Dakota Grain Systems, Inc. v. Rauser, s. 880004-880006

• Decision Date: 09 January 1989
• Docket Number: Nos. 880004-880006,s. 880004-880006
• Citation: 435 N.W.2d 205
• Parties: DAKOTA GRAIN SYSTEMS, INC., Plaintiff and Appellant, v. Claire RAUSER, Defendant and Appellee. Raymond ZAJAC, Plaintiff and Appellant, v. Claire M. RAUSER, Defendant and Appellee. DAKOTA GRAIN SYSTEMS, INC., Plaintiff and Appellant, v. RAUSER CONSTRUCTION, INC., Superior Systems Inc., and Claire M. Rauser, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 205

435 N.W.2d 205

DAKOTA GRAIN SYSTEMS, INC., Plaintiff and Appellant, v. Claire RAUSER, Defendant and Appellee.

Raymond ZAJAC, Plaintiff and Appellant, v. Claire M. RAUSER, Defendant and Appellee.

DAKOTA GRAIN SYSTEMS, INC., Plaintiff and Appellant, v. RAUSER CONSTRUCTION, INC., Superior Systems Inc., and Claire

M. Rauser, Defendants and Appellees.

Civ. Nos. 880004-880006.

Supreme Court of North Dakota.

Jan. 9, 1989.

Craft, Thompson & Boechler, Fargo, for plaintiffs and appellants; argued by David C. Thompson.

Conmy, Feste, Bossart, Hubbard & Corwin, Ltd., Fargo, for defendants and appellees; argued by Wickham Corwin.

MESCHKE, Justice.

We reject objections to a trial court's use of a special master's report of accountings pursuant to NDRCivP 53. We affirm.

Raymond Zajac farmed and sold grain bins; Claire Rauser erected grain-handling and storage systems. In 1981, Zajac and Rauser began Dakota Grain Systems to sell and erect grain bins. By oral agreement, Rauser contributed equipment and tools and Zajac contributed accounts receivable and inventory of lesser values to be adjusted later. Rauser, as manager, received both a salary and commissions on his sales; Zajac received commissions on his sales. Business was good but much of the income was used to pay past debts.

In 1983, after their relationship soured, Zajac sold the business to Rauser. In late 1983, a judgment resulted in seizure of the inventory by a creditor. Rauser then refused to complete his purchase. Zajac and his corporation, Dakota Grain Systems, Inc., sued Rauser and his corporations, Rauser Construction, Inc. and Superior Systems, Inc. The three suits were consolidated.

In the first suit, Zajac claimed Rauser was indebted to Dakota Grain Systems. Rauser's answer claimed that an accord and satisfaction and a novation barred recovery. Rauser counterclaimed for money and services contributed to Dakota Grain Systems. In the second suit, Zajac claimed that Rauser owed him for part of the purchase of a building for the business. Rauser's answer claimed that the debt was offset by other amounts and benefits and was satisfied by an accord and satisfaction. In the third suit, Zajac sought specific performance of Rauser's contract to buy Dakota Grain Systems or, alternatively, rescission and damages. Rauser's answer claimed breach of contract.

Both sides agreed to the appointment of a special master to make eleven accounting determinations. They selected a certified public accountant with experience as a bankruptcy trustee. The order of reference by the trial court was prepared by Zajac's counsel. ¹ The order listed the eleven accounting items to be investigated and determined. It declared that the master "shall have all powers specified under Rule 53." ² The order said nothing about procedure other than directing the master to "proceed expeditiously with such meetings, hearings, accountings and the preparation of his report in accordance with directives set out under Rule 53...." The court reserved "the right to determine the legal effect of any and all transactions between the parties."

The master met separately with the parties several times. Neither party requested that the master keep a record.

After the master reported, Zajac timely objected to some of the accountings summarized in the report. For the most part, the written objections complained about evidence not considered and lack of documentation for some of the accountings. Those objections did not specify the lack of a transcript as a procedural error; nor did Zajac then request examination of the master about details of his report. Zajac moved, in general terms, "to reject said report in whole or in part, or in the alternative, modify said report upon hearing additional evidence, or in the alternative, recommit said report with instructions to the Special Master." See NDRCivP 53(f)(2).

At a separate hearing on the objections, Zajac sought to call the master for cross-examination about details of his report. The trial court refused to permit it, saying "[t]hat's just like cross-examining the Judge." The trial court ruled that the master's accountings were not clearly erroneous, disallowed the objections, and adopted the report subject to a later trial.

At trial, Zajac subpoenaed the master, again seeking to probe details of his determinations. Zajac persisted in arguing that the master failed to recognize some of Zajac's information, that the master failed to explain why the information was not used, and that some of the accountings were "unsupported by any documentation." The trial court permitted Zajac's counsel to examine the master, but did not permit questions about details of the master's determinations. The trial court ruled that further questions on accounting items were not timely because their correctness had been established when the hearing was held on Zajac's objections to the master's report.

In written findings, the trial court held:

"The report of the master, including each of the factual findings summarized therein, is well reasoned and substantiated. Despite the various objections ... no clear error on the part of the master has been established."

The trial court made other findings favorable to Rauser, "approved and adopted" the master's report, and used four of the accounting items from the report to order judgment for Rauser against Zajac for $13,827.21. Zajac appealed.

On appeal, Zajac's primary contention was that the master's report was defective because it did not document and explain all of its "conclusory" determinations. Zajac argued that a master must keep a record even without a request from a party. He further contended that the trial court surrendered its decision-making role to the master. Zajac asked that we reverse the trial court and remand "directing the court to utilize the alternative provisions of Rule 53...."

NDRCivP 53 is a special-purpose civil rule largely derived from FRCivP. It permits a trial judge to appoint someone as a temporary judicial officer to assemble, sort through and report on complex evidence. As in the federal practice, "reference to a master [is] ... the exception and not the rule." In a non-jury case, "save in matters of account, a reference may be made only upon a showing that some exceptional condition requires it." NDRCivP 53(b). (Our emphasis). Thus, the trial court properly chose to appoint a master for matters of accounting--the principal function of this special rule.

Zajac cited U.S. v. Merz, 376 U.S. 192, 84 S.Ct. 639, 11 L.Ed.2d 629 (1964) as precedent that the master should have kept a record and better explained his report. In Merz, the United States Supreme Court considered a report of a commission appointed by a district court to determine just compensation in eminent domain proceedings. Under FRCivP 71A, the powers and procedures of such a commission are those of a master under FRCivP 53. The commissioners had made awards without explaining "which evidence the Commission credited and which it discredited" and, in part, going beyond their record of the evidence. The court of appeals affirmed in part but remanded for resubmission to the commissioners for explanation of the excessive part of its awards. The United States Supreme Court concluded that the reports "leave much to be desired" and that none of them "should have been adopted without more by the District Court." In reversing for resubmission or for resolution by the trial court, the Court expressed important thoughts about use of Rule 53 reports:

"Conclusory findings are alone not sufficient, for the commission's findings shall be accepted by the court 'unless clearly erroneous'; and conclusory findings as made in these cases are normally not reviewable by that standard, even when the District Court reads the record, for it will have no way of knowing what path the commissioners took through the maze of conflicting evidence." 376 U.S. 192, 198, 84 S.Ct. 639, 643, 11 L.Ed.2d 629 (1964).

But Merz also expressed thoughtful advice for all of those concerned with a Rule 53 reference:

"[L]aymen can be instructed to reveal the reasoning they use in deciding ... what standard they try to follow, which line of testimony they adopt, what measure ... they use, and so on. We do not say that every contested issue raised on the record before the [master] must be resolved by a separate finding of fact. We do not say that there must be an array of findings of subsidiary facts to demonstrate that the ultimate finding ... is soundly and legally based. The path followed by the [master] in reaching [a decision] can, however, be distinctly marked. Such a requirement is within the competence of laymen; and laymen, like judges, will give more careful consideration to the problem if they are required to state not only the end result of their inquiry, but the process by which they reached it." Id. at 198-199, 84 S.Ct. at 643. (Footnotes omitted).

Thus, Merz recognized that the parties have an obligation to spell out required procedures in the order of reference. "An order of reference to a master may specify or limit the master's powers and may direct the master ... to do or perform particular acts...." NDRCivP 53(c). As in this case, masters are sometimes chosen for their expertise in other areas and are not always law-trained. We cannot expect such a master to adhere to legal standards of proceeding and reporting without clear instructions. As Merz said:

"[T]he litigants have a responsibility to assist the process by specifying their objections to instructions, by offering alternate ones, and by making their timely objections to the report in specific, rather than in generalized form, ..." Id. at 199, 84 S.Ct. at 643.

The record need not be the same in every case. As at a trial, each party must decide for himself what proof to offer, what documents to submit, and what record to make. Rule 53(c) says: "If a party so requests, the master[ ] shall...