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Larson v. Midland Hospital Supply, Inc.

Supreme Court of North Dakota

November 18, 2016

Stephen Larson, Plaintiff and Appellant
v.
Midland Hospital Supply, Inc., Midland Pro Health, Inc., and Richard Larson, individually, Defendants and Appellees

         Appeal from the District Court of Cass County, East Central Judicial District, the Honorable Susan Lynne Bailey, Judge.

         AFFIRMED.

          Ronald H. McLean (argued) and Ian McLean (appeared), for plaintiff and appellant.

          C. Nicholas Vogel, P.O. for defendants and appellees.

          OPINION

          CROTHERS, JUSTICE.

         [¶ 1] Stephen Larson appeals from a judgment entered after a bench trial dismissing his complaint against Midland Hospital Supply, Inc. ("Midland"), Midland ProHealth, Inc. ("ProHealth") and Richard Larson. We affirm, concluding the statute of limitations bars Stephen Larson's claims related to his ownership interest in Midland and the district court did not err finding he was paid for his interest in Midland.

         I

         [¶ 2] Midland was a North Dakota corporation engaged in the wholesale, resale distribution and sale of medical supplies until dissolved in 2007. The Larson family owned all of the shares of the corporation at all times relevant to the issues on appeal. Richard Larson was the majority shareholder and the president of the company and his brother, Stephen Larson, and their two sisters were minority shareholders. The company had a buy-sell agreement requiring any shareholder desiring to sell, transfer or encumber their shares to first offer them to the other shareholders on a pro-rata basis. If the shareholders did not purchase the offered shares, the company could redeem them. If the company or shareholders did not purchase the shares, they could be sold to any party.

         [¶ 3] In April 1999 Richard Larson sent the minority shareholders a letter stating it was a good time for the minority shareholders to sell their shares. He explained that profits were down, dividends would not be paid at the same levels as in the past, the company might need to make decisions about the business that could impact the minority shareholders and they would be best served by selling their shares. In May 1999 Richard Larson sent the minority shareholders a second letter indicating the company wanted to purchase their shares by July 1999. The two sisters agreed to sell their shares. Stephen Larson declined the offer. Richard Larson personally purchased the sisters' shares, increasing his ownership interest in the company.

         [¶ 4] Richard Larson obtained a loan from Midland for approximately $500, 000 to purchase the shares. The loan was payable over a ten-year period with interest at 7.5 percent. Around the same time Midland borrowed over $500, 000 from a bank, payable over the same time period and for the same interest rate.

         [¶ 5] In 1994 Richard Larson set up ProHealth, a retail company selling medical supplies. Richard Larson was the president and sole shareholder. ProHealth purchased approximately half of its inventory from Midland. It had an outstanding accounts receivable with Midland by 2001. By the end of 2006 ProHealth owed Midland approximately $1, 600, 000. In August 2007, the full amount of the accounts receivable was paid. Interest on the receivable was paid in August 2008.

         [¶ 6] In July 2007 Midland sold its building, inventory and additional assets to Kreisers, Inc. Kreisers also agreed to pay approximately $500, 000 for goodwill and a covenant not to compete. Kreisers did not acquire Midland's accounts receivable, accounts payable or other long-term loans. Midland liquidated its remaining assets and paid off its long-term loans and its accounts payable. The remaining funds were distributed to the shareholders. At the time of the dissolution Stephen Larson owned 11.046512 percent of the company's stock, and Richard Larson owned 88.953488 percent of the stock. Stephen Larson received $493, 631.38 from the distribution and an additional $42, 323.49 for his share of the interest on the ProHealth accounts receivable.

         [¶ 7] Stephen Larson sued for breach of fiduciary duty, conflict of interest, negligence, breach of shareholder buy-sell agreement, misappropriation, conspiracy, conversion, action for accounting and unjust enrichment. The summons and complaint were served in June 2013, and the action was filed in September 2014. Stephen Larson alleged Richard Larson breached his fiduciary duties as a corporate director and officer by diverting, misusing and misappropriating Midland's funds, engaging in self-dealing and violating the buy-sell agreement. Stephen Larson claimed he would have owned 16.6 percent of Midland stock if the company redeemed the sisters' shares as Richard Larson had informed the minority shareholders, he was not informed Richard Larson personally purchased the shares and he was not informed Midland loaned Richard Larson funds to purchase the shares. He also claimed he was not offered a loan to purchase the shares, he was not offered the opportunity to purchase the shares and Richard Larson did not comply with the buy-sell agreement. Stephen Larson claimed the Midland defendants committed wrongful acts between 1996 and 2007 which deteriorated the value of Midland by allowing ProHealth to purchase inventory at a discount without promptly paying for the inventory or paying interest on the outstanding amounts. Stephen Larson further claimed Richard Larson received an excessive salary when dividing his time between the two companies.

         [¶ 8] After a bench trial the district court dismissed Stephen Larson's complaint with prejudice and awarded the Midland defendants costs and disbursements. The court found Stephen Larson's claims of alleged breaches of the buy-sell agreement and various breaches of fiduciary duties were barred by the statute of limitations. The court also found Stephen Larson was fully compensated for any damages from the buildup in accounts receivable, he failed to prove he did not receive the correct amount of proceeds from the dissolution of the company, he failed to prove the discounted inventory sales to ProHealth were unreasonable and he failed to prove Richard Larson's salary was excessive. A judgment was entered.

         II

         [¶ 9] The standard of review on appeal from a bench trial is well-established:

"In an appeal from a bench trial, the trial court's findings of fact are reviewed under the clearly erroneous standard of N.D.R.Civ.P. 52(a) and its conclusions of law are fully reviewable. A finding of fact is clearly erroneous if it is induced by an erroneous view of the law, if there is no evidence to support it, or if, after reviewing all the evidence, we are left with a definite and firm conviction a mistake has been made. In a bench trial, the trial court is the determiner of credibility issues and we do not second-guess the trial court on its credibility determinations."

Serv. Oil, Inc. v. Gjestvang, 2015 ND 77, ¶ 12, 861 N.W.2d 490 (quoting Brash v. Gulleson, 2013 ND 156, ¶ 7, 835 N.W.2d 798) (internal citations and quotation marks omitted). "A district court's choice between two permissible views of the weight of the evidence is not clearly erroneous." Cheetah Props. 1, LLC v. Panther Pressure Testers, Inc., 2016 ND 102, ¶ 9, 879 ...


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