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White v. T.P. Motel, L.L.C.

Supreme Court of North Dakota

May 27, 2015

Glen R. White and Loretta White, Plaintiff and Appellee
v.
T.P. Motel, L.L.C., Defendant and Susan White, Intervenor and Appellant

Appeal from the District Court of Morton County, South Central Judicial District, the Honorable Donald L. Jorgensen, Judge.

Thomas D. Kelsch, Mandan, ND, for plaintiff and appellee.

Rodney E. Pagel, Bismarck, N.D., for intervenor and appellant.

Carol Ronning Kapsner, Dale V. Sandstrom, Gerald W. VandeWalle, C.J. Crothers, Justice, dissenting. Lisa Fair McEvers. Opinion of the Court by Kapsner, Justice.

OPINION

Page 916

Kapsner, Justice.

[¶1] Susan White appeals from a judgment on the pleadings in favor of Glen and Loretta White in an action by Glen and Loretta White against T.P. Motel, L.L.C. (" T.P. Motel" ), and from an order denying her motion to intervene. We conclude the district court erred in granting judgment on the pleadings and in denying the motion to intervene, and we reverse and remand for further proceedings.

I

[¶2] Susan White is married to Ross White, whose parents are Glen and Loretta White. Susan and Ross White are the co-owners and members of T.P. Motel. In February 2012, T.P. Motel entered into a contract for deed to purchase real property and a motel in Mandan from Glen and Loretta White. The contract for deed required T.P. Motel to make monthly payments of $2,500 to Glen and Loretta White

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beginning on March 15, 2012. T.P. Motel did not make payments in March, April, and May of 2012, but began making the monthly payments in June 2012.

[¶3] Susan and Ross White separated in January 2013, and Susan White moved to California and initiated a divorce action against Ross White in California. T.P. Motel failed to make monthly payments on the contract for deed in January and February 2013, but began making payments again in March 2013. In February 2013, Glen and Loretta White served notice of default on the contract for deed on T.P. Motel and on Susan White individually. When T.P. Motel failed to cure the default within 30 days as allowed by the contract for deed, Glen and Loretta White sued T.P. Motel to cancel the contract for deed in July 2013.

[¶4] T.P. Motel filed two answers to the complaint. On August 16, 2013, Susan White, individually and on behalf of T.P. Motel, answered the complaint, denying the allegations and requesting dismissal of the action. On August 19, 2013, Ross White, on behalf of T.P. Motel, answered the complaint, admitting the default and requesting cancellation of the contract for deed.

[¶5] In her answer, Susan White included a counterclaim against Glen and Loretta White and a crossclaim against Ross White, alleging fraud, collusion, malicious intent, and breach of fiduciary obligations. The counterclaim alleged Ross, Glen, and Loretta White acted in concert to operate the motel and prevented Susan White from entering and operating the motel. Susan White alleged Ross, Glen, and Loretta White perpetrated a fraud on her by acting in concert to manipulate T.P. Motel's financial information, by accepting and not reporting cash rentals of property, and by paying non-business bills and expenses out of T.P. Motel's accounts.

[¶6] Susan White's crossclaim against Ross White alleged he was the primary person in charge of the day-to-day operations of T.P. Motel, and he owed Susan White a fiduciary duty to act diligently in engaging in the operation of T.P. Motel. The crossclaim alleged Ross White breached his fiduciary obligations to her regarding the operation of T.P. Motel by not accounting for income, commingling funds, paying unreasonable expenses, and self-dealing. T.P. Motel, by and through Ross White, moved to dismiss the crossclaim against Ross White, alleging he was not a party to the lawsuit. Susan White, individually and as part owner of T.P. Motel, subsequently filed a motion to join Ross White as a party to the action.

[¶7] On December 9, 2013, a hearing was held on T.P. Motel's motion to dismiss Susan White's crossclaim against Ross White, and her motion to join Ross White as a party to the action. The district court did not rule on the motions. Both parties acknowledge the district court indicated it did not believe Susan White was a proper party to the action and she must make a motion to intervene if she wanted to be made a party to the action.

[¶8] On December 11, 2013, Susan White moved to intervene in the action, seeking to protect her interests as an owner and member of T.P. Motel. She argued as a fifty-percent owner of T.P. Motel, she had an equal right to answer the complaint on behalf of T.P. Motel. She argued Ross White was not acting in the best interest of T.P. Motel by admitting the default and requesting cancellation of the contract for deed. In support of her motion, Susan White included portions of T.P. Motel's Operating Agreement. Section 7.01 of the agreement appoints Ross White and Susan White as manager of T.P. Motel. Section 6.08 lists the specific powers of the manager on behalf of the company, including

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defending a lawsuit against the company under Section 6.08(t). The manager's authority to act on behalf of the company is limited under Section 6.06 of the agreement, which requires consent of 85 percent of all membership interests to confess a judgment against the company.

[¶9] T.P. Motel, through manager Ross White, and Glen and Loretta White opposed Susan White's motion to intervene. T.P. Motel, through manager Ross White, argued Ross White was the current manager of T.P. Motel and was adequately representing T.P. Motel in the lawsuit. In support of its objection to the motion to intervene, T.P. Motel submitted copies of court orders entered in the California divorce action between Susan White and Ross White. The orders, dated July 26 and July 29, 2013, denied Susan White's request in the divorce action to take over management of T.P. Motel. The July 26, 2013, order required Ross White to provide to Susan White " an accounting of every dollar taken in since the date of separation, on a monthly basis, and show, with copies of receipts and checks, and provide said accounting, under penalty of perjury, within 30 days." The July 26 order required " [a]ll accounts of the business will require the signature of both parties, prior to any disbursement." The July 29, 2013, order modified the earlier order with regard to T.P. Motel's disbursements or withdrawals, permitting only Ross White's signature for " payments for certain business and other expenses, and payment of salary," but the parties would communicate prior to proposed payments, and Susan White would have an opportunity to object to any proposed payments.

[¶10] In February 2014, the district court denied Susan White's motion to intervene. The court stated the California court has jurisdiction over T.P. Motel, which is a marital asset in the divorce action. The district court stated it was bound under the United States Constitution's Full Faith and Credit Clause to abide by the California court's orders regarding management and operation of T.P. Motel. The district court concluded Susan White could not intervene in the action under N.D.R.Civ.P. 24(b)(3), because intervention would prejudice Ross White's right to manage T.P. Motel.

[¶11] In March 2014, Glen and Loretta White moved for judgment on the pleadings, arguing that since T.P. Motel was not resisting the breach of contract action, the pleadings established no issues of material fact. T.P. Motel, through Ross White, did not respond to the motion, but appeared at the hearing and stated it did not object to the motion.

[¶12] Susan White, as an interested party and equal owner and member of T.P. Motel, opposed the motion for judgment on the pleadings. She alleged she had raised issues of fact regarding fraud, collusion, and conspiracy between Glen and Loretta White and Ross White, as manager of T.P. Motel, to preclude a judgment on the pleadings. In her response, Susan White submitted an affidavit explaining the reason for the missed payments at the beginning of the contract's term, stating there was a verbal agreement among the parties that the first payments could be delayed until June 2012 or later. Susan White stated the first payment was made in June 2012 and the remaining payments for 2012 were made. Susan White stated she left Ross White in January 2013 and later discovered the payments were not made in January 2013 and February 2013. Susan White's affidavit also stated Loretta White had signing privileges on T.P. Motel's checking account to ensure Loretta White and Glen White would be paid each month under the contract for deed. Susan White stated Ross White or Loretta White

Page 919

intentionally did not make the January 2013 and February 2013 payments even though there were sufficient funds in the checking account. Susan White submitted T.P. Motel's February 28, 2013, bank statement showing a checking account balance of $3,745.67 as of January 31, 2013, and a balance of $12,972.01 as of February 28, 2013, and copies of T.P. Motel checks signed by Loretta White.

[¶13] In April 2014, the district court granted judgment on the pleadings in favor of Glen and Loretta White. In granting the judgment, the district court stated Susan White's response was not properly before the court as a result of the denial of her motion to intervene. The court held the pleadings showed Glen and Loretta White and T.P. Motel agreed to all the material facts, including execution of the contract for deed, T.P. Motel's failure to make payments under the contract, the service of a notice of default on T.P. Motel, and T.P. Motel's failure to cure the default. The court concluded the pleadings established no genuine issues of any material fact, and a judgment was entered cancelling the contract for deed and giving T.P. Motel a 30-day redemption period to pay the full amount due on the contract for deed. T.P. Motel failed to redeem within the 30-day redemption period.

II

[¶14] Susan White argues the district court erred in granting Glen and Loretta White's motion for judgment on the pleadings. She argues she raised issues of fact showing the judgment on the pleadings was not warranted.

[¶15] Rule 12(c), N.D.R.Civ.P., authorizes a party to move for judgment on the pleadings. Rule 12(d), N.D.R.Civ.P., discusses the effect of matters presented outside the pleadings, and states:

If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.

A district court's decision granting judgment on the pleadings under N.D.R.Civ.P. 12(c) is reviewed de novo. Kouba v. State, 2004 ND 186, ¶ 4, 687 N.W.2d 466.

[¶16] In granting judgment on the pleadings, the district court referenced the denial of Susan White's motion to intervene in disregarding her response to the motion for judgment on the pleadings. Susan White's motion to intervene and supporting documents, along with the responses and supporting documents submitted by T.P. Motel and Glen and Loretta White, are matters outside the pleadings. In denying Susan White's motion to intervene, the district court stated it was bound to follow the California court order granting management of T.P. Motel to Ross White. In following the California order, the district court effectively struck T.P. Motel's answer submitted by Susan White and found Ross White had the authority to answer the complaint on behalf of T.P. Motel. Issues about the authority to answer on behalf of T.P. Motel were in dispute. The district court, in following the California court's order regarding management of T.P. Motel, resolved that dispute in favor of Ross White. In doing so, the district court went outside the pleadings to grant judgment on the pleadings. We conclude the district court erred in treating Glen and Loretta White's motion as a motion for judgment on the pleadings.

[¶17] Because the district court went outside the pleadings, the motion for judgment on the pleadings must be treated as a motion for summary judgment under

Page 920

N.D.R.Civ.P. 56. Under N.D.R.Civ.P. 56(c), the motion and supporting papers must be served at least 34 days before the day set for the hearing, and a party opposing a summary judgment motion must be given 30 days to file an answer brief and supporting papers. Here, the motion for judgment on the pleadings was served on March 26, 2014, the hearing was on April 14, 2014, and the judgment was entered on April 15, 2014. The district court granted judgment on the pleadings 20 days after the motion was served. We conclude the district court erred in not complying with the requirements of N.D.R.Civ.P. 56 in deciding the motion for judgment on the pleadings. We therefore reverse the judgment on the pleadings and remand for further proceedings.

III

[¶18] Susan White argues the district court erred in denying her motion to intervene in the action. She argues that as a member and manager of T.P. Motel, she has an interest relating to the subject matter of the action, and has a right to intervene under N.D.R.Civ.P. 24 on behalf of T.P. ...


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