testi proposed [T]he “fixes” outlined in the fied the pipe could not be used on the preceding paragraph were never offi- project and had no value: cially to anyone communicated in au-

Q. [I]s there a market or thority was there a Coughlin at by anyone in author- market pipe for that to ity be sold to at be Nu-Tec. There may well have HDPE, used pipe as water or high pres- been some informal discussions about pipe, sure after it had been togeth- fused possibility the doing of things, these but er and then cut off and then it up cut does appear not that these discussions again? any resulted in proposals from definite Coughlin.... However, A. It to extremely would have been even hard (2) if these two “fixes” pipe sell that had been legitimately in the mar- official- ly to Coughlin, I communicated in ketplace. would’ve had to a time- tell the manner, ly persuaded truth that it cut Court is had been not and refused— that either of then, that was them obvious. And would have been the fact “the answer” problem. that to this had been stretched and there were some concerns about that. And it both As John and Alan Estvold fairly up by scratched the time it (the Field Engineer on project) this gotten had out yard. to the bone out, pointed there would have been little Q. your upon experience Based in the or no roоm for Nu-Tec to have drilled business, construction was there value entirely an new hole. Nu-Tec would

873 exist,’ in reality do and ‘there at least three holder not to have moved over have hole, inequitable if in (3) existing must be an result the acts west of the feet to the underground question corpo- are treated as those of the with the number of ”). in immedi- ration alone.’ already place facilities re-drill, there proposed of ate area factors to be con 20] Thе (3) extra three feet just wasn’t an whether sidered when court determines to accommodate a new soil undisturbed pierce corporate veil are set forth hole. Skwarok, v. Hilzendager 335 N.W.2d pipe be pulled As that suggestion Klemm, (N.D.1983), Jablonsky up” with and “married from the north (N.D.1985). Hilzendager, In N.W.2d ground, stuck pipe which was at we said: Haugen, John testimony Duane significant considered deter- [F]actors Alan Hugh Coughlin, O’Donnell disregard or not ‍‌​‌​​​‌​​‌​​‌‌‌​​​​​​​‌‌‌‌‌‌​‌​​​​‌‌‌‌​​‌​‌​​​​​‍to mining whether this Estvold convinces Court corporate entity includе: insufficient difficult, extremely would have been an capitalization of the purposes for the process time-consuming expensive corporate undertaking, failure ob- only marginal chance of which offered formalities, corporate nonpayment serve success. dividends, insolvency of the debtor findings court’s The district at corporation the time of the transac- Cough- clearly erroneous and establish not question, siphoning tion in funds mitigate damages. not fаil to lin did shareholder, nonfunction- dominant directors, ing other ab- conclude court’s award officers [¶ 17] We records, and the exis- damages erroneous. sence corporation merely as tence dealings. facade for individual Victoria IV Co., Co. v. Meriden Elevator Grain argue and the Balzers (Minn.1979). the law in misapplied district 564, veil. we add- corporate Jablonsky, Nu-Tec’s In 377 N.W.2d at piercing injustice, inequity that “an element of ed Although the officers present must or fundamental unfаirness be corporation generally are not directors of may the properly pierce before ordinary corpora of a hable for the debts corporate veil.” Chillemi, tion, 2007 ND Axtmann v. Intercept Corp., In ¶ 12, corporate the veil 740 N.W.2d ¶ (cita 180, 15, 741 2007 ND entity legal may pierced when the be omitted), explained: tions we convenience, justify public used to defeat establishing of the neces- fraud, In The burden protect or defend crime. wrong, Fin., corporаte LLC, sary piercing for elements Corp. v. Calima tercept ¶ asserting the 180, 15, 209; party on the see also veil rests ND heavily Hoot, Inc., Resolving claim. the issue is Inc. v. Wings, Red River (citation ¶ and, therefore, is within the fact-specific 751 N.W.2d 206 omitted) (“To doctrine, court. of district ego the alter sound discretion apply are findings pre- The court’s of fact unity of interest and ‘there must be such correct, re- be be and its sumed to will ownership corporation between the they if appeal only separate person versed equitable owner that the erroneous. corporation of the share- alities The district court made potential inability disput- collect a findings under each of the Hil- extensive ed receivable from Coughlin for work zendager-Jablonsky factors and found that performed on Project. the 16th St. piercing all factors favored the cor of the [¶ 23] The district court found that porate The court found there veil. was “Nu-Tec’s princiрals essentially failed to capitalization for purposes insufficient any corporate observe formalities” re- of the corporate undertaking: quired by law, North Dakota ch. N.D.C.C. appears While it to the Court that Nu- 10-19.1, by Nu-Tec’s by- capitalized at adequately Tec was laws. The court noted there were no cor- time it entered into the Standard Sub- porate records meetings of notices of of Agreement Coughlin, Contract shareholders, meetings notices of capital posi- evidence indicates that its directors, board meetings minutes of significantly in tion declined each of the shareholders, minutes of meetings of the (3) years following three Nu-Tec’s ill- directors, board of promissory notes for attempt fated to install the 24” water “so loans, called” agree- shareholder loan line on the Project 16th St. Nu- —and ments for loans, “so called” shareholder Tec’s most recent financial statements board of directors resolutions authorizing that it be wholly indicate will unable loans, shareholder board of directors reso- satisfy which will be en- lutions authorizing corporate borrowings tered against it this case. shareholders, board directors reso- presented The numbers to the Court setting lutions length of term for indicate that while capital Nu-Tec had loans, shareholder board of directors reso- $345,000.00 excess at the end of authorizing lutions repayment (the year the Standard Sub-Con- loans, shareholder loan documents be- into), tract figure was entered had corporation tween the aas borrower and $166,000.00 declined less than at the lenders, the shareholders as and board of (the year of 2004 end last for which directors or shareholders resolutions Nu-Tec). au- financial data was available thorizing payment of dividends. The These numbers show also that while “ noted, court further a single ‘not meeting cash on Nu-Tec had hand of over $230,000.00 [of shareholders or beginning at the doc- by directors] of 2004 umented in the past end that amount minutes decade or had ” dropped $9,690.00. more paltry to a rather Nu-Tec was in business.’ The Court finds that this financial down- court found nonpayment of turn corporation of the largely is attrib- dividends favored piercing the corporate operating utable not to losses sustained veil: by corporation since end of the but, Project, rather, 16th St. to the The evidence unequivocally indicates of shareholders’ actions withdrawing al- thаt paid Nu-Tec has only dividends on $165,000.00 most in (2) cash from the com- two occasions since the company pany becoming Coughlin’s aware of being came into in 1999, 1992—once in after claim. again in 2003. The 2003 distribu- $60,000.00): (i) The Court capital (totaling also notes that tions were the position (ii) of the company, largest as reflected in in company history; were statements, its financial does at not take made a time when Nu-Tec facing was into potential account its liability to a dаmage substantial Cough- claim from claim, or, on this a corollary, as lin in relation to Nu-Tec’s work on the loan) (on (iii) a and, payment made in interest shareholder were Project; 16th St. 31, So, De- had zero on December from company in which year a revenue, 2002, through of ($0.00) reported significant cember of October ($20,263.00) experiencing of and was Ronald Balzer received total loss $124,518.00 diminishing capital. the com- Nu-Tec—and a to- pany’s other shareholders receivеd of in the face surprisingly Perhaps $39,000.00” “just this information, during tal of over Nu- negative financial this time frame —with all of these transac- any produce written was unable to Tec place Nu-Tec having its tions taken showing that board documentation after notice required (by put Coughlin’s had been on had made the directors law) company against connection with claim determination Project. forward St. obligations going its the 16th could meet were made. if these distributions being were All the while thеse funds “is es- found that Nu-Tec The court also funneled from Nu-Tec its sharehold- Balzer, sentially pay ers, and unable insolvent Ronald Nu-Tee’s primarily against reasonably be entered will should principals which knew—or (i) currently corporation because “Nu-Tec this case” have known—that: estate, very little equipment no experiencing significant owns real financial was posi- $58,935.00 (i.e., its cash few ‘hard’ assets—and net loss before losses 2002; $20,263.00 2003; and, of what it was before only tion a shadow is taxes (ii) (i.e., 2004); of the ‘stuck’ saga $128,577.00 the corpora- this situation deteriorating pipe) position came about.” cash tion’s (i.e., had in cash at the analyzed in detail the The $168,623.00 2002; end of at end siphoning by the dominant share- of funds 2004); 2003; and, $9,690.00at the end of holder: (iii) and, corporation’s assets that Ronald disagreement There is no diminishing. Balzer were Ronald equity sharehold- Balzer Nu-Tec’s dominant that he has “no idea” as also testified er. Nu-Tec, and present position cash that, from De- The evidence indicates paid-in no further stated that additional October of through cember company put been into the capital has Nu-Tec’s received shareholders original capitalization. since $164,000.00 from approximately total of bonuses, in the form company found other officers The court dividends, of shareholder repayment non- corporation of the were directors of interest share- payment loans and the lack of functioning оn the basis of total, Ronald Bal- this documentation, holder loans. Of Balzer’s written Ronald far, received, the lion’s share. zer di- “uneertain[ty]” the officers and who nearly were, Balzer’s testimony, and Ronald own Ronald rectors According his (i) $27,000.00 corporation. of the exclusive control Balzer received: very has maintained $60,000.00 in court found “Nu-Tec dividends which were dis- (ii) $20,000.00 way corporate the records over 2003; a in in bonus little tributed (iii) notes, agree- loan 2002; $52,000.00 including the no 31, years,” in on December borrowing ments, security agreements, of a loan on De- repayment shareholder (iv) resolutions, 11, 2002; $20,000.00 evidence of indebted- in “or other cember re- purported these loan to substantiate of a on De- ness payment shareholder ac- and, (v) loans,” any 1, $5,518.00 and no “written record 2002; a cember 876

tion Nu-Tec’s Board taken of Directors which the claim arises a consensu ¶ $60,000.00 authorizing transaction, Axtmann, distribution of 14; the al see at Jab 2003, likely one of the worst lonsky, dividends 1, 377 at n. underсapi- N.W.2d years company experi- the ever revenue talization a remains relevant factor in a court found enced.” The that “Nu-Tec is contract case. See Fontana v. TLD Build (and been) appears always has it alter ers, Inc., 491, Ill.App.3d 298 Ill.Dec. ego of Balzer” because Ronald there was (2005). 840 N.E.2d 779-80 It is any no that “hint other shareholders difficult imagine to how can be predi error actively running were involved in th[e] on cated a court’s placing emphasis undue company.” Finally, the court ‍‌​‌​​​‌​​‌​​‌‌‌​​​​​​​‌‌‌‌‌‌​‌​​​​‌‌‌‌​​‌​‌​​​​​‍found “it any on single factor it when has found all unfair, unjust would be inequitable piercing nine factors favor corporate allow shareholders hide Nu-Tec’s be- veil. hind corporate shield avoid re- argue [¶29] and the Balzers sponsibility payment any judgment despite that the district court’s detailed against entered this case.” findings, merely the court erred it because Contrary assertions inability focused on the of Nu-Tec to satis- Balzers, of Nu-Tec and the the district fy judgment when it was In entered. findings supported by court’s the evi ¶ Axtmann, 179, 16, 2007 ND Although dence. Nu-Tec and the Balzers 838, a majority upheld of this Court siphoning corpo contend there was no pierce district court’s decision to the cor- attempt

rate funds to attribute the porate veil when the district court found precipitous decline in the financial condi three factors supported piercing and the tion of Nu-Tec to “bad luck” with other corporation “was insolvent and could not jobs Florida, undertaken in the district pay its debts at the time the Axtmanns’ court find explanations did not these credi years and for several before The credibility ble. district court decides judgment.” The same is true here. trial, issues in a bench and we will not findings district court’s de- credibility appeal. reassess B.J. Kadr pict a dominant corpora- shareholder a mas, Inc., LLG, v. Oxbow Energy, who, through tion the issuance of dividends ¶ 7, 270. N.W.2d and bonuses and the repayment of undocu- disagree with [¶ We also con- “loans,” mented attempted to bleed the that the district misapplied tention corporation of assets so would not be Nu-Tech and argue law. the Balzers to satisfy able corporate liability. known placed the court emphasis undue on insuf- We conclude the district court’s decision to capitalization, ficient because Nu-Tec was pierce is veil adequately capitalized when it entered into erroneous. agreement subcontract work, performed and because this V than contract rather a tort action. [¶ 31] The judgment, judg- amended However, is a continuing obligation there ment, and order are affirmed. provide adequate risk capital from in- corporation throughout corporation’s ¶ Axtmann,

existence. 2007 ND WALLE, 32] GERALD W. VANDE 838; Jablonsky, C.J., BOHLMAN, S.J., 377 N.W.2d at BRUCE E. DALE Furthermore, although undercapital- SANDSTROM, V. and CAROL significant ization is less KAPSNER, contract case RONNING JJ. BRUCE E. Honorable S.J.,

BOHLMAN, sitting place of

MAKING, J., disqualified. Justice,

CROTHERS, concurring spe-

cially. results this agree with the I sup of the rationale and most

case separately I write

porting these results. this my disagreement with

to reiterate “undercapitaliza application

Court’s pierc veil analysis

tion” used Chillemi, See Axtmann v.

ing cases. (Croth ¶¶ 40-41,

ND 740 N.W.2d 838 J., dissenting

ers, part concurring however, Here, overwhelming evi

part). corpo Nu-Tec’s supports piercing

dence factors, remaining veil under the

rate undercapitalization of its

any consideration superfluous. Daniel Crothers J. individually ONGSTAD, and as

Astrid Family Trust, Ongstad

Trustee of and all of themselves behalf ‍‌​‌​​​‌​​‌​​‌‌‌​​​​​​​‌‌‌‌‌‌​‌​​​​‌‌‌‌​​‌​‌​​​​​‍similarly situated, Plaintiffs

others Appellants CO., & Defendant

PIPER JAFFRAY Appellee.

No. 20070260.

Supreme Court of North Dakota.

Sept.

Case Details

Case Name: Coughlin Construction Co. v. Nu-Tec Industries, Inc.

Court Name: North Dakota Supreme Court

Date Published: Sep 4, 2008

Citation: 755 N.W.2d 867

Docket Number: 20070311

Court Abbreviation: N.D.