Bearce v. Yellowstone Energy Dev., LLC

• Decision Date: 22 March 2019
• Docket Number: No. 20180256,20180256
• Citation: Bearce v. Yellowstone Energy Dev., LLC, 924 N.W.2d 791 (N.D. 2019)
• Parties: Daniel T. and Debra Ann BEARCE, Plaintiffs and Appellants v. YELLOWSTONE ENERGY DEVELOPMENT, LLC, Acting By and Through Its Board of Directors, Defendant and Appellee
• Court: North Dakota Supreme Court

924 N.W.2d 791

Daniel T. and Debra Ann BEARCE, Plaintiffs and Appellants

v.YELLOWSTONE ENERGY DEVELOPMENT, LLC, Acting By and Through Its Board of Directors, Defendant and Appellee

No. 20180256

Supreme Court of North Dakota.

Filed March 22, 2019

Charles L. Neff, Williston, ND, for plaintiffs and appellants.

Kent A. Reierson (argued) and Trevor A. Hunter (on brief), Williston, ND, for defendant and appellee.

Jensen, Justice.

[¶1] Daniel and Debra Bearce ("the Bearces") appeal from a judgment in favor of Yellowstone Energy Development LLC ("Yellowstone") entered following the parties’ cross motions for summary judgment. The Bearces challenge the district court’s exclusion of parol evidence to support their allegation of fraud in the inducement. The Bearces also challenge the district court’s conclusion the Bearces were not owed a fiduciary duty. We affirm the district court’s judgment dismissing the Bearces’ claim for fraud and their claim for breach of contract. We reverse the district court’s dismissal of the Bearces’ claim for breach of a fiduciary duty and remand for further proceedings consistent with this opinion.

I.

[¶2] In June 2006, representatives of a business entity that would eventually become Yellowstone went to the home of Daniel and Debra Bearce seeking to purchase 170 acres of land owned by the Bearces. Yellowstone successfully secured an exclusive option to purchase the land.

[¶3] In 2008, Yellowstone exercised its option to purchase the land and the parties entered into a contract for deed. In 2009, Yellowstone and the Bearces modified the contract for deed to alter some of the payment terms. Both the original contract for deed and the 2009 modified contract for deed included the following term providing for the payment of a portion of the purchase price with "shares" of a contemplated ethanol plant:

In addition to the cash amounts stated above, the Sellers shall receive shares in the Buyer’s limited liability company totaling a value of $100,000.00, in the name of the Sellers, to be delivered following financial close of the financing for the Buyer’s ethanol plant to be constructed upon the above described real property.

(Emphasis added).

[¶4] Yellowstone subsequently abandoned its plan to build an ethanol plant on the Bearces’ land. Yellowstone then negotiated a long-term lease with a third party to build an oil train loading facility on the Bearces’ land.

[¶5] In July 2010, Yellowstone sent a letter to the Bearces advising them their $100,000 in "value" would be issued despite Yellowstone’s abandonment of the plan to build an ethanol plant. The letter stated ownership units had not yet been issued and explained the Bearces would receive their ownership interest "at the time shares are issued to all its members." Shortly after receiving that letter, the Bearces executed and delivered a deed for the property to Yellowstone.

[¶6] In December 2011, the Yellowstone Board of Directors approved a multiplier of three units per $1 invested for individuals who had provided initial cash investment in Yellowstone. The Bearces’ interest in Yellowstone was not given the 3:1 multiplier. In October 2012, the Yellowstone Board of Directors approved a second multiplier of three units per $1 invested for individuals who had initially provided cash investment in Yellowstone. The Bearces’ interest in Yellowstone was not given the second 3:1 multiplier.

[¶7] Units representing ownership interest in Yellowstone were allocated and placed on a ledger sometime after December 4, 2012. After receiving a "unit ledger" indicating their interest in Yellowstone would not receive the 3:1 multiplier, the Bearces objected. Despite the objection, Yellowstone refused to apply the 3:1 multiplier to the Bearces’ interest in Yellowstone.

[¶8] The Bearces sued Yellowstone asserting claims for breach of fiduciary duty, fraudulent inducement, and breach of contract. Both parties moved for summary judgment. The district court denied the Bearces’ motion for summary judgment and granted Yellowstone’s motion for summary judgment.

[¶9] On appeal, the Bearces challenge the district court’s determination the parol evidence rule precluded communications between the Bearces and Yellowstone from being considered to support their claim asserting they were fraudulently induced into entering into the August 25, 2009 modified contract for deed. The Bearces also challenge the court’s determination that Yellowstone did not breach a fiduciary duty to the Bearces by excluding their equity interest from the 3:1 multiplier.

II.

[¶10] The Bearces argue they were fraudulently induced by Yellowstone to enter into the August 25, 2009 modified contract for deed, and therefore the parol evidence rule should not apply to statements made by Yellowstone. The Bearces assert a Yellowstone representative stated their shares in Yellowstone would be treated the same as the other investors. The Bearces have not sought to rescind the parties’ agreement. The district court held this statement was barred by the parol evidence rule with respect to the Bearces’ claim asserting fraudulent inducement in the August 25, 2009 modified contract for deed.

[¶11] The decision to admit parol evidence is a question of law, fully reviewable on appeal. E.g., Finstad v. Gord , 2014 ND 72, ¶ 13, 844 N.W.2d 913 ; Myaer v. Nodak Mut. Ins. Co. , 2012 ND 21, ¶ 20, 812 N.W.2d 345. The parol evidence rule is codified in N.D.C.C. § 9-06-07 and reads:

The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.

Parol evidence generally cannot be used to vary or contradict the terms of a complete, written contract adopted as a definite expression of the parties’ agreement. Finstad , at ¶ 13 ; Myaer , at ¶ 20. This Court has clarified, however, that parol evidence may be considered when the written agreement does not reflect the parties’ intent because of fraud, mistake, or accident. Finstad, at ¶ 13 ; Myaer , at ¶ 20.

[¶12] The Bearces argue Yellowstone’s statement that they would be treated the same as other investors fraudulently induced them to enter into the modified contract for deed dated August 25, 2009. Parol evidence of fraudulent inducement is only admissible to challenge the validity of a contract and a corresponding request for the remedy of rescission. See Golden Eye Res., LLC v. Ganske , 2014 ND 179, ¶ 17, 853 N.W.2d 544. The Bearces are not seeking recision of the August 25, 2009 modified contract for deed. In the absence of a request to rescind the August 25, 2009 modified contract for deed, the district court properly excluded the parol evidence for the purpose of supporting the Bearces’ fraud claim. We affirm the district court’s judgment dismissing the Bearces’ fraud claim.

III.

[¶13] The parties’ original agreement and the first modification of that agreement required $100,000 of the purchase price to be paid through the issuance of equity in a limited liability company that would be constructing an ethanol plant. In the summer of 2010, Yellowstone informed the Bearces that the ethanol plant would not be built. The district court determined Yellowstone’s obligation to pay the $100,000 of equity to the Bearces was a condition precedent, only payable "if" the ethanol plant was financed, and was payable "only upon" the financing of the ethanol plant.

[¶14] The interpretation of a contract is a question of law. Flaten v. Couture , 2018 ND 136, ¶ 14, 912 N.W.2d 330. On appeal, this Court independently examines and construes the contract to determine if the district court erred in its interpretation. Id .

[¶15] The $100,000 of equity promised to the Bearces represented roughly 16% of the total purchase price for the land. Nothing in the provision related to the payment of the $100,000 of equity expressly provides that in the event the ethanol plant is not built that the Bearces would forego 16% of the purchase price for the property. The provision does not include the contingency language suggested by the district court that the payment was only due "if" financing for the ethanol plant was secured or "only upon" securing financing for the ethanol plant.

[¶16] The district court determined, and the Bearces argue, that securing financing for the ethanol plant was a condition precedent. Section 9-01-11, N.D.C.C., defines a condition precedent:

A condition precedent is a condition which is to be performed before some right dependent thereon accrues or some act dependent thereon is performed.

Section 9-01-16, N.D.C.C., provides:

Before any party to an obligation can require another party to perform any act under it, that party shall fulfill all conditions precedent thereto imposed upon that party ....

Sections 9-01-11 and 9-01-16, N.D.C.C., recognize parties are free to place conditions precedent on the performance of their respective contractual obligations. Bishop Ryan High School v. Lindberg , 370 N.W.2d 726, 729 (N.D. 1985). This Court has recognized that performance of a condition precedent may be a prerequisite to existence of an enforceable contract. United Bank of Bismarck v. Trout , 480 N.W.2d 742, 748 (N.D. 1992) ; Kruger v. Soreide , 246 N.W.2d 764, 769 (N.D. 1976) ; Quinn Distrib. Co. v. North Hill Bowl, Inc. , 139 N.W.2d 860, 863-64 (N.D. 1966).

[¶17] Although our prior caselaw discussing conditions precedent has primarily dealt with whether the failure of a condition precedent prevented the existence of an enforceable contract, the failure of a condition precedent does not preclude the parties from continuing with their agreement. A condition precedent may be waived "either expressly or by implication resulting from acts or conduct, by the party in whose favor they are made." Wachter v. Gratech Co.,Ltd. , 2000 ND 62, ¶ 22, 608 N.W.2d 279. Additionally, parties may enter into an accord when one party is willing to "accept in...