Vorachek v. Citizens State Bank of Lankin, 11239

• Decision Date: 04 March 1988
• Docket Number: No. 11239,11239
• Parties: Joseph VORACHEK, Georgetta Vorachek, Bernadine Mahon, and Lynette O'Linn, State ex rel. Citizens State Bank of Lankin, Plaintiffs and Appellees, v. CITIZENS STATE BANK OF LANKIN, a North Dakota Corporation, LaVerne V. Gaarder, personally and as Personal Representative of M.W. Vorachek Estate, W.J. Vorachek, and Roger Vorachek, Defendants and Appellants. Civ.
• Court: North Dakota Supreme Court

Page 45

421 N.W.2d 45

Joseph VORACHEK, Georgetta Vorachek, Bernadine Mahon, and Lynette O'Linn, State ex rel. Citizens State Bank of Lankin, Plaintiffs and Appellees, v. CITIZENS STATE BANK OF LANKIN, a North Dakota Corporation LaVerne V. Gaarder, personally and as Personal Representative of M.W. Vorachek Estate, W.J. Vorachek, and Roger Vorachek, Defendants and Appellants.

Civ. No. 11239.

Supreme Court of North Dakota.

March 4, 1988.

Miller, Norman, Kenney & Williams, Moorhead, Minn., for plaintiff and appellee Joseph Vorachek; argued by Michael J. Williams.

Mack, Moosbrugger, Ohlsen, Dvorak & Carter, Grand Forks, for plaintiff and appellee Georgetta Vorachek. Appearance by John H. Moosbrugger.

Fleming, DuBois & Trenbeath, Cavalier, for plaintiffs and appellees Bernadine Mahon and Lynette O'Linn; argued by Neil W. Fleming.

Brink, Sobolik, Severson, Vroom & Malm, Hallock, Minn., for defendant and appellant Citizens State Bank of Lankin; argued by Dennis M. Sobolik.

Pearson & Christenson, Grand Forks, for defendant and appellant LaVerne V. Gaarder, personally and as Personal Representative of M.W. Vorachek Estate; argued by Garry A. Pearson.

Hamilton & Flaten, Grand Forks, for defendant and appellant W.J. Vorachek; argued by R. Lee Hamilton.

Roger Vorachek, pro se.

GIERKE, Acting Chief Justice.

Citizens State Bank of Lankin, LaVerne Gaarder, Roger Vorachek, and W.J. Vorachek appeal from various orders and a judgment striking their joint answer, counterclaim, and cross-claim. We reverse and remand for further proceedings.

Citizens State Bank of Lankin ["Bank"] is a family-owned banking corporation with its principal place of business in Lankin, North Dakota. Plaintiffs Joseph Vorachek, Georgetta Vorachek, Bernadine Mahon, and Lynette O'Linn are minority shareholders, together holding 367 shares of the 1250 total authorized shares. Defendants LaVerne Gaarder, Roger Vorachek, and W.J. Vorachek hold 768 shares and each is an officer, director, and full-time employee of the Bank. With the exception of John Shaft, who owned 10 shares of stock and served on the board of directors and as corporate attorney for the Bank, all shareholders in the Bank are related.

This litigation is apparently the result of a long-standing family feud. The plaintiffs' complaint alleges that the defendants have received excessive compensation from the Bank in the form of salaries, bonuses, loan write-offs, and other job-related benefits. The complaint further alleges that the defendants wasted corporate assets and converted corporate assets for their personal use. The plaintiffs' prayer for relief demanded, among other things, money damages, an accounting, a declaration of dividends, removal of directors, punitive damages, receivership, and dissolution of the Bank. The defendants filed a joint answer, counterclaim, and cross-claim, ¹ generally denying the allegations of the complaint and alleging that Joseph Vorachek and Georgetta Vorachek received excessive compensation when serving as officers, directors, and employees of the Bank in previous years.

From its inception in 1982, the case has been characterized by a singular lack of cooperation in the discovery process. When the answers submitted to the plaintiffs' first set of interrogatories and request for production of documents were incomplete, the plaintiffs moved the court for an order compelling more complete responses. On February 9, 1984, the court issued an eighteen-page order requiring each defendant to provide specified information within thirty days. The defendants failed to comply with the order. The plaintiffs subsequently moved for a second order to compel, and on October 22, 1984, the court issued an order directing the defendants to comply with its earlier order within ten days. The defendants subsequently provided supplemental answers to the interrogatories, but these were again deemed to be inadequate. On February 17, 1985, the date of the pre-trial conference, the court for the third time ordered that the defendants comply with the plaintiffs' prior discovery requests.

On August 20, 1984, the plaintiffs served their second set of interrogatories and request for production of documents. The responses provided were deemed inadequate, and the court in its February 17, 1985, order required the defendants to fully comply with these requests for discovery. The court in its order also admonished that "All parties and their counsel shall conduct further discovery in a cooperative, professional, and hospitable manner."

Up until this point in the litigation all of the plaintiffs had been represented by attorney John Moosbrugger and all of the defendants had been represented by attorney John Shaft. In January 1985 plaintiff Joseph Vorachek retained attorney Michael Williams, who on April 1, 1985, served a request for production of documents upon the defendant Bank. Again there was no response and plaintiff Joseph Vorachek moved for an order compelling compliance. On June 26, 1985, the court ordered the defendants to produce the requested documents within ten days. Noting that "[t]his Court has been required to compel Defendants to produce information on more than one occasion," the court further ordered: "Accordingly, in the event that Defendants fail to comply with ... this Order within ten (10) days hereof, the Court shall enter an Order striking Defendant's [sic] Answer and entering a default judgment."

The defendants again totally ignored the court's order. After the passage of seven weeks, the plaintiffs on August 14, 1985, made a motion for sanctions pursuant to Rule 37, N.D.R.Civ.P. Following oral argument on the motion, the court, in findings of fact, conclusions of law, and order for judgment dated October 28, 1985, imposed Rule 37 sanctions striking the defendants' pleadings and granting a default judgment. In doing so, the court found that "Defendants remain in full violation of this Court's Order dated June 26, 1985, and in partial violation of this Court's Orders dated February 9, 1984, October 22, 1984, and February 17, 1985." The court further found that "Defendants have made no effort to comply with the discovery rules, and that Defendants have deliberately failed to comply with discovery rules and have willfully refused to obey the discovery Orders issued by this Court."

The court concluded that the "most severe sanctions" were appropriate, and ordered that the defendants' pleadings be stricken and that default judgment be entered on the issue of liability. The court also appointed Roger Reule as a "Court Monitor" to oversee operations of the Bank. In essence, the Court Monitor was to serve as a receiver and special master. Reule was given the title of "Executive Vice President" of the Bank and was given authority to hire employees, was to be consulted regarding significant transactions at the Bank, was to make a recommendation regarding disposition of the assets of the Bank, and was to calculate the amount of excessive compensation improperly paid to the defendants. The court also appointed Reule to the board of directors of the Bank.

The court further ordered that Roger Vorachek and W.J. Vorachek, the president and vice-president of the Bank, were to be excluded from the Bank premises and were to draw no compensation from the Bank. LaVerne Gaarder, the cashier of the Bank, was to continue operating the Bank but her salary was reduced from $120,000 per year to $30,000 per year. In a subsequent order, the court set the compensation of the Court Monitor at $10,000 per month.

Each of the individual defendants subsequently retained new counsel and each filed a motion seeking reconsideration of the court's findings of fact, conclusions of law, and order for judgment. The Bank, through attorney Shaft, also sought reconsideration. The court denied all of the motions for reconsideration by order dated April 3, 1986.

On April 25, 1986, counsel for LaVerne Gaarder had judgment entered on the October 28, 1985, order for judgment. On the same date, Gaarder filed her notice of appeal. The Bank and W.J. Vorachek filed notices of appeal on May 1, 1986, and Roger Vorachek filed his notice of appeal several months later, on September 22, 1986.

On May 9, 1986, the court issued an order modifying the powers and duties of the Court Monitor. Reule was discharged as Court Monitor, having completed his report, and an accounting firm was appointed as Court Monitor with very limited review functions. In addition, the court ordered that LaVerne Gaarder's salary be raised to $3,500 per month and returned authority to operate the Bank, including hiring of personnel, to the Bank's board of directors.

I. JURISDICTION

A. Motion to Dismiss

The plaintiffs have filed a motion to dismiss the appeal, asserting that because the judgment did not finally adjudicate all claims among all parties an order pursuant to Rule 54(b), N.D.R.Civ.P., was a prerequisite to an appeal. Although the court did not specifically refer to Rule 54(b), the court directed entry of judgment and expressly stated its intention that the judgment be appealable. Although explicit reference to Rule 54(b) is preferable, we have held that statements such as those in this case will satisfy the requisites of Rule 54(b) if it is clear from the record that the court intended to enter a final, appealable judgment. See First Trust Company of North Dakota v. Conway, 345 N.W.2d 838, 841-842 (N.D.1984).

The plaintiffs also contend that the judgment was not appealable because the trial court subsequently issued an "Order Correcting Clerical Error" which purported to "correct" the October 28, 1985, findings of fact, conclusions of law, and order for judgment by deleting those portions of the order which directed entry of judgment and awarded costs and fees. The "Order Correcting Clerical Error" was entered on April 28, 1986, three days after Gaarder's notice of appeal was filed. It is well settled that...