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Rodney Thompson and Karen Thompson, Individually and Derivatively On v. Ronald E. Schmitz

March 28, 2011


Appeal from the District Court of Cass County, East Central Judicial District, the Honorable John C. Irby, Judge. AFFIRMED.

The opinion of the court was delivered by: VandeWalle, Chief Justice.

N.D. Supreme CourtThompson v. Schmitz,

2011 ND 70

This opinion is subject to petition for rehearing. [Go to Documents][Download as WordPerfect]

Opinion of the Court by VandeWalle, Chief Justice.

Thompson v. SchmitzNo. 20100248

[¶1] Ronald E. Schmitz, ARRK Investments, Inc. ("ARRK"), and RES Investments, Inc. ("RES"), doing business as Ultimate Transportation, appealed from third and fourth amended judgments awarding Rodney Thompson and Karen Thompson, individually and on behalf of ARRK, half of the value of ARRK's corporate assets plus pre-judgment interest, attorney's fees, expenses, and costs, including expert witness fees and interest, in their shareholder derivative action. We affirm.

I. [¶2] We previously set forth relevant facts in our prior decision in this case, Thompson v. Schmitz, 2009 ND 183, 774 N.W.2d 263 ("Thompson I"), and we will not repeat them except as necessary to resolve the issues raised in this appeal.

[¶3] In May 2005, Rodney and Karen Thompson, individually and derivatively on behalf of ARRK, brought an action against Schmitz and RES. They alleged conversion, breach of numerous fiduciary duties, misappropriation of corporate funds, fraud, and misappropriation of corporate opportunities.

[¶4] The district court granted partial summary judgment dismissing the Thompsons' claim that they had loaned Schmitz $150,000 to become part owners of ARRK and he had failed to repay them. After trial, the district court ruled the Thompsons and Schmitz entered into an "implied in fact contract for the purchase by Thompsons of one-half of the future stream of income of trailer rentals owned by Schmitz and [RES]." Thompson I, at ¶ 12. The district court also ruled that Schmitz converted one-half of the future stream of income from trailer rentals. The district court valued one-half of the future stream of income at $150,000 and determined it was not a corporate asset of ARRK. The district court alternatively ruled that even if an implied-in-fact contract did not exist, Schmitz was unjustly enriched.

[¶5] The district court determined Schmitz breached the fiduciary duties he owed to ARRK under the North Dakota Business Corporation Act ("NDBCA"), ch. 10-19.1. As a result, the district court found Schmitz liable for attorney's fees related to amending ARRK's tax returns. The district court also awarded the Thompsons attorney's fees stemming from Schmitz's misrepresentation regarding his contribution to ARRK. Ultimately, because the Thompsons did not "plead as specifically as they [should] have," the district court amended the pleadings to conform to the evidence before the court.

[¶6] Schmitz appealed the district court's second amended judgment. We held the district court abused its discretion when it amended the pleadings to include a claim for an implied-in-fact contract. Thompson I, at ¶ 20. We also held the district court erred in treating the Thompsons' and Schmitz's contributions as non-corporate assets. Id. at ¶ 24. We did not address attorney's fees, costs, disbursements, or pre-judgment interest. We reversed and remanded to the district court to try the case as a shareholder derivative action under the NDBCA, giving the district court the discretion to "open the record to take additional evidence if deemed necessary." Id. at ¶ 24. We instructed the district court to prepare findings addressing the issues raised by the parties' pleadings. Id.

[¶7] On remand, after hearing argument from both parties and recognizing the significant amount of evidence already in the record, the district court did not open the record to take additional evidence. Both parties filed post-remand briefs. The district court entered its amended findings of fact and conclusions of law. It retained several of the district court's original findings and added new findings concerning ARRK's corporate assets and Schmitz's breaches of various fiduciary duties. The district court concluded Schmitz and RES converted both his $300,000 stream-of-income contribution to ARRK and the Thompsons' $150,000 capital contribution. The Thompsons were awarded half of the value of those contributions, as assets of ARRK, plus pre-judgment interest.

[¶8] The parties submitted briefs and the district court held a hearing to consider attorney's fees, costs, expenses, and disbursements. The court awarded the Thompsons $511,066.16 in attorney's fees and nontaxable expenses, and $80,648.16 in costs and disbursements, including fees and interest on the Thompsons' expert witness fees.

[ΒΆ9] Schmitz, ARRK, and RES appealed the district court's judgments, challenging the district court's determination concerning the corporate assets of ARRK and its award of pre-judgment interest. Schmitz also challenges the district court's award of ...

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