Finstad v. Ransom-Sargent Water United Statesers, Inc.

• Decision Date: 17 July 2014
• Docket Number: No. 20130222.,20130222.
• Citation: 2014 ND 146,849 N.W.2d 165
• Parties: John N. FINSTAD and Lori L. Finstad, Plaintiffs, Appellants and Cross–Appellees v. RANSOM–SARGENT WATER USERS, INC., and/or Ransom–Sargent Water Users District, and/or Southeast Water Users District, and/or Southeast Water Users, and Jay Anderson, Scott Johnson, Don Lloyd, Don Smith, Larry Schultz and Patsy Storhoff, Defendants Ransom–Sargent Water Users, Inc., and/or Ransom–Sargent Water Users District, and/or Southeast Water Users District, and/or Southeast Water Users, Appellees and Cross–Appellants.
• Court: North Dakota Supreme Court

849 N.W.2d 165

2014 ND 146

John N. FINSTAD and Lori L. Finstad, Plaintiffs, Appellants and Cross–Appellees

v. RANSOM–SARGENT WATER USERS, INC., and/or Ransom–Sargent Water Users District, and/or Southeast Water Users District, and/or Southeast Water Users, and Jay Anderson, Scott Johnson, Don Lloyd, Don Smith, Larry Schultz and Patsy Storhoff, DefendantsRansom–Sargent Water Users, Inc., and/or Ransom–Sargent Water Users District, and/or Southeast Water Users District, and/or Southeast Water Users, Appellees and Cross–Appellants.

No. 20130222.

Supreme Court of North Dakota.

July 17, 2014.

Bruce A. Schoenwald, Moorhead, MN, for plaintiffs, appellants and cross-appellees.

Michael T. Andrews, Fargo, ND, for appellees and cross-appellants.

CROTHERS, Justice.

[¶ 1] John and Lori Finstad appeal from a judgment awarding them $53,000.99 in damages and interest in their action against Ransom–Sargent Water Users, Inc., now known as Southeast Water Users District (“District”), for breach of the lease-back provisions of an option agreement between the parties. The District cross-appealed from the judgment. We conclude the district court erred as a matter of law in ruling the economic duress doctrine relieved the Finstads of their obligations under a subsequent agreement and release they had entered into with the District. Because the agreement and release is valid and enforceable, we reverse the judgment.

I

[¶ 2] The Finstads owned 80 acres of a section of land in Ransom County and leased 240 adjacent acres in the same section from Willis and Doris Olson. The District was considering this tract of land as a potential site to drill water wells. In 1997, the Finstads and the Olsons granted to the District options to purchase the land. The options also allowed the Finstads and the Olsons to lease back the property for five years, after which they had a nonassignable right of first refusal to lease back the property for an additional five years. The option provided:

“Seller may lease the property back from Buyer for five years after the option is exercised at the rate of $10.00 per acre, payable in advance each year. Seller shall thereafter have a nonassignable right of first refusal in regard to the succeeding five year rental period.

“If leased back, Seller may only use the land for pasture and hayland purposes. No feedlots will be allowed, and the use of fertilizer and chemicals on said land will be prohibited unless Buyer gives explicit approval therefor.

“Any violation of the above-specified land use restrictions by the Seller/Tenant will result in immediate termination of the lease and the right of first refusal.”

In early 2001, the District exercised its options to purchase the property from the Finstads and the Olsons. At the closing of the sale in May 2001, the Finstads and the Olsons asked the District's attorney to draft a document assigning the Olsons' lease-back rights to the Finstads, and the document was executed the same day. The Finstads expressed their desire to lease back the property. At this time, the Finstads were having financial difficulties and their land sale proceeds went directly to a bank to prevent foreclosure.

[¶ 3] The Finstads planned to seed alfalfa on the land for the 2001 growing season, and a week after the closing John Finstad tilled a portion of the land to prepare it for seeding. A representative of the District contacted the Finstads and told them to stay off the land because the District had not determined a management plan for the surface of the property. Shortly after this warning, the Finstads' hired man mistakenly tilled an additional 20 acres of the property. A District representative again confronted the Finstads and told them to stay off the property. Because it believed the two tilling incidents violated the land use restrictions contained in the options, the District in July 2001 voted to terminate the Finstads' lease-back rights on the property. The Finstads were informed of the decision by letter.

[¶ 4] After the lease was terminated, John Finstad told the District that to maintain government Freedom to Farm, or Production Flexibility Contract (“PFC”), payments on the property, a current lease must be in place or the payments would be lost for 2001 and thereafter. As a political subdivision, the District was not eligible to receive the payments so a rental agreement needed to be executed. Ultimately, the District's attorney prepared two agreements. The first was a “Farm Rental Contract–Cash Rent” purporting to allow John Finstad to farm the property during 2001 for $1,441. The parties admit this was an artifice to allow John Finstad to receive the PFC payments. The farm rental contract stated it was “subject to a separate Agreement and Release signed concurrently herewith,” which was the second agreement involved in the transaction. The “Agreement and Release” provided in part:

“In consideration of Releasee executing a Cash Rent Contract on the date first listed above, granting to John Finstad the rental of the [subject property] and the right to collect all government payments available for 2001 because of said land, Releasors voluntarily and knowingly execute this Agreement and Release with the express intention of effecting the extinguishment of obligations as herein designated.

Releasors, with the intention of binding themselves, their heirs and assigns, expressly agree as follows:

1. As of the date hereof, their membership in Ransom–Sargent Water Users District shall be paid in full.

2. Releasors hereby release and discharge all rights they have to the [Finstads' former property] by reason of an Option to Purchase Real Property dated November 14, 1997, including all lease back rights and rights of first refusal contained therein.

3. Releasors hereby release and discharge all rights they have to the [Olsons' former property] by reason of an Assignment dated May 25, 2001 and signed by Willis L. Olson and Doris E. Olson.

4. Releasors specifically agree to remove all personal property owned by them which is now located on the [subject property] as soon as possible; provided, however, that they shall first contact Joel Heitkamp to advise him of the time for removal of said property.

5. Notwithstanding the Cash Rent Contract signed concurrently herewith, Releasors specifically agree that they will not enter upon any part of the [subject property] for any reason, from and after the date hereof, without the express permission of Joel Heitkamp.”

[¶ 5] The Finstads continued experiencing financial difficulties during this period and the couple discussed the two contractsbefore they signed them. John Finstad testified:

“So when I took the two agreements home to my wife, like I said before, and I'm not going to go into detail, but we were under a lot of stress and I told my wife I have no strength for this. And my wife and I both agreed that rather than trying to fight the district and everything else that we didn't have the strength to do we turned around and we thought we'd just cooperate and try to preserve our rights to rent the land back at some point in time.”

Before entering into the contracts, the District's attorney received the approval of the local FSA office. After the contracts were signed, John Finstad took them to the FSA office for approval and eventually received a $2,500 PFC payment. In 2003, the District advertised for bids for the right to lease the land, but rejected the bid offered by the Finstads even though it was higher than the accepted bid.

[¶ 6] In 2006, the Finstads sued the District and its board members, but the district court dismissed the action without prejudice because the Finstads had filed for bankruptcy. The Finstads recommenced the action in 2009, alleging the District violated the option agreement by cancelling their lease-back rights, the District obtained the agreement and release through fraud, duress or coercion and the District had wrongfully rejected their bid to lease the property. In Finstad v. Ransom–Sargent Water Users, Inc., 2011 ND 215, ¶ 1, 812 N.W.2d 323, we reversed summary judgment dismissing the action, concluding the court erred in applying the three-year statute of limitations of N.D.C.C. § 32–12.1–10 to the Finstads' contract claims, and we remanded for further proceedings.

[¶ 7] Following a bench trial, the district court rejected the District's affirmative defense that the Finstads forfeited their lease-back rights and had no right to bring the action because of the agreement and release they signed in conjunction with the farm rental contract. The court found the agreement and release was “legally ineffective” because it was procured under economic duress. The court rescinded the agreement and release, found the Finstads had not breached the option to purchase agreement by tilling the land and found the District had breached the rental agreement contained in the option by not allowing the Finstads to exercise their lease-back rights. The court awarded the Finstads $53,000.99 in damages and interest for the District's breach of contract.

II

[¶ 8] On appeal, the Finstads argue the district court erred by using the wrong measure of damages and by refusing to allow damages for the full 10–year term of the breached lease. It is unnecessary to address these issues because the dispositive issue, raised in the District's cross-appeal, is whether the court erred in rescinding the agreement and release based on the economic duress doctrine.

[¶ 9] Although not expressly adopted in North Dakota, the economic duress doctrine has been analyzed in several North Dakota cases going back many years. See, e.g., Community Homes of Bismarck, Inc. v. Main, 2011 ND 27, ¶ 16, 794 N.W.2d 204; Bye v. Mack, 519 N.W.2d 302, 305–06 (N.D.1994), disapproved of on other grounds by Dan Nelson Constr., Inc. v. Nodland & Dickson, 2000 ND 61, ¶ 15 n. 1, 608 N.W.2d 267; Mellon v. Norwest Bank, 493 N.W.2d 700, 702–04 (N.D.1992); ...