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SNAPS Holding Co. v. Leach

Supreme Court of North Dakota

June 7, 2017

SNAPS Holding Company, a North Dakota Corporation, Plaintiff, Appellee and Cross-Appellant
Jim Leach and Elizabeth Leach, Defendants, Appellants and Cross-Appellees and Steve Leach, Defendant and Appellee and Darlene Leach, Frank A. Barber, Sherry Barber, Dennis J. Meyer, Jerry Nelson, Marjo Nelson, Kathy Hegland, Michael Hegland, Rebecca Soloway, William Ockert, Delores Reznechek, John Bergstrom, Janice Scott, John W. Scott, and all other shareholders of IDA of Moorhead Corporation, as listed on Exhibit A, attached hereto and made a part hereof by reference, Defendants

         Appeal from the District Court of Cass County, East Central Judicial District, the Honorable Steven L. Marquart, Judge.

          Benjamin J. Hasbrouck (argued) and Todd E. Zimmerman (on brief), Fargo, ND, for plaintiff, appellee and cross-appellant SNAPS Holding Company. Paul A. Sortland, Minneapolis, MN, for defendants, appellants, and cross-appellees Jim Leach and Elizabeth Leach.

          James A. Teigland, Fargo, ND, for defendant and appellee Steve Leach.


          Kapsner, Justice.

         [¶ 1] Jim Leach and Elizabeth Leach appeal a district court judgment awarding money damages to SNAPS Holding Company after ruling they breached a stock purchase agreement with SNAPS. SNAPS cross-appeals from the dismissal of its breach of contract claims against Jim Leach and Steve Leach. We affirm in part, reverse in part, and remand.


         [¶ 2] Jim Leach was the chief operating officer and majority shareholder of IDA of Moorhead Inc., a corporation he created to manufacture electronic communications equipment. Jim Leach's wife, Elizabeth Leach, and his son, Steve Leach, also owned shares of IDA.

         [¶ 3] In 1994, Jim Leach sold IDA to IDA's employees, including Reed Danuser. In 2010, Jim Leach and the IDA board of directors terminated Danuser's employment as president and chief executive officer of IDA. Danuser sued IDA, Jim Leach, and others for wrongful termination and breach of fiduciary duty.

         [¶ 4] While Danuser's lawsuit was pending, Jim Leach began negotiating with Sanjay Patel, president and CEO of SNAPS, to sell IDA to SNAPS. During negotiations the parties discussed the effect of Danuser's lawsuit on the potential sale. The parties agreed SNAPS would be responsible for the first $100, 000 of expenses associated with the lawsuit, and Jim Leach and IDA would be responsible for that portion exceeding $100, 000. At a July 2011 shareholders and board of directors meeting, the IDA shareholders and board of directors authorized the sale of IDA's stock to SNAPS for $1, 180, 000. The minutes of both meetings indicate that any award, costs, and expenses associated with the Danuser lawsuit would be deducted from the purchase price. The minutes also indicate it was "anticipated that the pending litigation costs and expenses will not exceed $100, 000."

         [¶ 5] In September 2011, Jim Leach and Patel executed the stock purchase agreement for the IDA stock sale. Jim Leach signed the agreement on behalf of himself, as president of IDA, and as the agent for Elizabeth Leach and all other selling shareholders. The agreement provided SNAPS would be responsible for the first $100, 000 related to the Danuser lawsuit, and the selling shareholders would be responsible for any excess amount. SNAPS also executed a $770, 000 promissory note, payable to Jim Leach, individually and as agent for the selling shareholders, for the remaining balance due under the stock purchase agreement.

         [¶ 6] In October 2012, the district court ruled IDA wrongfully terminated Danuser and Jim Leach breached a fiduciary duty to Danuser. The court awarded Danuser a money judgment of over $820, 000 against Jim Leach and IDA. See Danuser v. IDA Marketing Corp., 2013 ND 196, ¶ 40, 838 N.W.2d 488 (affirming judgment).

         [¶ 7] Jim Leach and the selling shareholders of IDA refused to pay the Danuser judgment. In January 2014, Danuser filed the judgment against Jim Leach in Arizona. Danuser subsequently assigned the judgment to SNAPS and IDA in February 2014 and Jim Leach objected to the filing of the judgment against him in Arizona. In February 2015, the Arizona court ruled SNAPS and IDA could not enforce the judgment against Jim Leach in Arizona. The court concluded SNAPS exercised total control over the management and activities of IDA and was the alter ego of IDA. The Arizona court concluded both Arizona and North Dakota law prohibit contribution between intentional joint tortfeasors; therefore, allowing IDA to obtain contribution from Jim Leach, its co-intentional joint tortfeasor, was prohibited in Arizona.

         [¶ 8] SNAPS sued Jim Leach, Elizabeth Leach, Steve Leach, and the other former IDA shareholders in December 2014 after they failed to pay the Danuser judgment. SNAPS alleged it had paid over $400, 000 toward the Danuser judgment and that under the stock purchase agreement, the former IDA shareholders were responsible for Danuser's damages in excess of $100, 000. Jim Leach and Elizabeth Leach counterclaimed, alleging SNAPS breached the stock purchase agreement by failing to pay $277, 500 remaining under the promissory note.

         [¶ 9] All parties moved for summary judgment. SNAPS argued Jim and Elizabeth Leach were responsible for any amounts SNAPS paid in the Danuser lawsuit exceeding $100, 000. Jim Leach, Elizabeth Leach, and Steve Leach argued the Arizona ruling was res judicata and prohibited SNAPS from enforcing the Danuser judgment against them in this case.

         [¶ 10] The district court granted SNAPS' motion for partial summary judgment on the issue of liability against Jim and Elizabeth Leach, concluding the "unambiguous language of the Stock Purchase Agreement makes the sellers... responsible for any amounts paid in the Reed Danuser lawsuit exceeding $100, 000." The court denied SNAPS' motion against Steve Leach, concluding there was a genuine issue of material fact whether Jim Leach had authority to sign the stock purchase agreement on behalf of Steve Leach. The court thereafter granted summary judgment in favor of Jim and Steve Leach, concluding res judicata prohibited SNAPS from enforcing the stock purchase agreement against them on the basis of the Arizona court's ruling. The court denied Elizabeth Leach's summary judgment motion, concluding SNAPS' claims under the stock purchase agreement could be enforced against her because she was not a party to the Arizona proceeding.

         [¶ 11] After a June 2016 trial, the district court found Jim Leach had authority to act on behalf of Elizabeth Leach and the shareholders in executing the stock purchase agreement. The court found the sellers of IDA's stock, including Elizabeth Leach, breached the stock purchase agreement by refusing to pay the Danuser judgment for all amounts exceeding $100, 000. The court found Jim Leach also breached the agreement; however, SNAPS could not recover against him because of the court's earlier order relating to res judicata and the Arizona ruling.

         [¶ 12] The district court found SNAPS paid Danuser over $619, 000. The court found $277, 500 remained due from SNAPS under the promissory note, but concluded SNAPS did not breach the stock purchase agreement by refusing to pay that amount. The court reduced SNAPS' damages by $277, 500 and entered a $241, 608 judgment against Elizabeth Leach. The court ...

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