611 N.W.2d 154 (N.D. 2000), 990272, Lonesome Dove Petroleum, Inc. v. Nelson

Docket Nº:990272.
Citation:611 N.W.2d 154, 2000 ND 104
Opinion Judge:[7] The opinion of the court was delivered by: Sandstrom, Justice.
Party Name:LONESOME DOVE PETROLEUM, INC., Plaintiff and Appellee, v. Charles Schreiner NELSON, Defendant and Appellant, v. Brett Boedecker, Susanne Boedecker, Michael Flinn, Phoenix Energy Companies, Inc., Defendants on Crossclaim and Appellees.
Attorney:Lyle W. Kirmis (argued) and Lawrence A. Dopson, Zuger Kirmis & Smith, Bismarck, and Joseph H. Kubik (appearance), Kubik, Bogner, Ridl & Selinger, Dickinson, for plaintiff and appellee and defendants on crossclaim and appellees., Ronald H. McLean (argued), Serkland, Lundberg, Erickson, Marcil & Mc...
Judge Panel:[
Case Date:May 25, 2000
Court:Supreme Court of North Dakota
 
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Page 154

611 N.W.2d 154 (N.D. 2000)

2000 ND 104

LONESOME DOVE PETROLEUM, INC., Plaintiff and Appellee,

v.

Charles Schreiner NELSON, Defendant and Appellant,

v.

Brett Boedecker, Susanne Boedecker, Michael Flinn, Phoenix Energy Companies, Inc., Defendants on Crossclaim and Appellees.

No. 990272.

Supreme Court of North Dakota

May 25, 2000.

Page 155

Lyle W. Kirmis (argued) and Lawrence A. Dopson, Zuger Kirmis & Smith, Bismarck, and Joseph H. Kubik (appearance), Kubik, Bogner, Ridl & Selinger, Dickinson, for plaintiff and appellee and defendants on crossclaim and appellees.

Ronald H. McLean (argued), Serkland, Lundberg, Erickson, Marcil & McLean, Ltd., Fargo, and Marvin L. Kaiser (appearance), Williston, for defendant and appellant.

SANDSTROM, Justice.

[¶ 1] Charles Schreiner Nelson appeals from a judgment finding Nelson and Lonesome Dove Petroleum, Inc. ("Lonesome Dove") had entered into a valid contract for redemption of Nelson's shares in the company and finding no breach of a fiduciary duty owed to Nelson. Concluding the trial court's findings of fact are not clearly erroneous, we affirm.

I

[¶ 2] Lonesome Dove was formed in 1993. Nelson and Michael Flinn each provided approximately half of the original $80,000 capital contribution, and each received one-third of the stock. The remaining one-third was held by Susanne Boedecker. Her husband, Brett, oversaw the day-to-day operations of the company.

[¶ 3] The original $80,000 was largely invested in oil properties. In late 1994, Brett Boedecker suggested Nelson and Flinn invest additional sums so Lonesome Dove could purchase mineral leases in the Dickinson area in what the parties refer to as "the Lodgepole play." Nelson and Flinn refused, and suggested Boedecker find an outside source of funding for these additional purchases.

[¶ 4] Brett Boedecker contacted a friend, Thomas Cabe, who owned Phoenix Energy Companies, Inc. ("Phoenix"). In January 1995, Boedecker negotiated an agreement whereby Phoenix would provide $250,000 in funding for Lonesome Dove to procure mineral interests in Phoenix's name. Lonesome Dove was to receive twenty percent of all profits, royalty interests, and working interests after Phoenix received payback. Phoenix subsequently furnished additional, substantial sums to purchase leases in the Lodgepole play.

[¶ 5] In March 1995, Phoenix sold some of the Lodgepole leases to Trans America National Gas Corporation ("Trans America") and granted an option to Trans America on the remaining leases. Trans America assigned its rights to Trans Texas

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Gas Corporation ("Trans Texas"), and Trans Texas exercised the option to purchase additional leases. As a result of these agreements, Phoenix received payback on its investment and substantial profits were generated. Lonesome Dove received twenty percent of Phoenix's profits, royalties, and working interests.

[¶ 6] Because these activities had created large profits for Lonesome Dove, Nelson, Flinn, and the Boedeckers discussed options to reduce tax consequences. In addition, some conflicts had arisen between Nelson and the others, particularly over a proposal that the Boedeckers receive additional stock for their efforts in the company's success. A proposal to liquidate Lonesome Dove and distribute the assets to the shareholders was rejected in July 1995. Nelson then proposed that Lonesome Dove redeem his stock by distributing to him one-third of the company's assets.

[¶ 7] On August 28, 1995, Nelson sent a letter to Lonesome Dove confirming an agreement to withdraw one-third of the assets:

This letter is confirmation to withdraw at a non-discounted price all of my one-third (1/3) assets including cash, overrides, working interest, royalties, mineral, and other assets from Lonesome Dove. This will be beneficial to me from a tax standpoint.

I would suggest we make this transition effective either September 1, 1995 or October 1, 1995 to allow adequate time for assignments, work in progress, etc. I understand we are in the process of purchasing minerals and leases....

Please let me know how you would like to handle this asset withdrawal. There is some tax planning for me so let me know if this arrangement is satisfactory.

Lonesome Dove replied by letter dated September 6, 1995:

Lonesome Dove is in agreement to redeem your shares of stock with a cut off date for leases purchased and leases sold as of September 1, 1995. Lonesome Dove will have 1/3 of all working interest and royalty overrides associated with the recent Phoenix-Trans Texas transaction and recently acquired leases transferred directly to your designated corporation. In addition you will be paid 1/3 of the cash from the sale less amounts paid or to be paid for minerals; seismic expenses; salaries, employment taxes; professional and other expenses and corporation income taxes. Income taxes on the assets distributed to you will be subtracted from your share of the cash.

While a discount for minority interest would be typical, the remaining shareholders and board members concluded not to apply a minority discount to your redemption.

Nelson responded on September 11, 1995:

I received your September 6, 1995 letter on Friday, September 8, 1995. There are several issues that will need to be resolved prior to my withdrawal from Lonesome Dove. Please ask Tom Kel[s]ch to contact my attorney, Mr. Randy Fields, in San Antonio at the address listed below....

[¶ 8] Over the next several months, the parties' attorneys conducted negotiations on various terms of the agreement. On December 15, 1995, Lonesome Dove's attorney, Thomas Kelsch, sent a letter to Randy Fields, Nelson's attorney, outlining the mineral interests which had already been transferred to Nelson and the remaining mineral interests to be transferred. The letter concluded:

It is the intention of Lonesome Dove that the transfer of Schreiner's 1/3 interest in Lonesome Dove be effective in 1995, even though the actual deed of the minerals or assignment of the royalty or working interests may not occur until 1996. Lonesome Dove requests that Schreiner sign his stock back to Lonesome Dove on or before December 31, 1995. As we discussed in our telephone conference, Lonesome Dove intends to

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elect Subchapter S status for 1996 and if Schreiner has not...

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