Wayne Munson, Plaintiff and Appellant v. Indigo Acquisition Holdings, LLC, Akoya Capital, LLC, and Denny Chandler, Defendants and Appellees
No. 20190027
IN THE SUPREME COURT STATE OF NORTH DAKOTA
July 30, 2019
2019 ND
VandeWalle, Chief Justice.
Appeal from the District Court of Burleigh County, South Central Judicial District, the Honorable James S. Hill, Judge.
AFFIRMED.
Opinion of the Court by VandeWalle, Chief Justice.
Chad C.
Jason R. Asmus (argued) and Charles B. Rogers (on brief), Minneapolis, MN, for defendants and appellees.
Munson v. Indigo Acquisition Holdings, LLC
No. 20190027
VandeWalle, Chief Justice.
[¶1] Wayne Munson appealed from a district court judgment granting Indigo Acquisition Holdings’ (IAH) motion for judgment on the pleadings. We conclude that the transaction at issue is exempt under the North Dakota Securities Act. We affirm.
I
[¶2] In 2009, Munson and other employees of Indigo Signworks entered into an agreement to participate in a Stock Appreciation Rights (SAR) program rather than receive bonuses. Under the program, Munson would be paid for his SARs if Indigo Signworks was sold. In 2016, IAH, a Delaware corporation, purchased Indigo Signworks. Munson and other employees participating in the SAR program were paid for their SARs and had the opportunity to reinvest in IAH’s membership units. On October 28, 2016, Munson purchased 12,500 Class A Units of IAH. In July 2018, Munson left his employment at Indigo Signworks to begin a competing sign company. IAH alleged this new business violated Munson’s obligations under IAH’s Amended LLC Agreement and filed suit in Delaware.
[¶3] In September 2018, Munson served IAH with a complaint seeking to void his purchase of the IAH Units. Munson argued the IAH Units he purchased are unexempt, unregistered securities under the North Dakota Securities Act. On October 1, IAH served their answer on Munson via U.S. Mail. At the time of IAH’s answer, Munson had not yet filed the pleadings. After Munson filed the pleadings, IAH again served Munson via U.S. Mail on November 9. The district court found this paper service appropriate because Munson’s counsel was not enrolled as a service contact for Munson under Odyssey, North Dakota’s electronic service system.
[¶4] Accompanying IAH’s November answer was a motion for judgment on pleadings pursuant to
[¶5] On appeal, Munson argues his purchase of IAH Units is not exempt under the North Dakota Securities Act; that IAH did not provide proper service under
II
[¶6] A party may move for judgment on the pleadings under
[¶7] Summary judgment under
[¶8] In this case, materials outside of the pleadings, including IAH’s answer and attached exhibits, were presented to and not excluded by the district court. Because the court considered materials outside of the pleadings, the motion must be treated as one for summary judgment under
[¶9] Section
Any security issued in connection with an employees’ stock purchase, savings, option, profit-sharing, pension, or similar employees’ benefit plan, including any securities, plan interests, and guarantees issued under a compensatory benefit plan or compensation contract, contained in a record, established by the issuer . . . for the participation of their employees . . . .
[¶10] In 2005, the legislature updated the North Dakota Securities Act “to improve uniformity” with the 2002 Uniform Securities Act. Senate Industry, Business and Labor Committee, 2005 N.D. Sess. Laws ch. 97 (H.B. 1176) (March 9, 2005 Testimony of Karen Tyler, ND Securities Commissioner). The 2005 amendments added “including any securities, plan interests, and guarantees issued under a compensatory benefit plan or compensation contract, contained in a record, established by the issuer, its parents, its majority-owned subsidiaries, or the majority owned subsidiaries of the issuer’s parent for the participation of their employment” to
[¶11] Other North Dakota statutes, as well as the 2002 Uniform Securities Act, use additional language to specify action that must be taken for a record to satisfy requirements. See
[¶12] In its decision, the court concluded that “by his own admission Plaintiff Munson has established the ‘record’ of ownership envisioned by
[¶13] While we do not consider the parties’ agreement that a transaction occurred or Munson’s complaint sufficient to satisfy the record requirement of
[¶14] Because the Stock Purchase Agreement served as a record of the transaction, the district court did not err in finding Munson’s purchase of IAH Units exempt under
III
[¶15] Munson argues the district court abused its discretion in finding good cause for IAH’s service by U.S. Mail rather than electronically through the Odyssey system.
[¶16]
[¶17] Here, the district court waived IAH’s service by U.S. Mail because Munson’s counsel failed to designate himself as a service contact in the Odyssey system. The court stated:
It is incumbent upon an attorney of record to ensure that the Odyssey system is properly updated so that he or
she is designated as a service contact for a given case. . . . Plaintiff cannot, by his own failure, seek to take advantage of Defendants’ inability to accomplish electronic service via the Odyssey system.
The court also found Munson’s counsel was served twice via U.S. Mail and so suffered no prejudice from the lack of electronic filing. Based on the record, the court did not abuse its discretion in finding good cause for IAH’s service by U.S. Mail rather than electronic service.
IV
[¶18] Munson argues the district court committed reversible error by not allowing him to amend his complaint. However, the record does not indicate Munson made a motion to amend his complaint. The only statement addressing the issue is the court’s memorandum stating that “[w]ithin his argument at the time of the hearing Plaintiff Munson requested that should the Court be inclined to grant the motion for judgment on the pleadings that he be granted the opportunity to amend his Complaint.” The court stated it would “deny an appropriate motion based upon a theoretical and unmade motion to amend.”
[¶19] “Under
[¶20] Our case law determines whether an amendment is futile or not based on the viability of the added claim. See Darby v. Swenson Inc., 2009 ND 103, ¶¶ 12-13, 767 N.W.2d 147. If leave to amend is not sought until after a summary judgment motion has been docketed, the proposed amendment must be not only theoretically viable but also solidly grounded in the record. Johnson v. Hovland, 2011 ND 64, ¶ 9, 795 N.W.2d 294. In that instance, an amendment is properly classified as futile unless the allegations of the proposed amended complaint are supported by substantial evidence. Id. For an effective appeal, the issue must have been raised in the district court so the court could rule on it. Ruud v. Frandson, 2005 ND 174, ¶ 10, 704 N.W.2d 852. We have previously determined that a court is not obligated to consider a conditional motion that is not actually made. See Frank v. Daimler-Benz, A.G., Stuttgart, West Germany, 226 N.W.2d 143, 146 (N.D. 1975).
[¶21] In this case, Munson offered “no indication of what amendments he would propose to make nor what the amended Complaint would state.” Munson’s brief to this Court also provided no support for what “other claims” he would pursue had he been allowed to amend his complaint. Without a motion to amend or explanation of the proposed amendment, the district court did not abuse its discretion.
V
[¶22] Munson argues that IAH’s LLC Member Agreement is against North Dakota public policy. However, this issue was not raised in Munson’s complaint and the district court determined it did not have jurisdiction to consider the argument. The court found that Munson brought his complaint “on very narrow grounds seeking
Plaintiff Munson argues intensely regarding a number of aspects of the Amended LLC Agreement, its applicability to him, and the validity of the confidentiality and non-complete [sic] provisions contained therein. Those matters are pending in the Delaware Chancery Court. They are not issues that Plaintiff Munson has specifically raised in his North Dakota Complaint. These matters must be resolved before the Delaware Chancery Court and presumably under Delaware law. This Court is without jurisdiction to consider the arguments Plaintiff Munson makes regarding the Amended LLC Agreement. . . . Plaintiff Munson will certainly be allowed to litigate his claims regarding the Amended LLC Agreement before the Delaware Chancery Court.1
[¶23] Subject matter jurisdiction is a question of law, which this Court reviews de novo, when jurisdictional facts are not in dispute. Investors Title Ins. Co. v. Herzig, 2010 ND 138, ¶ 57, 785 N.W.2d 863. Issues involving subject matter jurisdiction cannot be waived and can be raised sua sponte at any time. Garaas v. Cass County Joint Water Resource Dist., 2016 ND 148, ¶ 4, 883 N.W.2d 436. “For subject-matter jurisdiction to attach, the particular issue to be determined must be properly brought before the court in the particular proceeding.” Id. at ¶ 5 (quoting Albrecht v. Metro Area Ambulance, 1998 ND 132, ¶ 11, 580 N.W.2d 583). A court may not consider an action whenever it appears the court lacks jurisdiction on the subject matter. Id.; Herzig, at ¶ 57 (“For a court to issue a valid order or judgment, the court must have jurisdiction over both the subject-matter of the action and the parties.“)
[¶24] Here, the court raised the absence of subject-matter jurisdiction in its memorandum order. The court found Munson did not specifically raise the issue of enforcing the Amended LLC Agreement in his complaint and that those issues were pending in the Delaware Chancery Court. Based on the record, we agree that the issues relating to the Amended LLC Agreement were not raised to the district court. The court properly determined it did not have subject matter jurisdiction over issues surrounding the LLC Member Agreement.
VI
[¶25] We conclude that Munson’s purchase of IAH Units is an exempt transaction under the North Dakota Securities Act. We affirm the judgment.
[¶26] Gerald W. VandeWalle, C.J.
Jon J. Jensen
Jerod E. Tufte
Daniel J. Crothers
Lisa Fair McEvers