Smithberg v. Smithberg

• Decision Date: 11 July 2019
• Docket Number: No. 20180420,20180420
• Citation: 931 N.W.2d 211
• Parties: Ronald SMITHBERG, Plaintiff and Appellant v. Gary SMITHBERG, James Smithberg, and Smithberg Brothers, Inc., Defendants and Appellees
• Court: North Dakota Supreme Court

931 N.W.2d 211

Ronald SMITHBERG, Plaintiff and Appellant

v.Gary SMITHBERG, James Smithberg, and Smithberg Brothers, Inc., Defendants and Appellees

No. 20180420

Supreme Court of North Dakota.

Filed July 11, 2019

Rehearing Denied August 22, 2019

Joel M. Fremstad, Fargo, ND, for plaintiff and appellant.

Sheldon A. Smith (argued) and David J. Smith (on brief), Bismarck, ND, for defendants and appellees.

Crothers, Justice.

[¶1] Ronald Smithberg appeals from a judgment ordering Smithberg Brothers, Inc., to purchase his interest in the family farm corporation for $169,985 and dismissing on summary judgment his other claims against the corporation and its remaining shareholders, Gary and James Smithberg. We conclude Ronald Smithberg raised genuine issues of material fact regarding his claims against the corporation and Gary and James Smithberg, and the district court erred in granting summary judgment dismissing those claims. The court’s valuation of Ronald Smithberg’s interest in the corporation is reversed because his interest cannot be valuated until his derivative claims on behalf of the corporation have been resolved. We reverse and remand for further proceedings.

I

[¶2] The Smithbergs are brothers who were shareholders in Smithberg Brothers, Inc., formed under the Corporate Farming Law, N.D.C.C. ch. 10-06.1, and based in Divide County. A fourth brother, Craig Smithberg, was an original shareholder in the corporation. At that time, Craig and Gary Smithberg each owned a 26 percent interest and Ronald and James Smithberg each owned a 24 percent interest in the corporation. Craig Smithberg died in 2010, his widow was appointed personal representative of his estate, and negotiations ensued for the purchase of his interest in the corporation. James Smithberg eventually purchased that interest, resulting in him owning 50 percent, Gary Smithberg owning 26 percent, and Ronald Smithberg owning 24 percent of the corporation.

[¶3] Following disagreements with his brothers over farming operations and attempts to negotiate his own buyout from the corporation, Ronald Smithberg brought this action seeking damages and to have the corporation and his brothers purchase his shares at fair value. He sought damages and other relief under 13 theories of liability ranging from duties and remedies provided under the Business Corporation Act, N.D.C.C. ch. 10-19.1, to tort, contract and equitable claims. The defendants moved for summary judgment arguing that the statutory claims under N.D.C.C. ch. 10-19.1 were barred by the protection of minority shareholder provisions of N.D.C.C. § 10-06.1-26, and in the alternative, that no genuine issues of material fact supported the statutory, tort, contract or equitable claims.

[¶4] The district court granted summary judgment dismissing all claims for damages. The court ruled the nine statutory claims under the Business Corporation Act were barred as a matter of law by the protection of minority shareholder provisions of the Corporate Farming Law, and Ronald Smithberg failed to raise genuine issues of material fact to support the four tort, contract and equitable claims. The court also denied Ronald Smithberg’s motions for reconsideration. After a bench trial to determine the value of Ronald Smithberg’s interest in the corporation, the court ruled the appropriate valuation date was June 10, 2016, the date the action was commenced, accepted the defendants' expert witness’s testimony that his 24 percent interest in the corporation was worth $169,985, and ordered the corporation to purchase his interest within 12 months or face dissolution.

II

[¶5] Ronald Smithberg argues the district court erred in granting summary judgment dismissing his claims for damages.

[¶6] The standard for reviewing summary judgments is well established:

"Summary judgment is a procedural device under N.D.R.Civ.P. 56(c) for promptly resolving a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. The party seeking summary judgment must demonstrate there are no genuine issues of material fact and the case is appropriate for judgment as a matter of law. In deciding whether the district court appropriately granted summary judgment, we view the evidence in the light most favorable to the opposing party, giving that party the benefit of all favorable inferences which can reasonably be drawn from the record. A party opposing a motion for summary judgment cannot simply rely on the pleadings or on unsupported conclusory allegations. Rather, a party opposing a summary judgment motion must present competent admissible evidence by affidavit or other comparable means that raises an issue of material fact and must, if appropriate, draw the court’s attention to relevant evidence in the record raising an issue of material fact. When reasonable persons can reach only one conclusion from the evidence, a question of fact may become a matter of law for the court to decide. A district court’s decision on summary judgment is a question of law that we review de novo on the record."

Cuozzo v. State, 2019 ND 95, ¶ 7, 925 N.W.2d 752 (quoting Dahms v. Nodak Mut. Ins. Co., 2018 ND 263, ¶ 6, 920 N.W.2d 293 ).

[¶7] Ronald Smithberg sought damages or other relief under 13 separate theories of liability. The first nine were based on the Business Corporation Act, N.D.C.C. ch. 10-19.1: 1) breach of fiduciary duties under N.D.C.C. §§ 10-19.1-50, 10-19.1-51 and 10-19.1-60 ; 2) oppression under the same statutes; 3) accounting under the same statutes; 4) derivative claims and payment of expenses under the same statutes; 5) direct claims under the same statutes; 6) removal of directors under N.D.C.C. § 10-19.1-41.1 ; 7) illegal distributions under N.D.C.C. § 10-19.1-95 ; 8) corporate dissolution under N.D.C.C. § 10-19.1-105 ; and 9) dissenting shareholder rights under N.D.C.C § 10-19.1-87. The remaining four theories were equitable, contract and tort claims: 10) unjust enrichment; 11) breach of contract; 12) conversion; and 13) deceit (denominated as "deceit or fraud").

A

[¶8] The district court agreed with the defendants that N.D.C.C. § 10-06.1-26 "provides the sole remedy to minority shareholders of farming corporations" and dismissed the nine statutory claims under the Business Corporation Act.

[¶9] Section 10-06.1-26, N.D.C.C., provides:

"If a shareholder owns less than fifty percent of the shares of a farming or ranching corporation doing business under this chapter, and if the terms and conditions for the repurchase of those shares by the corporation or by the other shareholders are not set forth in the bylaws or the instrument which transferred the shares to the shareholder, or are not the subject of a shareholders' agreement or an agreement between that shareholder and the corporation, then the disposition of such shares must be determined by this section upon the withdrawal of the shareholder. Any shareholder who desires to withdraw from the corporation shall first offer the shares for sale to the remaining shareholders in proportion to the shares owned by them. If not all of the shareholders wish to purchase the shares, any one shareholder may purchase all of the shares of the withdrawing shareholder. If no shareholder desires to purchase the shares of a withdrawing shareholder, then the corporation may purchase the shares. If the corporation chooses not to purchase the shares of the withdrawing shareholder, then the withdrawing shareholder may sell the shares to any other person eligible to be a shareholder. If the withdrawing shareholder is unable to sell the shares to any other person eligible to become a shareholder, then the withdrawing shareholder may bring an action in district court to dissolve the corporation. Upon a finding that the withdrawing shareholder cannot sell the shares at a fair price, the court shall enter an order directing that the corporation itself or any or all of the remaining shareholders pro rata or otherwise shall have twelve months from the date of the court’s order to purchase the shares of the withdrawing shareholder at a fair price as determined by the court and that if the shares of the withdrawing shareholder are not completely purchased at said price, the corporation shall be dissolved and the assets of the corporation shall be first used to pay all the liabilities of the corporation with the remaining net assets to be distributed pro rata to the shareholders in proportion to their ownership of shares. For the purpose of this section, a fair price for the shares of the withdrawing shareholder must be determined as though the shares were being valued for federal gift tax purposes under the Internal Revenue Code."

[¶10] Section 10-06.1-13, N.D.C.C., provides:

"Chapter 10-19.1 is applicable to farming or ranching corporations, which have the powers and privileges and are subject to the duties, restrictions, and liabilities of other business corporations except when inconsistent with the intent of this chapter. This chapter takes precedence in the event of any conflict with the provisions of chapter 10-19.1."

On appeal, the defendants do not attempt to support their previous argument and the district court’s ruling that the statutory claims under the Business Corporation Act are barred as a matter of law because of conflict with the Corporate Farm Law.

[¶11] Courts do not strive to find irreconcilable conflicts between statutory provisions. See, e.g., State ex rel. Dep't of Human Servs. v. N.D. Ins. Reserve Fund , 2012 ND 216, ¶ 12, 822 N.W.2d 38. "When statutes cover the same subject matter, we make every effort to harmonize and give meaningful effect to each statute without rendering one or the other largely useless." Richter v. Houser , 1999 ND 147, ¶ 15, 598 N.W.2d 193. The defendants and the district court failed to identify any irreconcilable conflict between the ...