Arnold v. Trident Res., LLC, 20190322

• Court: United States State Supreme Court of North Dakota
• Writing for the Court: Jensen, Chief Justice.
• Citation: 942 N.W.2d 465
• Parties: Douglas ARNOLD and Thomas Arnold, Plaintiffs and Appellees v. TRIDENT RESOURCES, LLC , American Power Company, Inc. and American Power Group Corporation, Defendants and Thomas Lockhart, individually and as an officer and director of Trident Resources, LLC, Defendant and Appellant
• Docket Number: No. 20190322,20190322
• Decision Date: 07 May 2020

942 N.W.2d 465

Douglas ARNOLD and Thomas Arnold, Plaintiffs and Appellees
v.
TRIDENT RESOURCES, LLC , American Power Company, Inc. and American Power Group Corporation, Defendants
and
Thomas Lockhart, individually and as an officer and director of Trident Resources, LLC, Defendant and Appellant

No. 20190322

Supreme Court of North Dakota.

Filed May 7, 2020

Thomas E. Kalil, Williston, ND, for plaintiffs and appeleees.

William C. Black, Bismarck, ND, for defendant and appellant.

Jensen, Chief Justice.

[¶1] Thomas Lockhart appeals from an order finding him in contempt, imposing a sanction requiring the forfeiture of $300,000 to Douglas Arnold and Thomas Arnold, and divesting him of any management rights in Trident Resources, LLC. Lockhart argues the district court’s order improperly imposes a punitive sanction for his contempt. We reverse and remand this case to the district court for further findings in support of the sanction imposed for Lockhart’s contempt.

I

[¶2] In 2013, Lockhart and the Arnolds entered into business capturing and compressing natural gas. The parties formed Trident Resources, with Lockhart owning a 70% interest and each of the Arnolds owning a 15% interest. Trident Resources owned two well processing units (WPUs), each purchased for $300,000.

[¶3] In 2015, the Arnolds initiated this action seeking reformation of the Trident Resources’ member control and operating agreement to clarify the parties’ respective ownership interests. Following a bench trial, the court ordered the entry of a judgment confirming Lockhart’s ownership of a 70% interest and each of the Arnold’s 15% ownership interest in Trident Resources.

[¶4] Before the entry of the judgment, Lockhart informed the Arnolds he had received an offer from Black Butte Resources to purchase one of the WPUs for $300,000. The Arnolds consented to the sale of the WPU, provided the proceeds were deposited into their attorney’s trust account. Lockhart agreed to deposit the funds into the trust account as requested by the Arnolds.

[¶5] When it appeared Lockhart had failed to deposit the funds into the trust account, the Arnolds filed a motion seeking

942 N.W.2d 468

to discover the location of the WPU and the sale proceeds. Before the hearing on the Arnolds’ motion, Lockhart deposited $100,000 into the trust account. At the hearing, the court ordered Lockhart to provide the Arnolds and the court with information regarding the WPU that had been sold and the date the remaining $200,000 would be deposited into the trust account. The court further ordered that if Lockhart failed to provide the information within 15 days of the hearing a sanction of $5,000 would be imposed with an additional $1,000 sanction for every subsequent week the information was not provided. Additionally, the court provided that if the information was not given within 30 days, the Arnolds could request a hearing for the court to consider additional sanctions. Lockhart eventually deposited $200,000 into the trust account and filed an affidavit stating Black Butte had purchased the WPU and the WPU had been transferred to Black Butte.

[¶6] Subsequent to Lockhart filing his affidavit, the Arnolds learned the WPU had not been sold to Black Butte for $300,000, but had instead been sold to another party for $500,000. The Arnolds filed a motion requesting the court to find Lockhart in contempt and for the imposition of appropriate sanctions. At the hearing on the motion, Lockhart conceded his affidavit was false and stipulated to the entry of a finding of contempt.

[¶7] The court found Lockhart in contempt "by virtue of having knowingly made and filed a false affidavit" and imposed the following sanction:

a. Defendants Thomas Lockhart and Trident Resources, LLC have no right, claim or interest in the $300,000.00 placed into escrow with the Plaintiffs’ attorney. The Plaintiff’s attorney may immediately disperse this money to the Plaintiffs. Any remaining debts owed by Trident Resources, LLC, with the exception of any unpaid storage fees from May 1, 2019 forward, shall be paid using the $200,000.00 received by Thomas Lockhart and which he failed to disclose to the Court.

b. With regard to any remaining property of Trident Resources, LLC, Thomas Lockhart shall have no right whatsoever to dispose of, assign, or sell said property. The sale of any remaining property shall be negotiated solely by the Plaintiffs, but all contracts shall be signed by Thomas Lockhart and the Plaintiffs, with each person signing in their capacity as members and with Lockhart additionally signing as an officer/director of the LLC.

The court denied the Arnolds’ request for an award of attorney fees, noting it had provided the $300,000 sanction.

[¶8] Lockhart does not contest the finding of contempt and challenges only the forfeiture of the $300,000. He argues the forfeiture is either an improperly imposed punitive sanction or a remedial sanction which exceeds the available remedial remedies.

II

[¶9] District courts have broad discretion in making contempt findings and those findings will be disturbed on appeal only if the district court has abused its discretion. Upton v. Nolan , 2018 ND 243, ¶ 18, 919 N.W.2d 181 (quoting Booen v. Appel , 2017 ND 189, ¶ 24, 899 N.W.2d 648 ). "A district court abuses its discretion when it acts in an arbitrary, unreasonable, or unconscionable manner; its decision is not the product of a rational mental process leading to a reasoned determination; or it misinterprets or misapplies the law." Id.

942 N.W.2d 469

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