Jundt v. Jurassic Resources Development

• Decision Date: 22 January 2003
• Docket Number: No. 20010313.,20010313.
• Citation: 2003 ND 9,656 N.W.2d 15
• Parties: Curtis D. JUNDT, Plaintiff, Appellee and Cross-Appellant, v. JURASSIC RESOURCES DEVELOPMENT, North America, L.L.C., a North Dakota limited liability company, Missouri River Royalty Corp., Rainbow Gas Company, Rainbow Energy Marketing Corp., Defendants, Appellants and Cross-Appellees, and Loren R. Kopseng, Defendant.
• Court: North Dakota Supreme Court

656 N.W.2d 15

2003 ND 9

Curtis D. JUNDT, Plaintiff, Appellee and Cross-Appellant, v. JURASSIC RESOURCES DEVELOPMENT, North America, L.L.C., a North Dakota limited liability company, Missouri River Royalty Corp., Rainbow Gas Company, Rainbow Energy Marketing Corp., Defendants, Appellants and Cross-Appellees, and Loren R. Kopseng, Defendant.

No. 20010313.

Supreme Court of North Dakota.

January 22, 2003.

Rehearing Denied February 21, 2003

Daniel S. Kuntz (argued), Tracy Vigness Kolb (appeared), and James S. Hill (on brief), Zuger, Kirmis & Smith, Bismarck, N.D., for plaintiff, appellee and cross-appellant.

Sheldon A. Smith (argued) and Scott K. Porsborg (appeared), Smith Bakke Oppegard Porsborg Wolf, Bismarck, N.D., for defendants, appellants and cross-appellees.

KAPSNER, Justice.

[¶ 1] Jurassic Resources Development, North America, L.L.C., a North Dakota limited liability company ("Jurassic"); Missouri River Royalty Corporation ("Missouri River"); Rainbow Gas Company ("Rainbow Gas"); and Rainbow Energy Marketing Corporation ("Rainbow Energy") appealed a judgment requiring them to cancel Curtis D. Jundt's membership interest units in Jurassic and pay him $300,000. Jundt cross-appealed from the judgment; a December 5, 2000, amended order on summary judgment motions; an October 12, 2000, order on a summary judgment motion; and a December 13, 2001, amended memorandum opinion and unchanged findings of fact, conclusions of law, and order for judgment. We affirm in part, reverse in part, and remand for further proceedings.

[¶ 2] In 1984, Loren Kopseng and Donald Russell formed Missouri River. Later, they and others formed a number of other companies, including Rainbow Gas, Rainbow Energy, Montana Heartland, L.L.C. ("Montana Heartland"), and United Energy Corporation, a holding company.

[¶ 3] Jundt left his position with Williston Basin Interstate Pipeline Company ("WBI") in 1997 and became an employee of Rainbow Gas. Jundt and Kopseng formed Jurassic. The initial members of Jurassic were Missouri River, Rainbow Gas, and Rainbow Energy.

[¶ 4] Jurassic's initial operating agreement executed on January 26, 1998, named the following individuals to Jurassic's Board of Governors: Jundt; Donald Russell, President of Missouri River; Loren Kopseng, President of Rainbow Gas; and Stacy Tschider, President of Rainbow Energy. Missouri River, Rainbow Gas, and Rainbow Energy invested money in Jurassic, and were issued a total of 10,000 membership units. Jundt did not invest money in Jurassic and did not, initially, receive any membership units in it.

[¶ 5] Russell, Kopseng, Tschider, and Jundt executed an after-payout statement of membership interest on January 26, 1998, providing, in part:

Time of Repayment. The members will be repaid their contributions at the time the present value of the proven reserves discounted by using the present value discounted at 30%; plus other assets of the company exceed the past capital contributions and any accrued future capital contributions plus interest calculated at the prime rate of BNC Bank of Bismarck. Jurassic Resources may make dividend payments to pay back the capital contribution amounts plus interest at their discretion anytime Jurassic Resources has the ability to pay dividends.

It also authorized the managing governors to issue Jundt a member certificate for 4,925 membership units (32.833 percent of 15,000 total membership units), as well as 75 units to two other individuals, "after the payout of the capital contributions and interest to Missouri River Royalty Corp., Rainbow Gas Company, and Rainbow Energy Marketing Corp."

[¶ 6] Jurassic's member control agreement, executed on January 26, 1998, provides in part:

3.08 Additional Capital Contributions. No member shall have any obligation to make additional capital contributions to the Company or to fund, advance, or loan monies which may be necessary to pay deficits, if any, incurred by the Company during the term hereof. Members may make loans to the Company from time to time, as authorized by the Board. Any payment or transfer accepted by the Company from a Member which is not a capital contribution complying with Section 3.01 shall be deemed a loan and shall neither be treated as a contribution to the capital of the Company for any purpose hereunder, nor entitle such Member (as such) to any increase in such Member's Percentage Interest. Any such loan shall be repaid at such times and with such interest (at rates not to exceed the maximum permitted by law) as the Board and the lending Member shall reasonably agree.

ARTICLE IV

TAX MATTERS

4.01 Tax Characterization and Returns. The Members acknowledge that the Company will be treated as a "partnership" for tax purposes. Within 90 days after the end of each fiscal year, the President will cause to be delivered to each person who was a Member at any time during such fiscal year a Form K-1 and such other information, if any, with respect to the Company as may be necessary for the preparation of such Member's federal or state income tax (or information) returns, including a statement showing each Member's share of income, gain, or loss and credits for such fiscal year for federal or state income tax purposes.

Jurassic began a program of gas exploration and production. Differences arose and Jundt left in 1999.

[¶ 7] Jundt sued to enforce his right to 4,925 membership units of Jurassic, and alleged Kopseng and the corporate defendants breached their obligation of good faith to Jundt and violated their fiduciary duties to Jurassic by, among other things, diverting a business opportunity belonging to Jurassic by acquiring property from WBI for Montana Heartland, which is owned by Jurassic's corporate members, rather than Jurassic.

[¶ 8] The trial court found, among other things:

3. All tax write-offs were by agreement of the parties to go to the money investors in the business venture they mutually agreed to pursue.

4. Shallow gas leases were acquired and developed into production in Montana through the efforts of the plaintiff and capital and loans contributed by the corporate defendants, as well as the efforts of the defendant Loren R. Kopseng.

5. The defendants acknowledged the plaintiff was entitled to his 4,925 membership interest units in Jurassic Resources Development North America, L.L.C., a North Dakota Limited Liability Company, effective March 9, 2000.

6. Concerns about the expenditure of company funds in the fall of 1998 led to action by the Board of Governors on February 22, 1999, which in turn led to the plaintiff's departure from the company.

7. The debts of the company exceed the appraisal value determined by the Special Master as of November 27, 2001.

8. The plaintiff and the defendants no longer have a business relationship that will allow them to work together.

9. The plaintiff's efforts in developing the assets of the company have contributed value to the company notwithstanding the debts the company has acquired in the process.

10. The defendant Loren R. Kopseng has not deliberately acted to oppress the plaintiff in his management or member interest units in the company.

The trial court concluded, among other things:

12. Through the efforts of the plaintiff and through the capital and loans provided by the corporate defendants, and through the efforts of the defendant Loren R. Kopseng, Jurassic Resources Development North America, L.L.C., a North Dakota Limited Liability Company, has acquired assets and value that are not entirely equitably offset by its debts.

13. Liquidation and partition are not appropriate equitable remedies in this case.

14. The plaintiff's claims against the defendant Loren R. Kopseng are DISMISSED WITH PREJUDICE.

15. It is equitable for a JUDGMENT to be AWARDED in favor of the PLAINTIFF against the remaining defendants canceling the plaintiff's membership interest units in Jurassic Resources Development North America, L.L.C., a North Dakota Limited Liability Company, and requiring the remaining defendants to pay the sum of $300,000 to the plaintiff.

The trial court's judgment dismissed Jundt's claims against Kopseng and ordered the corporate defendants to cancel Jundt's membership units in Jurassic and pay him $300,000.

[¶ 9] The corporate defendants appealed, contending the trial court abused its discretion in awarding Jundt $300,000 as an equitable remedy. Jundt cross-appealed, contending the trial court improperly granted summary judgment on part of his claim when it determined the defendants did not breach their fiduciary duty to Jurassic when they diverted a business opportunity (the acquisition of oil and gas properties controlled by WBI in the Pine Gas Field) belonging to Jurassic to Montana Heartland, which was owned by all of the corporate Jurassic owners. Jundt is not an owner of Montana Heartland.

I

[¶ 10] Jurassic, Missouri River, Rainbow Gas, and Rainbow Energy contend the district court abused its discretion in awarding Jundt $300,000 as an equitable remedy. "An abuse of discretion by the trial court is never assumed; the burden is on the party seeking relief to affirmatively establish it." Gepner v. Fujicolor Processing, Inc., 2001 ND 207, ¶ 13, 637 N.W.2d 681. "A trial court abuses its discretion only when it acts in an unreasonable, arbitrary, or unconscionable manner, when its decision is not the product of a rational mental process leading to a reasoned decision, or when it misinterprets or misapplies the law." Rose v. United Equitable Ins. Co., 2002 ND 148, ¶ 5, 651 N.W.2d 683.

[¶ 11] The parties stipulated to the appointment of a special master. The stipulation was formalized in an order drafted by Jundt's counsel, which appointed the Ryder Scott Company "as a Special Master pursuant to Rule 53, N.D.R.Civ.P., for the purpose of providing fair market value appraisals of" specified assets owned or controlled by Jurassic, Pine Gas Gathering Company, and Montana-Heartland Company. The order also provided:

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