Grengs v. Grengs

• Docket Number: 20230105
• Decision Date: 15 December 2023
• Parties: Greg Grengs, Plaintiff v. Lisa Grengs, Defendant and Appellee and GLG Farms, LLC, Intervenor and Appellant
• Court: North Dakota Supreme Court

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2023 ND 239

Greg Grengs, Plaintiff
v.
Lisa Grengs, Defendant and Appellee

and GLG Farms, LLC, Intervenor and Appellant

No. 20230105

Supreme Court of North Dakota

December 15, 2023

Appeal from the District Court of Renville County, Northeast Judicial District, the Honorable Anthony S. Benson, Judge.

H. Malcolm Pippin, Williston, ND, for defendant and appellee.

Michael L. Gust, Fargo, ND, for intervenor and appellant.

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OPINION

Crothers, Justice.

[¶1] GLG Farms, LLC appeals the district court's order for contempt. GLG argues the court erred in determining two new LLC members who bought an interest in GLG were not required to execute a mortgage previously ordered by the court, erred by concluding the addition of two new members had little practical impact on the order that a mortgage be executed, erred in concluding an agreement in bankruptcy court had little impact on the court's decision, and failed to sufficiently describe the terms of the mortgage. We affirm and conclude GLG's argument that North Dakota law does not have a standard mortgage is frivolous, warranting sanctions.

I

[¶2] On July 20, 2017, Greg Grengs filed for divorce from Lisa Grengs, now Lisa Genareo. The divorce was granted and, on July 9, 2019, the district court ordered GLG's property be mortgaged to provide Genareo security for a "property settlement payment" valued at $1,300,000. Grengs then was the sole member of GLG and held complete control of its decision making. GLG was established by Grengs to hold ownership of Grengs' farm property and equipment. On March 3, 2020, Grengs paid Genareo $150,000. In September 2020, the district court granted Genareo's motion to place Grengs' and GLG's operation in receivership. The court ordered the receivership to control GLG's operation and make operating decisions for the LLC. Grengs personally and on behalf of GLG objected to the receivership. Grengs appealed the divorce and subsequent proceedings. Grengs v. Grengs, 2020 ND 242, 951 N.W.2d 260 (Grengs I). In Grengs I, this Court affirmed the district court's finding that Grengs was in contempt for failing to provide Genareo with a security interest and mortgage on property owned by GLG. Id. at ¶ 27.

[¶3] Weeks later, Grengs and GLG filed for bankruptcy protection. Grengs petitioned the bankruptcy court to sell 5% of GLG for $75,000. On December 22, 2020, the bankruptcy court permitted Grengs to sell 1% of GLG for $15,000

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to Ian Thomas and Myla Grengs, Grengs' step-son and daughter who was a senior in high school. Thomas and Myla Grengs each purchased a half percent of GLG. On January 1, 2021, GLG added Thomas and Myla Grengs as member-managers to the LLC and changed Grengs' position from president to membermanager. All member-managers have equal voting rights and management powers. GLG's operating agreement requires a majority vote approving entry into an agreement outside the normal course of business and to encumber land.

[¶4] While the bankruptcy action was pending, the parties negotiated a settlement agreement. That agreement incorporated a recital stating, "In order to develop a plan in which Grengs can pay the remainder of his obligation to Genareo, the Parties mediated their dispute with the assistance of Bankruptcy Judge William Fisher serving as mediator." On February 23, 2021, as a product of the mediation Grengs, GLG, and Genareo resolved the bankruptcy cases by agreeing to mortgage and payment terms, and executing a stipulation. Grengs signed the stipulation for himself and GLG. Grengs and GLG represented in the stipulation that they executed the agreement after receiving advice of counsel. All parties represented that, "intending to be legally bound, [they] have caused this Agreement to be executed effective as of the date above by their duly authorized representatives." They also represented they "will execute and deliver any document or instrument reasonably requested by any of them after the date of the Agreement that may be necessary or desirable to obtain the approvals required hereby and consummate or effectuate the intent of this Agreement." Thomas and Myla Grengs did not sign the stipulation, even though they were member-managers at the time.

[¶5] The stipulation stated Grengs and GLG "will file a motion seeking approval of this Agreement or dismissal of the bankruptcy cases from the bankruptcy court within three business days of its execution." Grengs and GLG did not obtain approval of the stipulation, but GLG confirmed at oral argument that the stipulation contained the terms of the agreement between all parties, and that it was enforceable without bankruptcy court approval.

[¶6] In accord with terms of the stipulation, and upon the parties' request, on March 30, 2021, the district court removed the receivership and released a

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$115,000 bond to Genareo from Grengs. The next day the bankruptcy court dismissed the Chapter 12 proceedings for Grengs and GLG without objection from Genareo.

[¶7] In September 2021, Genareo moved in state court to compel Grengs to comply with the payment terms and the mortgage requirement of the stipulation. On December 28, 2021, the district court heard arguments to determine if it held jurisdiction. Grengs petitioned the bankruptcy court to reopen the case and reassume jurisdiction; however, the bankruptcy court found it did not retain jurisdiction.

[¶8] On May 5, 2022, Genareo filed another motion in district court to hold Grengs in contempt. On June 9, 2022, the court granted GLG's motion to intervene. GLG intervened 415 days after Grengs signed the bankruptcy stipulation for himself and GLG. On September 7, 2022, the court held a hearing on the contempt motions. On November 29, 2022, Genareo filed another contempt motion.

[¶9] On February 17, 2023, the district court ordered Grengs and GLG to create a mortgage that matches the bankruptcy stipulation terms and provisions. The court found the new member-managers had "little practical consequence to the Court as regards the issue of the mortgage," the mortgage terms must match the agreement and did not require Genareo to renegotiate terms of the mortgage with GLG, even though the agreement had "no appreciable impact to this Court's current decision." The court ordered Grengs and GLG to use a "standard mortgage" that is "fully and properly executed" in favor of Genareo with provisions and terms "identical to the terms of the" bankruptcy stipulation. GLG timely appealed.

II

[¶10] GLG argues the district court erred by finding that adding two new member-managers to GLG had little impact on the court's order requiring GLG to execute a mortgage in favor of Genareo and that the bankruptcy stipulation did not appreciably impact its decision.

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[¶11] This Court applies "de novo standard of review for questions of law, a clearly erroneous standard of review for questions of fact, and an abuse of discretion standard of review for discretionary matters." Bertsch v. Bertsch, 2006 ND 31, ¶ 6, 710 N.W.2d 113.

[¶12] In Grengs I, we affirmed the district court's order holding Grengs in contempt for failing to execute a mortgage on GLG's real estate, securing Genareo's payment of divorce proceedings. Grengs I, 2020 ND 242, ¶ 27. By this appeal GLG essentially asks us to revisit that holding after Grengs and GLG engaged in conduct aimed at avoiding the district court's order and after GLG stipulated to mortgaging GLG's property. The district court rejected Grengs' and GLG's latest efforts but did not articulate a legal basis for determining the two new member-managers and the bankruptcy stipulation did not alter GLG's obligation to execute a mortgage.

[¶13] The resolution of the issues raised in this appeal requires application of agency law. Application of agency law requires the answers to four questions. The first is whether Grengs' actions for GLG, including attending the mediation, negotiating the stipulation and signing the agreement for GLG, show he acted as GLG's ostensible agent who had apparent authority to conduct business? See N.D.C.C. § 3-02-02 ("An agent has such authority as the principal actually or ostensibly confers upon the agent."); Transamerica Ins. Co. v. Standard Oil Co., 325 N.W.2d 210, 214 (N.D. 1982) (same); N.D.C.C. § 3-01-03 (defining actual and ostensible agency); Hagel v. Buckingham Wood Prod., Inc., 261 N.W.2d 869, 877 (N.D. 1977) (Principal "is bound by the mere ostensible authority it created and permitted to continue."). Second, if Grengs acted as ostensible agent, did he bind GLG via agent-principal relationship? N.D.C.C. § 3-03-03 ("A principal is bound by acts of his agent under a merely ostensible authority to those persons only who in good faith and without ordinary negligence have incurred a liability or parted with value upon the faith thereof."); Hagel, at 874-75; Pfliger v. Peavey Co., 310 N.W.2d 742, 747 (N.D. 1981). Third, did Genareo exercise diligence and prudence in determining whether Grengs acted with apparent authority on behalf of GLG? Hagel, at 875. Fourth, did GLG ratify or fail to timely disavow Grengs' acts once it learned of them? Askew v. Joachim Memorial Home, 234 N.W.2d 226, 237-38 (N.D. 1975)

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(ratification may be by express or implied conduct that is inconsistent with principal's intent to repudiate an agent's action); Kahn v. Britt, 765 S.E.2d 446, 455 (Ga.Ct.App. 2014) (principal ratifies agent's actions by failing to timely object to those actions); Great American Fin. Servs. Corp. v. Natalya Rodionova Med. Care, P.C., 956 N.W.2d 148, 154 (Iowa 2021) (same).

A

[¶14] We combine the first two questions to consider whether Grengs was an ostensible agent of GLG who acted with apparent authority, and whether, acting as an ostensible agent, Grengs bound GLG to the bankruptcy stipulation as a consequence of an agent-principal relationship.

[¶15] "Agency is generally a question of fact." Lagerquist v. Stergo...