Lucas v. Porter

Decision Date28 August 2008
Docket NumberNo. 20070169.,20070169.
Citation755 N.W.2d 88,2008 ND 160
PartiesA. William LUCAS, Plaintiff and Appellant v. James E. PORTER, Shelly Porter, Leonard W. Becker, First State Bank of Wilton, First Wilton Bancshares, Ltd., Defendants and Appellees.
CourtNorth Dakota Supreme Court

A. William Lucas, pro se, Bismarck, N.D., for plaintiff and appellant.

Richard P. Olson, Olson & Burns, P.C., Minot, N.D., for defendants and appellees James E. Porter, Shelly Porter, First State Bank of Wilton, and First Wilton Bancshares, Ltd.

Sheldon A. Smith, Smith Bakke Porsborg & Schweigert, Bismarck, N.D., for defendant and appellee Leonard W. Becker.

KAPSNER, Justice.

[¶ 1] A. William Lucas appeals from a judgment dismissing his action against James E. Porter, Shelly Porter, Leonard W. Becker, First Wilton Bancshares, Ltd., and First State Bank of Wilton. Lucas argues the district court erred in deciding this action constituted the improper splitting of a cause of action. We hold Lucas's prior action, Lucas I, and this action, Lucas II, arose out of the same facts and circumstances, and this action constitutes the improper splitting of a cause of action. We affirm.

I

[¶ 2] In Lucas I, Lucas initially sued James Porter, Bancshares, and First State Bank in a complaint dated December 11, 2003, regarding the sale of Bancshares' stock and the ownership of First State Bank. Lucas subsequently amended his complaint to name only Bancshares and First State Bank as defendants. Lucas alleged Bancshares was created as a holding company to own stock in First State Bank; Lucas and James Porter each owned thirty percent and Becker owned forty percent of Bancshares' stock; Lucas and James Porter had agreed to maintain equal ownership of Bancshares' stock and made a joint written offer to purchase Becker's shares of Bancshares, but James Porter later individually purchased Becker's shares without Lucas's knowledge; and James Porter thereafter used Bancshares as a "vehicle of oppression" to effectively freeze Lucas out of his shareholder rights in First State Bank. Lucas alleged that, at all relevant times, Bancshares and First State Bank were acting through James Porter as their agent, employee, president, chief executive officer, and director and that each corporation was liable for James Porter's actions. In Lucas I, Lucas sought: (1) involuntary dissolution of Bancshares under N.D.C.C. § 10-19.1-115; (2) an order directing Bancshares to deliver to Lucas thirty percent of its stock in First State Bank; (3) damages for conversion of Lucas's stock of First State Bank; (4) an order allowing Lucas to vote his shares of stock of First State Bank held by Bancshares; (5) an order prohibiting First State Bank from conducting a 2004 shareholder meeting until the court decided the procedure for voting First State Bank's stock held by Bancshares; and (6) an award of attorney's fees.

[¶ 3] In October 2006, shortly before trial in Lucas I, Lucas sued James and Shelly Porter, Becker, Bancshares, and First State Bank in this action, Lucas II, alleging Lucas and James Porter offered to jointly purchase Becker's stock in Bancshares, but James Porter separately purchased Becker's stock and James Porter thereafter voted his shares of stock of Bancshares in a manner that prevented Lucas from engaging in the management of Bancshares and First State Bank. Lucas claimed James Porter was "grossly mismanaging" First State Bank "to serve [Porter's] own personal interests, including the oppression of [Lucas's] shareholder rights." Lucas's complaint in Lucas II alleged: (1) a claim against James Porter for breach of a contract to purchase Becker's Bancshares' stock in equal shares; (2) claims against James Porter and Becker for breach of fiduciary duty, fraud, and tortious interference with Lucas's contractual rights regarding the purchase of Becker's stock; (3) a claim against James and Shelly Porter and Becker for oppression of a minority shareholder for freezing Lucas out as a minority shareholder of Bancshares and First State Bank; (4) claims against James Porter and Bancshares for a constructive trust and for specific performance of the alleged agreement to equally purchase Becker's Bancshares' stock; (5) a claim against James and Shelly Porter for conversion; (6) a claim against James Porter, Bancshares, and First State Bank for removal of James Porter as director and shareholder of First State Bank and Bancshares; (7) a claim against First State Bank and Bancshares for vicarious liability; (8) and claims against all the defendants for attorney's fees, an accounting, and for recission of the transactions between James Porter and Becker.

[¶ 4] The Lucas I trial was held on October 18 and 19, 2006. On October 24, 2006, the Porters, Bancshares, and First State Bank moved to dismiss the Lucas II complaint, arguing the allegations in that action were identical or similar to Lucas I and arose out of the same facts and circumstances. They claimed the allegations in Lucas II constituted the improper splitting of a cause of action. Becker subsequently answered and also claimed Lucas II constituted the improper splitting of a cause of action.

[¶ 5] At an April 3, 2007, hearing on the defendants' motion to dismiss Lucas II, the district court orally directed counsel for the defendants to prepare an order dismissing that action. On April 9, 2007, the court signed an order for judgment of dismissal of Lucas II, concluding it constituted an improper splitting of a cause of action under Farmers Ins. Exch. v. Arlt, 61 N.W.2d 429 (N.D.1953).

[¶ 6] Although not part of the record in Lucas II, the parties do not dispute the Lucas I court issued findings of fact and a judgment in Lucas I on April 6, 2007. The Lucas I judgment denied Lucas's request to involuntarily dissolve Bancshares, but granted him other equitable relief. The Lucas I court found: (1) Bancshares had not converted Lucas's stock in First State Bank; (2) Porter had discharged his duties as officer and director of Bancshares in good faith and in a manner reasonably believed to be in the best interests of Bancshares and First State Bank; (3) the officers and directors of Bancshares had not acted fraudulently or illegally towards Lucas; (4) the actions by the directors and those in control of Bancshares and First State Bank, in effectively freezing Lucas out, were unfairly prejudicial to Lucas; and (5) the assets of Bancshares and First State Bank were not being misapplied or wasted. The Lucas I court recognized Lucas II had recently been filed, which "complicate[d] the Court's ability to fashion an appropriate resolution," and "[u]ltimately how the ownership and operation of both corporations will turn out depends in part on whether there is any legally mandated change in the [corporate] ownership interests of Lucas and Porter" in Lucas II. The Lucas I court recognized it could order shareholders to sell their shares of Bancshares to achieve a fair and equitable result, but James Porter was no longer a defendant in Lucas I. The Lucas I court thus decided it could only order the sale of Lucas's shares and said:

[A]t this time it is not appropriate to make such a final determination since there is the other pending lawsuit [, Lucas II,] which is unresolved.... However, the Court reserves the right to consider such an equitable remedy after [Lucas II] is resolved and upon proper motion being filed in this case by [Bancshares] or a shareholder in [Bancshares] within 120 days after that case is finalized. If such motion is filed the Court would then consider in its discretion and after notice and hearing whether such an order would be fair and equitable to all parties under the circumstances.

[¶ 7] The Lucas I court refused to order the involuntarily dissolution of Bancshares, but because Lucas had been unfairly prejudiced, the court found Lucas was entitled to other equitable relief, including:

A. The court's reserved right to have Lucas bought out at a fair value as contemplated in [N.D.C.C. § 10-19.1-115].

B. [Bancshares] shall distribute one share of common stock of [First State] Bank to Lucas.

C. While Lucas remains a shareholder of [Bancshares] he shall be permitted to vote at [First State] Bank Shareholder meetings his 30% of the 2,200 shares of Bank common stock held by [Bancshares], less the one share distributed directly to Lucas as noted above.

D. While Lucas remains a shareholder of [Bancshares] he shall have all rights granted to shareholders in North Dakota as provided by North Dakota law, including cumulative voting, inspection of records, and the ability to bring direct and derivative actions.

E. The parties to this action are free to and encouraged by the Court to consider negotiating a mutually acceptable remedy other than noted by the Court in these conclusions of law which both parties mutually find will resolve the differences which presently exist between Lucas and the other shareholder, Porter, and [First State] Bank and [Bancshares].

F. Lucas is awarded attorney's fees against [Bancshares] in an amount to be approved by the Court and is also awarded statutory costs and disbursements as provided by North Dakota law.

II

[¶ 8] Although the defendants moved to dismiss this action under N.D.R.Civ.P. 12, the defendants presented exhibits to the district court outside the pleadings in this action. Under N.D.R.Civ.P. 12(c) "[i]f, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment." The district court did not explicitly exclude the defendants' exhibits, and because the court received exhibits that were outside the pleadings in this action, we consider the issues raised in this appeal in the posture of summary judgment. Witzke v. City of Bismarck, 2006 ND 160, ¶¶ 5-6, 718 N.W.2d 586. In Witzke, at ¶ 7 (citations omitted), we outlined our standards for review of a summary...

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