Bismarck Financial Group v. Caldwell , 2020 ND 207 ( 2020 )

Filed 10/21/20 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2020 ND 207Bismarck Financial Group, LLC; Gary Berube,
in his capacity as a Member of Bismarck
Financial Group, LLC; Doug Buehler, in his
capacity as a Member of Bismarck Financial
Group, LLC; Bob Johnson, in his capacity
as a Member of Bismarck Financial Group,
LLC; Matt Puetz, in his capacity as a
Member of Bismarck Financial Group, LLC;
and Larry Souther, in his capacity as a
member of Bismarck Financial Group, LLC, Plaintiffs and Appellants
v.
James “Jay” Caldwell, Defendant and Appellee
No. 20200005
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable David E. Reich, Judge.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Opinion of the Court by McEvers, Justice.
Randall J. Bakke (argued), Shawn A. Grinolds (on brief), Bradley N.
Wiederholt (on brief), Bismarck, ND, for plaintiffs and appellants.
Cory D. Olson (argued) and Philip J. Kaplan (on brief), Minneapolis, MN, for
defendant and appellee.
Bismarck Financial Group v. Caldwell
No. 20200005
McEvers, Justice.
[¶1] Bismarck Financial Group, LLC, and its individual members (together
“BFG”) appeal from an order granting James Caldwell’s Rule 12(b)(6) motion
to dismiss their complaint. The district court assumed for purposes of the
motion that Caldwell wrongfully dissociated from the company, but the court
dismissed the complaint concluding Caldwell could not be held liable for future
company expenses and obligations as a matter of law. We affirm in part,
reverse in part, and remand.
I
[¶2] According to BFG’s complaint, Bismarck Financial Group, LLC, was
formed in 2009 as a limited liability company organized under N.D.C.C. ch. 10-
32.1. Caldwell purchased a former member’s interest in 2015. After Caldwell
became a member, the parties executed various governing documents,
including an operating agreement, which BFG attached to its complaint.
While Caldwell was a member, the company entered into a 10-year office lease.
The company also had, and continues to have, one salaried employee.
[¶3] In 2019, Caldwell informed the other members he was dissociating from
the company. BFG subsequently brought this lawsuit requesting a declaration
that Caldwell’s dissociation was wrongful and damages in excess of
$137,879.55 based on Caldwell’s pro rata share of the company’s debt
obligations, employee salary, office overhead, and other expenses.
[¶4] Caldwell moved to dismiss for failure to state a claim upon which relief
could be granted. Caldwell argued that he could not be held personally liable
for company expenses and obligations under principles of corporate law.
Caldwell also asserted BFG had not incurred any damages caused by his
dissociation because, according to the terms of the operating agreement, the
members have no obligation to contribute capital to cover company
expenditures. The district court granted Caldwell’s motion. The court
assumed Caldwell wrongfully dissociated from the company, but concluded
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BFG had not pleaded a cognizable claim for damages because Caldwell could
not be held liable for future company expenses and obligations.
II
[¶5] A motion to dismiss under N.D.R.Civ.P. 12(b)(6) tests the legal
sufficiency of the claims presented in the complaint. Estate of Nelson, 2015 ND
122, ¶ 5, 863 N.W.2d 521. This Court reviews appeals from N.D.R.Civ.P.
12(b)(6) dismissals de novo and only affirms when it cannot discern a potential
for proof to support the claims in the complaint. Brandvold v. Lewis & Clark
Pub. Sch. Dist. No. 161, 2011 ND 185, ¶ 6, 803 N.W.2d 827. The Court must
construe the complaint “in the light most favorable to the plaintiff, taking as
true the well-pleaded allegations in the complaint.” Hale v. State, 2012 ND
148, ¶ 13, 818 N.W.2d 684 (quoting Ziegelmann v. DaimlerChrysler Corp., 2002
ND 134, ¶ 5, 649 N.W.2d 556).
“The purpose of a Rule 12(b)(v) motion is to test the legal
sufficiency of the statement of the claim presented in the
complaint.” Towne v. Dinius, 1997 ND 125, ¶ 7, 565 N.W.2d 762.
A court’s scrutiny of pleadings should be deferential to the
plaintiff, unless it is clear there are no provable facts entitling the
plaintiff to relief. Wells [v. First Am. Bank W.], 1999 ND 170, ¶ 7,
598 N.W.2d 834. “Because determinations on the merits are
generally preferred to dismissal on the pleadings, Rule 12(b)(v) 1
motions are viewed with disfavor.” Towne, at ¶ 7. A complaint
should not be dismissed under N.D.R.Civ.P. 12(b)(v) for failure to
state a claim upon which relief can be granted “unless it appears
beyond doubt that the plaintiff can prove no set of facts in support
of his claim which would entitle him to relief.” Johnson &
Maxwell, Ltd. v. Lind, 288 N.W.2d 763, 765 (N.D. 1980).
The complaint is to be construed in the light most favorable
to the plaintiff, and the allegations of the complaint are
taken as true. The motion for dismissal of the [complaint]
should be granted only if it is disclosed with certainty the
1Effective March 1, 2011, a motion to dismiss for failure to state a claim upon which relief can be
granted is provided under N.D.R.Civ.P. 12(b)(6).
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impossibility of proving a claim upon which relief can be
granted. Id. (citations omitted).
Rose v. United Equitable Ins. Co., 2001 ND 154, ¶ 10, 632 N.W.2d 429.
[¶6] A limited liability company combines the tax advantages and capital
structure of a partnership with the limited liability and governance structure
of a corporation. See Addy v. Myers, 2000 ND 165, ¶ 10, 616 N.W.2d 359(discussing purposes of a limited liability company under N.D.C.C. ch. 10-32).
Members of a limited liability company have limited liability like a corporate
shareholder and are not generally exposed to personal liability for the entity’s
debts unless there are personal guarantees. Id. Under the current version of
the Uniform Limited Liability Company Act, N.D.C.C. § 10-32.1-47(3),
provides for damages caused by a member’s wrongful dissociation from a
limited liability company:
A person that wrongfully dissociates as a member is liable to the
limited liability company and . . . to the other members for
damages caused by the dissociation. The liability is in addition to
any other debt, obligation, or other liability of the member to the
company or the other members.
In addition, N.D.C.C. § 10-32.1-49(2) states that a member’s dissociation does
not discharge the member from “any debt, obligation, or other liability to the
company or the other members that the person incurred while a member.”
A
[¶7] BFG’s complaint seeks to hold Caldwell liable for rent he “remains
responsible to pay;” net losses for which he “is legally obligated to pay his pro
rata share;” general office overhead expenses he “remains obligated to pay BFG
a 1/6th share of;” and employee salary he “is also obligated to pay.”
[¶8] BFG specifically relies on Section 3.03 of the operating agreement to
support its claims. Section 3.03 states: “Net Income and Net Losses shall be
allocated annually among the Members based on their Percentage Interests.”
BFG asserts company expenditures qualify as “Net Losses.” In BFG’s words:
“In addition to Lease Rents, net losses include but are not limited to general
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office overhead expenses of BFG related to the Lease as well as other common
business overhead.”
[¶9] “An operating agreement is a contract.” Unif. Ltd. Liab. Act (amended
2013) § 102(13) cmt. (Unif. Law Comm’n. 2006). Matters of contractual
interpretation present questions of law that are fully reviewable on appeal.
Bendish v. Castillo, 2012 ND 30, ¶ 16, 812 N.W.2d 398. “The language of a
contract is to govern its interpretation if the language is clear and explicit and
does not involve an absurdity.” N.D.C.C. § 9-07-02.
[¶10] The operating agreement defines “Net Losses” and “Net Income” as “the
profits and losses of the Company, as the case may be, as determined for federal
income tax purposes as of the close of each of the fiscal years of the Company.”
Although company expenditures may be considered in determining whether
BFG has a net loss or net profit at the end of the year, “as the case may be,”
the expenses themselves clearly do not constitute “Net Losses” because they
exist regardless of whether the company had an annual loss or profit. We
conclude Section 3.03 does not create an obligation for members to cover
company expenditures. Thus, BFG’s claim that, under this provision, Caldwell
is obligated to pay a share of company rent, operating expenses, and employee
salary fails as a matter of law.
B
[¶11] BFG also argues Caldwell’s wrongful dissociation injured each member
by increasing their proportionate obligation to contribute capital to fund the
company. However, Section 3.08 of the operating agreement clearly states
members are not required to contribute capital:
No Member shall have any obligation to make additional capital
contributions to the Company or to fund, advance, or loan monies
which may be necessary to pay deficits, if any, incurred by the
Company during the term hereof.
Because the members have no obligation to contribute capital to cover company
deficits, it cannot be said Caldwell’s dissociation caused the remaining
members injury in the form of increased contribution obligations. Each
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member’s proportionate obligation to contribute capital remains the same
before and after Caldwell’s dissociation—there is none. BFG’s argument thus
fails as a matter of law.
C
[¶12] BFG also asserts relief under the Uniform Limited Liability Company
Act is not dependent upon any contractual obligation owed by Caldwell. BFG
argues it is “statutorily entitled” to any damages caused by Caldwell’s
dissociation.
[¶13] In its dismissal order, the district court noted BFG did not specify any
damages other than those purportedly arising under the operating
agreement—“[f]or example, Plaintiffs do not allege that, as a result of
Caldwell’s dissociation, Bismarck Financial has lost a business opportunity or
been forced to pay higher rent.” However, BFG’s complaint alleges: “Caldwell’s
monetary obligation to his fellow BFG members is likely to increase in the
future and is likely to include other obligations and other dollar amounts not
currently identifiable. Plaintiffs reserve their right to present evidence in this
case of such additional obligations and dollar amounts.” (Emphasis added.)
[¶14] All that is required under N.D.R.Civ.P. 8(a)(1) and (2) is: “(1) a short and
plain statement of the claim showing that the pleader is entitled to relief; and
(2) a demand for the relief sought, which may include relief in the alternative
or different types of relief.” BFG’s allegation that Caldwell’s withdrawal
caused additional, currently-unidentifiable damages, if proven, is sufficient to
support recovery against Caldwell. See N.D.C.C. § 10-32.1-47(3) (wrongfully
dissociating members are liable “for damages caused by the dissociation”). We
conclude the district court erred when it dismissed BFG’s complaint as a
matter of law in its entirety.
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III
[¶15] We affirm the dismissal order in part, reverse in part, and remand for
further proceedings.
[¶16] Lisa Fair McEvers
Gerald W. VandeWalle
Jerod E. Tufte
Daniel J. Crothers
Jon J. Jensen, C.J.
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