Watts v. Magic 2 X 52 Mgmt., Inc.

• Decision Date: 17 May 2012
• Docket Number: No. 20110145.,20110145.
• Citation: 2012 ND 99,816 N.W.2d 770
• Parties: Donna WATTS, Jack Watts, Georgia Bonderenko, Mabel Brauer, Gaylen Erck, Vickie Erck, Rodney Getzlaff, Kathy Getzlaff, Harlon Getzlaff, Dennis Hensen, LaVonne Hensen, Delton Hust, Holly Hust, Dennis Jacobsen, Christie Jacobsen, Bruce Johnson, Diane Johnson, Judith Koponen, Wayne Krzmarzick, Darrel Loftesnes, Theresa Loftesnes, Eugene Neiss, Melanie Wanner, Mark Rustad, Rena Rustad, Jim Soltis, Rita Stomvoll, John Stomvoll, Jim Suydam, Bonnie Suydam, Clara Thompson, Larry Voltz, Diane Voltz, Natalie Wade, Shawn Weigel, LaRinda Weigel, Lynn Wood, Vernon F. Bohara, Elinda Kay Bohara, Laverne Mikkelson as Trustee of Ann C. Bonebrake Trust and Carol Uecker, Plaintiffs and Appellants, v. MAGIC 2 x 52 MANAGEMENT, INC., a North Dakota corporation, B K Properties, L.L.C., a North Dakota limited liability company, Herslip Construction, Inc., a North Dakota corporation, Kenneth Herslip, individually, and doing business as Herslip Restaurants, Bradley Wells and Mark Guttormson, Defendants and Appellees.
• Court: North Dakota Supreme Court

816 N.W.2d 770

2012 ND 99

Donna WATTS, Jack Watts, Georgia Bonderenko, Mabel Brauer, Gaylen Erck, Vickie Erck, Rodney Getzlaff, Kathy Getzlaff, Harlon Getzlaff, Dennis Hensen, LaVonne Hensen, Delton Hust, Holly Hust, Dennis Jacobsen, Christie Jacobsen, Bruce Johnson, Diane Johnson, Judith Koponen, Wayne Krzmarzick, Darrel Loftesnes, Theresa Loftesnes, Eugene Neiss, Melanie Wanner, Mark Rustad, Rena Rustad, Jim Soltis, Rita Stomvoll, John Stomvoll, Jim Suydam, Bonnie Suydam, Clara Thompson, Larry Voltz, Diane Voltz, Natalie Wade, Shawn Weigel, LaRinda Weigel, Lynn Wood, Vernon F. Bohara, Elinda Kay Bohara, Laverne Mikkelson as Trustee of Ann C. Bonebrake Trust and Carol Uecker, Plaintiffs and Appellants,

v.MAGIC 2 x 52 MANAGEMENT, INC., a North Dakota corporation, B K Properties, L.L.C., a North Dakota limited liability company, Herslip Construction, Inc., a North Dakota corporation, Kenneth Herslip, individually, and doing business as Herslip Restaurants, Bradley Wells and Mark Guttormson, Defendants and Appellees.

No. 20110145.

Supreme Court of North Dakota.

May 17, 2012.

Randall J. Bakke, Bismarck, N.D., for plaintiffs and appellants.

Todd E. Zimmerman (argued), Benjamin J. Hasbrouck (on brief), and Kristy L. Albrecht (on brief), Fargo, N.D., for defendants and appellees.

SANDSTROM, Justice.

[¶ 1] The plaintiffs (“Limited Partners”), a majority of the limited partners of Magic 2 x 52 Limited Partnership (“Magic Partnership”), appeal from an order denying their post-judgment motion to pierce the corporate veil of several corporate defendants and to recover punitive damages. Because the Limited Partners' post-judgment motion did not seek to reopen the final judgment entered in this case under either N.D.R.Civ.P. 59 or 60, we conclude the district court did not err in denying the motion. We affirm.

I

[¶ 2] In 2007, the Limited Partners began this derivative action on behalf of Magic Partnership against several defendants involved with the acquisition and development of property for a Denny's restaurant franchise in Minot, North Dakota, including Magic 2 x 52 Management, Inc. (“Magic Corporation”), B K Properties, L.L.C., Herslip Construction, Inc., and Kenneth Herslip. The plaintiff Limited Partners were limited partners of Magic Partnership, and Magic Corporation was the general partner. According to an offering circular, Herslip was a shareholder of Magic Corporation and was to serve as its president and chief executive officer. Herslip was also president of Herslip Construction, which constructed the restaurant building. The Limited Partners state that at all relevant times, Herslip was an officer, director and controlling shareholder of the defendants-appellees.

[¶ 3] The Limited Partners' investment in Magic Partnership did not go as planned, and they initiated this lawsuit, seeking removal of Magic Corporation as the general partner of Magic Partnership and requesting monetary damages for breach of fiduciary duties, breach of contract, conversion of partnership property, fraud, and other violations of North Dakota law. The Limited Partners also sought to pierce the corporate veil of the corporate defendants to hold Kenneth Herslip personally liable for the corporate defendants' conduct and to recover punitive damages.

[¶ 4] After a bench trial, the district court decided that Magic Corporation had been properly removed as the general partner of Magic Partnership, dismissing defendants' counterclaim, and the court awarded Magic Partnership monetary damages from Magic Corporation, Herslip Construction, and B K Properties. The court, however, denied the Limited Partners' request for punitive damages and refused to pierce the corporate veils of the judgment debtors to impose personal liability on Kenneth Herslip. In denying the Limited Partners' request for punitive damages, the district court reasoned:

While there is little question that the evidence in relation to the Herslip Defendants' handling of the excess lot plus transaction would support a claim for exemplary (punitive) damages, awarding such damages rests in the sound discretion of the Court—and the Court does not feel compelled to punish the Herslip Defendants, or to make an example of them, by requiring them to pay exemplary (punitive) damages in this case. Several factors militate against an award of such damages in this case: ...

Under these circumstances, the Court is persuaded that an award of exemplary (punitive) damages is not warranted in this case—and the Plaintiffs' request for such an award is denied.

[¶ 5] The district court also denied the Limited Partners' request to pierce the veil of the corporate defendants to hold Kenneth Herslip personally liable for any of the damages awarded, explaining:

In the instant case, the Plaintiffs have the burden of proof with respect to piercing the corporate/limited liability veils. “The burden of establishing the necessary elements for piercing the corporate veil rests on the party asserting the claim.” ...

In this case, the Plaintiffs have failed to provide the Court with the necessary evidence to make the determination whether the corporate/limited liability company veils should be pierced under the Coughlin analysis. It is not the Court's job to make the Plaintiffs' case in this regard....

Under the circumstances, the Court is not in a position to hold Herslip personally liable for any of the damages awarded by the Court in this case.

[¶ 6] A May 2010 amended judgment awarded Magic Partnership $146,153.99 against Magic Corporation, B K Properties, and Herslip Construction; awarded Magic Partnership $144,263.80, and prejudgment interest of $77,783.88, against Magic Corporation and Herslip Construction; and awarded Magic Partnership costs and disbursements of $46,201.47 against Magic Corporation, B K Properties, and Herslip Construction. None of the parties appealed from the May 2010 judgment.

[¶ 7] The Limited Partners' subsequent efforts to collect on the judgment were unsuccessful. In June 2010, both Herslip Construction and Magic Corporation filed for bankruptcy under chapter 7. In January 2011, the Limited Partners filed a post-judgment motion again requesting the district court pierce the corporate veils of the corporate judgment debtors to hold Kenneth Herslip personally liable for the judgment. The Limited Partners' motion also requested punitive damages on the basis of fraudulent conveyances and waste of corporate assets for additional conduct not litigated in the prior action.

[¶ 8] The district court denied the Limited Partners' post-judgment motion, concluding they had not shown an appropriate basis for granting their request to pierce the corporate veil and to recover punitive damages. The court stated its prior opinion after trial had specifically denied the plaintiffs' requests to pierce the corporate veil and to recover punitive damages with a detailed analysis. The court said the Limited Partners had not filed motions under N.D.R.Civ.P. 59 and 60 and had not appealed any aspect of the court's initial judgment. The court concluded the May 2010 amended judgment was final as to all issues decided by the court after trial and refused to revisit piercing the corporate veil and punitive damages. The court held the Limited Partners' cited authority did not allow “a ‘second bite of the apple’ as to these two issues.” The court also stated it could not provide the Limited Partners a remedy “when none exists under the applicable law/rules.” The Limited Partners appealed from the order denying their post-judgment motion.

[¶ 9] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27–05–06. The appeal is timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2 and 6, and N.D.C.C. §§ 28–27–01 and 28–27–02.

II

[¶ 10] The Limited Partners argue the district court erred in deciding it lacked authority to grant their post-judgment motion to pierce the corporate veil and to award punitive damages on the basis of pre-judgment and post-judgment fraudulent conveyances, waste, and other wrongful conduct.

[¶ 11] Generally, in the context of N.D.R.Civ.P. 59 and 60, we review a district court's denial of post-trial motions for a new trial or for relief from a judgment under the abuse of discretion standard. See State ex rel. Bd. of Univ. and School Lands v. Alexander, 2006 ND 144, ¶ 7, 718 N.W.2d 2;Johnson v. Nodak Mut. Ins. Co., 2005 ND 112, ¶ 18, 699 N.W.2d 45;Bender v. Beverly Anne, Inc., 2002 ND 146, ¶ 18, 651 N.W.2d 642;Schaefer v. Souris River Telecomms. Coop., 2000 ND 187, ¶ 14, 618 N.W.2d 175. We have explained that issues presented for the first time to a trial court in a new trial motion are generally too late to be considered to make a new rule of law or to refine an existing rule. See Johnson, 2005 ND 112, ¶ 17, 699 N.W.2d 45;Rummel v. Rummel, 265 N.W.2d 230, 232 (N.D.1978); Kirchoffner v. Quam, 264 N.W.2d 203, 207 (N.D.1978). We have also said a motion under N.D.R.Civ.P. 60 for relief from a judgment is not a substitute for an appeal, and a motion under Rule 60(b) may not be used “to provide a litigant with a second chance to present new explanations, legal theories, or proof to a court.” Johnson, at ¶ 17;see also Olander Contracting Co. v. Gail Wachter Invs., 2003 ND 100, ¶ 10, 663 N.W.2d 204.

[¶ 12] The Limited Partners acknowledge they did not bring their post-judgment motion under either N.D.R.Civ.P. 59 or 60, but instead argue the court had authority to grant their requested relief under North Dakota law. We thus examine the nature of the Limited Partners' requested post-judgment motion to pierce the corporate veil of the judgment debtor corporations. A corporation's officers and directors generally are not liable for the corporation's ordinary debts. Coughlin Constr. Co., Inc. v. Nu–Tec Indus., Inc., 2008 ND 163, ¶ 19, 755 N.W.2d 867;Axtmann v. Chillemi, 2007 ND 179, ¶ 12, 740 N.W.2d 838. However, “the...