Choice Financial Group v. Schellpfeffer

• Decision Date: 25 April 2006
• Docket Number: No. 20050273.,20050273.
• Citation: 2006 ND 87,712 N.W.2d 855
• Parties: CHOICE FINANCIAL GROUP, Plaintiff and Appellee v. Donald A. SCHELLPFEFFER, Defendant and Appellant and The R & D Group, LLC, Defendant.
• Court: North Dakota Supreme Court

712 N.W.2d 855

2006 ND 87

CHOICE FINANCIAL GROUP, Plaintiff and Appellee v. Donald A. SCHELLPFEFFER, Defendant and Appellant and The R & D Group, LLC, Defendant.

No. 20050273.

Supreme Court of North Dakota.

April 25, 2006.

COPYRIGHT MATERIAL OMITTED

Stephen W. Plambeck (argued) of Nilles, Ilvedson, Stroup, Plambeck & Selbo, Ltd., Fargo, N.D., and Michael S. Degan of Blackwell, Sanders, Pepper, Martin, Omaha, NE, for defendant and appellant.

Lowell P. Bottrell (argued) and Kyle L. Carlson of Anderson & Bottrell, Fargo, N.D., for plaintiff and appellee.

SANDSTROM, Justice.

[¶ 1] Donald Schellpfeffer appeals the district court's amended judgment ordering him to pay Choice Financial Group ("Choice") $2,036,725.35 on a note he guaranteed for The R & D Group, LLC ("R & D"). Schellpfeffer also appeals the court's order allowing Choice to dismiss $275,000 of its claim, which he contends was an attempt to block further discovery. Finally, he appeals the district court's denial of his motion to amend his complaint to counterclaim that Choice fraudulently induced him into guaranteeing the loan. Holding summary judgment was improperly granted before Schellpfeffer had any opportunity for discovery, we reverse and remand.

I

[¶ 2] The facts of this case were outlined in Choice Financial Group v. Schellpfeffer, 2005 ND 90, 696 N.W.2d 504. We highlight those facts necessary for this opinion. In January 2003, R & D gave a promissory note for $2.2 million to Choice. Schellpfeffer and Michael Volk, both members of R & D, guaranteed the note. Schellpfeffer agreed only to guaranty the debt of R & D and no other entity associated with Volk. R & D defaulted on the note. Volk filed for bankruptcy and was protected by bankruptcy's automatic stay.

[¶ 3] On March 3, 2004, Choice sued R & D and Schellpfeffer to recover on the defaulted note. Choice requested a judgment against R & D for $2.2 million plus interest and late charges. Choice requested Schellpfeffer be found jointly and severally liable on the note as a guarantor. R & D and Schellpfeffer served a joint answer on May 7, 2004. In the joint answer, Schellpfeffer individually admitted he executed the guaranty but affirmatively alleged Choice fraudulently induced him to sign the guaranty. According to Schellpfeffer, some of the debt allegedly owed by R & D was actually owed by another company, Plains Technology Ventures, LLC ("Plains Technology"), and he had refused to guaranty any loans made to Plains Technology; therefore, his guaranty did not cover any money advanced to Plains Technology.

[¶ 4] On May 13, 2004, approximately ten weeks after the lawsuit began and six days after the answer was served, Choice moved for summary judgment. At the summary judgment hearing, Schellpfeffer's counsel argued more discovery was needed before summary judgment could be granted. The district court disagreed. It held no genuine issue of material fact existed as to a large part of the note and partially granted summary judgment, awarding Choice $2,036,725.35. The court denied summary judgment for $275,000 of the note because it concluded there were issues of fact as to that amount. Schellpfeffer secured new counsel and moved to alter, amend, or vacate the judgment. Counsel argued in the brief supporting the motion that more discovery was needed before summary judgment could be granted. He argued Schellpfeffer had requested documents from Choice detailing the loan transaction, but the discovery request was not answered before the summary judgment hearing. Schellpfeffer's motion was denied.

[¶ 5] The district court certified the partial summary judgment as a final order as provided in N.D.R.Civ.P. 54(b), and Schellpfeffer appealed the partial summary judgment. We dismissed the appeal, concluding the partial summary judgment was not a final order. Choice Fin. Group, 2005 ND 90, ¶ 1, 696 N.W.2d 504.

[¶ 6] On remand, Choice moved to voluntarily dismiss the remaining $275,000 of its claim to secure a final judgment. Schellpfeffer moved to amend his answer to include a counterclaim against Choice and a cross-claim against R & D. In his reply to Choice's voluntary dismissal motion and in support of his motion to amend, counsel argued additional discovery was needed. The district court denied Schellpfeffer's motion to amend the answer, granted Choice's motion to voluntarily dismiss part of its claim, and ordered final judgment be entered in favor of Choice.

[¶ 7] On appeal, Schellpfeffer argues the district court erred when it granted summary judgment for Choice, granted voluntary dismissal of part of Choice's claim, and denied his motion to amend the answer. Choice argues the district court properly resolved the motions before it.

[¶ 8] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06. The appeal was timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2, 6, and N.D.C.C. § 27-02-04 and §§ 28-27-01 through 28-27-02.

II

[¶ 9] The dispositive issue on appeal is whether summary judgment was properly granted. Summary judgment is appropriate only after the non-moving party has had a reasonable opportunity for discovery to develop his position. Aho v. Maragos, 1998 ND 107, ¶ 4, 579 N.W.2d 165 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n. 5, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Rule 56(f), N.D.R.Civ.P., allows for additional discovery before summary judgment is granted:

Should it appear from the affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.

Rule 56(f) is within the discretion of the district court, and the court will not be reversed unless it has abused its discretion. Aho, at ¶ 4. "A court abuses its discretion if it acts in an arbitrary, unreasonable, or unconscionable manner, or if it misinterprets or misapplies the law." Sec. Nat'l Bank v. Wald, 536 N.W.2d 924, 928 (N.D.1995).

[¶ 10] In Johnson Farms v. McEnroe, this Court held that N.D.R.Civ.P. 56(f) should be applied liberally. 1997 ND 179, ¶ 27, 568 N.W.2d 920. Discussing Rule 56(f), this Court noted:

"[T]he purpose of subdivision (f) is to provide an additional safeguard against an improvident or premature grant of summary judgment and the rule generally has been applied to achieve that objective. Consistent with this purpose, courts have stated that technical rulings have no place under the subdivision and that it should be applied with a spirit of liberality."

Id. at ¶ 27 (quoting 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil § 2740 (2d ed.1984)). In Johnson Farms, approximately four months elapsed between the beginning of the lawsuit and the defendant's motion for summary judgment. Id. at ¶¶ 11-12. The plaintiff had specifically invoked Rule 56(f) in its brief opposing summary judgment. Id. at ¶ 28. This Court held that if the reason the district court denied the plaintiff's request for additional discovery was because it was not made in affidavit form, the court's decision "would be a technical application of a rule that should be applied with a spirit of liberality." Id. at ¶ 29.

[¶ 11] In Aho v. Maragos, this Court reversed the district court's grant of summary judgment because the court abused its discretion when it denied the defendant's request for additional discovery. 1998 ND 107, ¶ 1, 579 N.W.2d 165. Twelve weeks had elapsed between the beginning of the lawsuit and the summary judgment motion. Id. at ¶ 3. Only six weeks had passed between the service of the defendant's answer and the summary judgment motion. Id. Because this Court's primary concern was that a party be afforded the opportunity to conduct discovery necessary to its position, the Court concluded the defendant's oral request for additional discovery, made at the summary judgment hearing, was sufficient to invoke Rule 56(f). Id. at ¶¶ 6-8. This Court again emphasized that Rule 56(f) needed to be applied with "'a spirit of liberality.'" Id. at ¶ 6 (quoting Johnson Farms, 1997 ND 179, ¶ 29, 568 N.W.2d 920).

[¶ 12] "Although not binding, federal court interpretations of a corresponding federal rule of civil procedure are highly persuasive in construing our rule." Thompson v. Peterson, 546 N.W.2d 856, 860 (N.D.1996). Although failure to comply with the affidavit requirement of Rule 56(f) is not fatal to a request for additional discovery, a proponent of the request must still "identify with specificity `what particular information is sought; how, if uncovered, it would preclude summary judgment; and why it has not previously been obtained.'" Lunderstadt v. Colafella, 885 F.2d 66, 71 (3d Cir.1989) (quoting Dowling v. City of Phila., 855 F.2d 136, 140 (3d Cir.1988)).

[¶ 13] As in Aho, Schellpfeffer's counsel argued at the summary judgment hearing that the discovery to that point had been insufficient to conclude whether money supposedly advanced to R & D under its note was actually advanced to Volk's other entities. Specifically, Schellpfeffer's counsel argued:

What I know is Mr. Volk has testified to some amount of money. Hey, this amount of money Choice says is due is not correct. Some of this money was advanced to Plains Technology Ventures and was then later characterized as R & D Group that once Dr. Schellpfeffer wouldn't sign those loan documents.

. . . .

I don't believe this issue is ripe for summary judgment at this point. I think we need to find out what — what the facts were with regard to making of these documents and loan advances.

That either Choice Financial Group would advance money without a promissory note makes me — makes me question the transaction. I'd like the ability to go back...