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Continental Resources, Inc. v. P&P Industries, LLC

Supreme Court of North Dakota

January 22, 2018

Continental Resources, Inc., Plaintiff and Appellee
v.
P&P Industries, LLC I d/b/a United Oilfield Services and P&P Industries, LLC, and Pauper Industries, Inc., Defendants and Appellants and Parka, Inc., Defendant

         Appeal from the District Court of Williams County, Northwest Judicial District, the Honorable Joshua B. Rustad, Judge.

          Andrew D. Sims (argued), Paul T. Elkins (on brief), and Russell R. Barton (on brief), Fort Worth, TX, and Lawrence Bender (appeared) and Danielle M. Krause (on brief), Bismarck, N.D. for plaintiff and appellee.

          Peter M. King (argued) and William H. Jones (appeared), Chicago, IL, and Lance D. Schreiner (appeared), Bismarck, N.D. for defendants and appellants.

          OPINION

          MCEVERS, JUSTICE.

         [¶ 1] P&P Industries, LLC, doing business as United Oilfield Services, and Pauper Industries, Inc., appeal from a judgment entered in favor of Continental Resources, Inc., after a jury returned a verdict finding United and Pauper's conduct constituted fraud but they did not breach their contracts with Continental. United and Pauper argue the verdicts are inconsistent and the district court erred in limiting the amount of damages United could seek on its counterclaim. We reverse and remand.

         I

         [¶ 2] Continental is an oil producer doing business in North Dakota. United was created in 2012 when it acquired Pauper and related companies along with the assets of a third company. United and Pauper provided transportation, water hauling, and related services and materials to Continental in North Dakota. Pauper signed a Master Service Contract with Continental in 1998, and United signed a Master Service Contract with Continental in 2013.

         [¶ 3] In 2014, Continental sued United and Pauper, seeking damages for claims of breach of contract, tortious breach of contract, breach of fiduciary duty, fraud, and deceit. Continental alleged United and Pauper violated state and federal limits and regulations on the number of hours a truck driver may drive; they violated Continental's policy limiting the number of hours an employee may work in a day; and they engaged in improper and fraudulent billing.

         [¶ 4] United answered and counterclaimed, seeking damages for breach of contract, tortious breach of contract, breach of fiduciary duty, constructive fraud, and promissory estoppel. United alleged Continental breached the contract by failing to pay for services United provided and terminating the contract without giving 30 days' notice. United sought damages for the full value of its business, the unpaid amounts for services and materials United provided to Continental, and other damages. Pauper also answered Continental's complaint, but did not bring any counterclaims against Continental.

         [¶ 5] In December 2015, Continental moved to amend its complaint to additionally claim United and Pauper breached their contracts by allowing liens to attach to Continental properties as a result of failing to pay subcontractors and failing to defend and indemnify Continental for the claims or liens the subcontractors filed. The amended complaint was filed in July 2016.

         [¶ 6] Continental and United moved for summary judgment. After a hearing, the district court denied United's motion for summary judgment on Continental's claims; denied Continental's motion for summary judgment on United's breach of contract, promissory estoppel, and tortious breach of contract counterclaims; and denied Continental's motion for summary judgment on its fraud and breach of contract claims. The court granted Continental's motion for summary judgment against United's breach of fiduciary duty and constructive fraud counterclaims. The court also granted summary judgment on Continental's motion related to damages and ruled, if United prevails at trial, its damages would be limited to the net profits it could have earned during the 30-day termination notice period, overall expenses of preparation, and its expenses in pursuit of reasonable efforts to avoid or minimize the damaging effects of the breach. United moved the court to reconsider the damages issue, and the court denied the motion.

         [¶ 7] A jury trial was held. The jury was given a 19-question special verdict form, requiring the jury to make findings about Continental's claims for each defendant, United's counterclaims, and alleged defenses. In deciding Continental's claims, the jury found neither United nor Pauper breached its contract obligations to Continental, both United and Pauper's conduct was fraudulent or accompanied by fraud, both United and Pauper's conduct was deceitful or accompanied by deceit, and the jury awarded Continental $2, 415, 000 in damages for its claims against United but did not award Continental any damages for its claims against Pauper. In deciding United's counterclaims, the jury found Continental breached its contract with United, but Continental was excused from performing based on United's prior material breach, United's failure to perform a condition precedent, United's fraud or deceit, and equitable estoppel.

         [¶ 8] United and Pauper moved for judgment to be entered in their favor or for a new trial under N.D.R.Civ.P. 50(b), 58, and 59. United and Pauper argued they were entitled to judgment in their favor or a new trial because the jury's verdict was inconsistent, Continental did not present sufficient evidence to support its claims of fraud and deceit, and Continental did not present sufficient evidence to support its alleged defenses to United's breach of contract claim. The district court denied the motion.

         [¶ 9] Judgment in the amount of $2, 415, 000 was entered against United. Judgment on the jury's findings was entered against Pauper. Continental was awarded its costs and disbursements against United and Pauper, jointly and severally.

         II

         [¶ 10] United and Pauper argue they are entitled to a new trial because the jury verdict is inconsistent and cannot be reconciled.

         [¶ 11] A court may vacate a jury verdict and grant a new trial "if the jury has plainly disregarded the court's instructions or the evidence in the case is such that it convinces the court the verdict was rendered under a misapprehension of the instructions." N.D.R.Civ.P. 59(g); see also Moszer v. Witt, 2001 ND 30, ¶ 10, 622 N.W.2d 223. The district court has discretion in deciding a motion for a new trial, and the court's decision will not be overturned on appeal unless it manifestly abused its discretion. Moszer, at ¶ 10. A court abuses its discretion when it acts in an arbitrary, unreasonable, or unconscionable manner, when it misinterprets or misapplies the law, or when its decision is not the product of a rational mental process leading to a reasoned determination. Johnson v. Buskohl Constr. Inc., 2015 ND 268, ¶ 12, 871 N.W.2d 459.

         [¶ 12] A jury's special verdict will be reversed on appeal only if it is perverse and clearly contrary to the evidence. Moszer, 2001 ND 30, ¶ 11, 622 N.W.2d 223. This Court has adopted the following test for reconciling apparent conflicts in a jury's verdict:

[W]hether the answers may fairly be said to represent a logical and probable decision on the relevant issues as submitted. If after a review of the district court's judgment no reconciliation is possible and the inconsistency is such that the special verdict will not support the judgment entered below or any other judgment, then the judgment must be reversed and the case remanded for a new trial.

Id. (quoting Barta v. Hinds, 1998 ND 104, ¶ 6, 578 N.W.2d 553). "Reconciliation of a verdict, therefore, includes an examination of both the law of the case and the evidence in order to determine 'whether the verdict is logical and probable and thus consistent, or whether it is perverse and clearly contrary to the evidence.'" Barta, at ¶ 6 (quoting Grenz v. Kelsch, 436 N.W.2d 552, 554-55 (N.D. 1989)). Jury instructions become the law of the case unless there is an objection to the instructions. Barta, at ¶ 8.

         [¶ 13] On the special verdict form, the jury found Continental failed to prove United breached its contract obligations to Continental. The jury also found Continental did not prove Pauper breached its contract obligations to Continental. The jury found there was clear and convincing evidence both United and Pauper's conduct was fraudulent or accompanied by fraud. In deciding United's counterclaims, the jury found Continental breached the contract but was excused from performing by United's prior material breach.

         [¶ 14] United and Pauper argue both the fraud and breach of contract claims were based on improper billing practices and therefore it was inconsistent for the jury to find the conduct did not constitute a breach of contract but did constitute fraud. They claim the jury determined United did not engage in the alleged conduct when it found United did not breach the contract, but the same conduct formed the basis for Continental's fraud claim.

         [¶ 15] For Continental's breach of contract claims against United and Pauper, the jury was instructed:

         Continental is required to prove by the greater weight of the evidence the following in order to recover on the claim for breach of contract against the Defendants:

1. Formation of a contract between Continental and the Defendants;
2. The Defendants breached the contract by presenting inaccurate or false charges to Continental and/or by billing for services in violation of the parties' contract and allowing liens to be filed on wells operated by Continental; and
3. Continental suffered damages as a direct result of the breach.

         You are hereby instructed that the Master Service Contracts constitute validly formed contracts between Continental and each defendant.

         The jury was instructed, "Unless a party is excused from performing, a contract is breached or broken when the party does not do what it promised to do in the contract." The jury was also instructed that a material breach of a contract was a bar to recovering under the contract, stating:

A party that materially breaches a contract cannot seek performance of the contract by the other contracting party. A party in material breach of a contract cannot enforce or recover on the contract. In other words, a party that commits a first breach of the parties' contract that is not justified by the conduct of the other, ...

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