McColl Farms, LLC v. Pflaum

• Decision Date: 25 September 2013
• Docket Number: No. 20130053.,20130053.
• Citation: 837 N.W.2d 359,2013 N.D. 169
• Parties: McCOLL FARMS, LLC, Plaintiff and Appellant and Aaron McColl, personally, Plaintiff v. Lisa Rae PFLAUM, f/k/a Lisa Rae McColl, Defendant and Appellee.
• Court: North Dakota Supreme Court

837 N.W.2d 359

2013 ND 169

McCOLL FARMS, LLC, Plaintiff and AppellantandAaron McColl, personally, Plaintiff

v.Lisa Rae PFLAUM, f/k/a Lisa Rae McColl, Defendant and Appellee.

No. 20130053.

Supreme Court of North Dakota.

Sept. 25, 2013.

Appeal from the District Court of Pembina County, Northeast Judicial District, the Honorable M. Richard Geiger, Judge.

DeWayne A. Johnston(argued) and Jacey L. Johnston(appeared), Grand Forks, N.D., for plaintiff and appellant.

Michael L. Gjesdahl, Insight Professional Offices, Fargo, N.D., for defendant and appellee.

MARING, Justice.

[¶ 1]McColl Farms, LLC, appeals from district court orders ¹ dismissing its claims against Lisa Pflaum for unjust enrichment, misappropriation, racketeering, and conversion and ordering McColl Farms and its attorney to pay her attorney's fees.We affirm the district court's dismissal of the claims for misappropriation, racketeering, and conversion.We reverse the order of the district court dated July 17, 2012, granting dismissal as to Count I—unjust enrichment, the order of the district court dated December 5, 2012, ordering sanctions, and the judgment of dismissal dated December 10, 2012.We remand for further proceedings consistent with this opinion.

I

[¶ 2] McColl Farms is a limited liability company with three members.Cynthia McColl held a majority interest and Aaron McColl and Katie Watson held minority interests.Aaron McColl was employed by McColl Farms.Aaron McColl was married to Pflaum until their December 2009 divorce.

[¶ 3] In December 2011, McColl Farms and Aaron McColl sued Pflaum for unjust enrichment, coercion, conversion, misappropriation, and racketeering.They alleged that Pflaum, individually or in concert with Aaron McColl, converted and misappropriated more than $650,000 from McColl Farms between 2007 and 2009.

[¶ 4] On December 23, 2011, Pflaum moved to dismiss the action for failure to state a claim upon which relief can be granted under N.D.R.Civ.P. 12(b)(6) or alternatively for summary judgment under N.D.R.Civ.P. 56.On December 20, 2011, Pflaum moved for sanctions under N.D.R.Civ.P. 11.On March 7, 2012, McColl Farms and Aaron McColl moved for partial summary judgment.The motion for summary judgment was accompanied by an affidavit from DeWayne Johnston, McColl Farms and Aaron McColl's attorney, with exhibits attached, including documents related to Aaron McColl and Pflaum's banking records.Pflaum objected to the admission of Johnston's affidavit.Later, Aaron McColl and Cynthia McColl also filed affidavits in support of the motion for summary judgment.

[¶ 5] A hearing was held on the motions to dismiss and for sanctions on April 10, 2012, and the district court indicated it was not going to consider the motions for summary judgment at that time and it directed the parties to submit additional briefs and documentation relating to Pflaum's request for attorney's fees.On May 8, 2012, the court was advised Aaron McColl died.On July 19, 2012, the court granted Pflaum's motion and dismissed all of the claims against Pflaum brought by Aaron McColl and his estate.The court also dismissed all of McColl Farms' claims except the claim for conversion.The court stated it would consider summary judgment on the remaining claim for conversion after the parties had an opportunity to submit additional affidavits or evidentiary references and responsive briefs.The court advised the parties that it would not consider Johnston's affidavit because it was not based on personal knowledge.The court deferred its ruling on Pflaum's request for sanctions.

[¶ 6] On October 2, 2012, McColl Farms moved to clarify the record about Johnston's affidavit.On December 5, 2012, the court denied the motion to clarify the record and ordered that it would not consider Johnston's affidavit and attached exhibits when it ruled on the motion for summary judgment.The court ruled Johnston did not have personal knowledge of the banking records or any other evidence to establish a foundational basis for admission of the exhibits.

[¶ 7] On December 5, 2012, the court entered an order granting Pflaum's motion for summary judgment and dismissing McColl Farms' conversion claim.The court held Aaron McColl's affidavit and any statements he made to Cynthia McColl that are contained in her affidavit are hearsay and not admissible.The court further held the statements are not admissible under N.D.R.Evid. 804(b)(3) as statements against interest and the statements would not be considered by the district court in addressing Pflaum's motion for summary judgment.The court dismissed the conversion claim holding there was no admissible evidence that Pflaum transferred any funds from McColl Farms' accounts or from any other source to Pflaum and Aaron McColl's joint personal account and there was no evidence Pflaum knew that Aaron McColl was not authorized to place the McColl Farms' funds in their joint account.The court also ordered McColl Farms, Aaron McColl or his estate, and Johnston, jointly and severally, to pay $14,500 in attorney's fees and expenses to Pflaum.A judgment dismissing the action was subsequently entered on December 10, 2012.

[¶ 8] On February 13, 2013, McColl Farms filed a notice of appeal.Pflaum moved to dismiss Aaron McColl and his estate as an appellant and moved for attorney's fees and costs incurred in responding to the appeal.

II

[¶ 9] McColl Farms argues the district court erred in continuing to exercise jurisdiction over Aaron McColl after his death.They contend an action only continues against the remaining parties after one party's death unless a party is brought in by substitution, there was no order or motion for substitution, filing and serving the notice of death dismissed the action against Aaron McColl, and the court erred in assessing sanctions against Aaron McColl's estate.

[¶ 10] To have standing to litigate an issue a party must have suffered some injury from the putatively illegal action and the party must assert his own legal rights and interests and cannot rest his claim on the legal rights and interests of third parties.SeeIn re J.D.F.,2010 ND 160, ¶ 14, 787 N.W.2d 738.McColl Farms does not have standing to raise any issues about whether the court erred in deciding Aaron McColl's claims on the merits or ordering sanctions.

[¶ 11] Furthermore, neither Aaron McColl nor his estate filed a notice of appeal, and therefore Aaron McColl did not appeal the court's orders or judgments, including the judgment for sanctions.SeeN.D.R.App.P. 3(a)(an appeal to the supreme court may be taken only by filing a notice of appeal).Therefore, we also deny Pflaum's motion to dismiss any appeal taken on behalf of Aaron McColl or his estate.

III

[¶ 12] McColl Farms argues the court erred in granting Pflaum's motion under N.D.R.Civ.P. 12(b)(6) and dismissing its claims for unjust enrichment, misappropriation, and racketeering.McColl Farms does not argue the court erred in dismissing its coercion claim.

A motion to dismiss a complaint under N.D.R.Civ.P. 12(b)(6) tests the legal sufficiency of the statement of the claim presented in the complaint.We construe the complaint in the light most favorable to the plaintiff, taking as true the well-pleaded allegations in the complaint.Under N.D.R.Civ.P. 12(b)(6), a complaint should not be dismissed unless it is disclosed with certainty the impossibility of proving a claim upon which relief can be granted.We will affirm a judgment dismissing a complaint for failure to state a claim if we cannot discern a potential for proof to support it.

Moseng v. Frey,2012 ND 220, ¶ 5, 822 N.W.2d 464(citations and quotations omitted).

A

[¶ 13] Pflaum argues the claims were properly dismissed because privity exists between Aaron McColl and McColl Farms.Pflaum contends Aaron McColl and McColl Farms were attempting to collaterally attack Aaron McColl and Pflaum's divorce judgment and property distribution, res judicata applies, the parties are bound by the divorce judgment, and therefore the entire case should have been dismissed.

[¶ 14] Res judicata prohibits the relitigation of claims or issues that were raised or could have been raised in a prior action between the same parties or their privies.Hofsommer v. Hofsommer Excavating, Inc.,488 N.W.2d 380, 383(N.D.1992).Only parties or their privies may be bound by a former judgment under the doctrine of res judicata.Id. at 384.“[P]rivity exists if a person is ‘so identified in interest with another that he represents the same legal right.’ ”Id.(quoting46 Am.Jur.2dJudgments§ 532(1969)).Fundamental fairness underlies the determination of privity.Hofsommer,at 384.

[¶ 15]The district court rejected Pflaum's argument, ruling privity did not exist and preclude McColl Farms from pursuing its claims.The court ruled there could be no mutuality of the rights or interests between McColl Farms and Aaron McColl when Aaron McColl's misappropriation deprived the other members from financial resources.McColl Farms was not a party in the divorce proceedings and Aaron McColl only held a minority interest in the company.Privity does not exist and the claims were not precluded by res judicata.

B

[¶ 16]The district court dismissed McColl Farms' unjust enrichment claim, holding that “on the face of the pleadings” McColl Farms would be unable to prove a claim for unjust enrichment.The district court held the availability of unjust enrichment as a remedy requires the absence of a remedy provided by law and McColl Farms had a remedy at law in its claim for conversion.McColl Farms argues recovery can be sought under several theories or alternative theories and the unjust enrichment claim should not have been dismissedon the basis of failure to state a claim upon which relief can be granted.

[¶ 17] Claims for relief may be sought under different or alternative theories.N.D.R.Civ.P. 8(a);Hagert v. Hatton Commodities, Inc.,350 N.W.2d 591, 594(N.D.198...