McDougall v. AgCountry Farm Credit Services , 2021 ND 98 ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
JUNE 3, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 98Michael McDougall and Bonita McDougall, Plaintiffs and Appellees
v.
AgCountry Farm Credit Services, Defendant, Third-Party Plaintiff,
and Appellant
and
Any person in possession, and All persons
unknown, claiming any estate or interest in,
or lien or encumbrance upon, the real estate
described in the Third Party Complaint, Third-Party Defendants
No. 20200282
Appeal from the District Court of Towner County, Northeast Judicial District,
the Honorable Donovan J. Foughty, Judge.
AFFIRMED AS MODIFIED.
Opinion of the Court by Crothers, Justice.
Patrick J. Sinner (argued) and Kip M. Kaler (appeared), Fargo, ND, for
plaintiffs and appellees.
John D. Schroeder, Grand Forks, ND, for defendant, third-party plaintiff, and
appellant.
McDougall v. AgCountry Farm Credit Services, PCA
No. 20200282
Crothers, Justice.
[¶1] AgCountry Farm Credit Services, PCA appeals from a district court
judgment granting Michael and Bonita McDougall’s unjust enrichment claim
and ordering AgCountry to pay $170,397.76. We direct the district court to
modify the cost judgment, and we affirm as modified.
I
[¶2] Kent and Erica McDougall were farmers and ranchers who began raising
cattle in 2007. Michael and Bonita McDougall (collectively, “the McDougalls”)
are the parents of Kent McDougall. In 2013, Kent and Erica McDougall began
financing their operations through AgCountry.
[¶3] On various dates Kent and Erica McDougall obtained eight loans from
AgCountry and signed promissory notes secured by real estate mortgages and
security agreements. From fall of 2015 through March 30, 2016, Kent and
Erica McDougall repeatedly requested AgCountry restructure their loans and
assist them in obtaining operating funds. In discussions between its loan
officer and Kent and Erica McDougall, AgCountry suggested additional
collateral would assist in moving refinancing forward. Kent McDougall agreed
to speak with Michael McDougall about transferring the home quarter to use
as collateral with the understanding AgCountry would agree to lend additional
funds.
[¶4] Although Kent and Erica McDougall were in default on their loans with
AgCountry, on March 31, 2016, they signed a mortgage on the home quarter
to AgCountry. On the same date, Kent and Erica McDougall’s promissory notes
were modified to extend various payment dates to June 1, 2016. The home
quarter warranty deed to Kent and Erica McDougall from the McDougalls was
delayed because Michael McDougall needed to pay off an existing mortgage.
Because of the delay, Kent and Erica McDougall did not take title to the home
quarter until April 5, 2016. That same day, AgCountry recorded both the
warranty deed and its mortgage on the home quarter.
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[¶5] On April 6, 2016, Kent and Erica McDougall’s accounts with AgCountry
were sent to special credit, a department for troubled loans. On April 7, Kent
and Erica McDougall spoke with the Vice President for the Northwestern
Region. Kent McDougall testified “I remember [the Vice President] told me I
should have been sat down a long time ago and that there was no more money
for me. That we were in trouble.” On May 4, 2016, Kent and Erica McDougall
were informed their request for restructuring was denied. Kent and Erica
McDougall filed for bankruptcy in October 2016. As part of the bankruptcy
proceedings, Kent and Erica McDougall initiated an adversary action against
AgCountry and the McDougalls. The complaint in the adversary action
asserted a count for avoidance of transfer, for avoidance of the mortgage on the
basis of fraud, and to determine the transfer of the home quarter back to the
McDougalls from Kent and Erica McDougall was appropriate and
nonavoidable.
[¶6] The bankruptcy court issued judgment in favor of AgCountry, denying
relief to Kent and Erica McDougall or the McDougalls. Kent and Erica
McDougall and the McDougalls appealed the judgment to the Eighth Circuit
Court of Appeals Bankruptcy Appellate Panel. The Bankruptcy Appellate
Panel dismissed the appeal as to the McDougalls, concluding the bankruptcy
court lacked jurisdiction over any claim between the McDougalls and
AgCountry in the adversary action because it did not affect the bankruptcy
estate. On remand, the bankruptcy court entered judgment in the adversary
action dismissing the McDougalls’ claim for lack of subject matter jurisdiction.
[¶7] On August 30, 2018, the McDougalls sued AgCountry seeking a
declaration that the mortgage on the home quarter was void and asserting
claims of deceit, conversion, estoppel and unjust enrichment. AgCountry
moved for summary judgment, arguing the McDougalls’ claims failed as a
matter of law based on undisputed facts. AgCountry also argued the claims
were barred by the prior judgment in Kent and Erica McDougall’s bankruptcy
proceedings. The McDougalls responded to the motion and moved for summary
judgment. After a hearing, summary judgment was granted in favor of
AgCountry dismissing the McDougalls’ claims of conversion, promissory
estoppel, unjust enrichment and deceit and granting a declaration of
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superiority in AgCountry’s mortgage on the home quarter. Judgment was
entered and the McDougalls appealed.
[¶8] On appeal, the McDougalls argued the statute of frauds did not preclude
their deceit claim and the district court erred by dismissing their unjust
enrichment claim. McDougall v. AgCountry Farm Credit Servs., PCA, 2020
ND 6, ¶¶ 11, 20, 937 N.W.2d 546. AgCountry argued, among other things, that
the McDougalls’ claims were barred by collateral estoppel. This Court
concluded the statute of frauds did not preclude the McDougalls’ deceit claim,
genuine issues of material fact existed on the deceit claim, and the district
court erred in granting summary judgment. Id. at ¶ 19. This Court also
concluded genuine issues of material fact existed as to the unjust enrichment
claim, stating it was an alternative claim and it was possible if the McDougalls
failed to prove their other claims, it would leave them without a remedy
provided by law. Id. at ¶¶ 24-25. This Court affirmed the judgment in part, and
reversed and remanded the part of the judgment dismissing the McDougalls’
claims of deceit and unjust enrichment. Id. at ¶ 26.
[¶9] On remand, a trial was held on the McDougalls’ claims of deceit and
unjust enrichment. The jury found in favor of AgCountry on the deceit claim.
Subsequently, the parties submitted briefing on unjust enrichment. The
district court issued its findings of fact, conclusions of law, and order for
judgment granting the McDougalls’ claim for unjust enrichment. Judgment
was entered on October 23, 2020, awarding the McDougalls the value
AgCountry received for the home quarter, prejudgment interest as of the date
AgCountry recorded its mortgage, and costs and disbursements. AgCountry
appeals from the judgment.
II
[¶10] AgCountry argues the McDougalls’ claims of deceit and unjust
enrichment were barred by collateral estoppel. AgCountry claims the
bankruptcy court’s finding that AgCountry did not commit fraud against Kent
and Erica McDougall precluded the McDougalls’ assertion of unjust
enrichment and deceit in this action. The McDougalls argue this Court’s
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affirmance of the district court’s ruling on collateral estoppel is law of the case,
and their claims are not barred by collateral estoppel.
[¶11] Under the principle of law of the case, a party may not on a second appeal
relitigate issues resolved by the Court in the first appeal. This Court has said:
“[A]s generally used, the law of the case is defined as ‘the principle
that if an appellate court has passed on a legal question and
remanded the cause to the court below for further proceedings, the
legal question thus determined by the appellate court will not be
differently determined on a subsequent appeal in the same case
where the facts remain the same.’”
Tom Beuchler Constr., Inc. v. City of Williston, 413 N.W.2d 336, 339 (N.D.
1987).
[¶12] AgCountry’s argument the McDougalls’ claims are barred by collateral
estoppel fails. AgCountry presented the same argument in its original motion
for summary judgment. McDougall I, 2020 ND 6, ¶ 7. In its order for summary
judgment the district court found the McDougalls’ claims were not barred by
collateral estoppel, instead finding the claims could not succeed as a matter of
law. In McDougall I, we reversed and remanded the deceit and unjust
enrichment claims, concluding the district court erred in determining there
were no genuine issues of material fact. Id. at ¶ 26. This Court affirmed the
remainder of the judgment. The same legal question previously determined by
this Court will not be differently determined on a second appeal in the same
case where the facts remain the same. Tom Beuchler Constr., Inc., 413 N.W.2d
at 339. AgCountry’s argument as to collateral estoppel is barred by the law of
the case.
III
[¶13] AgCountry argues the district court erred in finding it was unjustly
enriched. AgCountry claims the court’s findings and conclusions were
inconsistent and irreconcilable with the jury’s verdict on the deceit claim; the
McDougalls were not impoverished; there was no causal connection between
AgCountry’s enrichment and the McDougalls’ impoverishment; there was
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justification for AgCountry’s enrichment; and, the McDougalls possessed an
adequate remedy at law.
[¶14] Five elements are required to establish unjust enrichment: “1. An
enrichment; 2. An impoverishment; 3. A connection between the enrichment
and the impoverishment; 4. Absence of a justification for the enrichment and
impoverishment; and 5. An absence of a remedy provided by law.” Apache Corp.
v. MDU Res. Grp., Inc., 1999 ND 247, ¶ 13, 603 N.W.2d 891. A court’s findings
of fact supporting an unjust enrichment determination are subject to the
clearly erroneous standard of review. Nelson v. Mattson, 2018 ND 99, ¶ 17, 910
N.W.2d 171 (quoting Broten v. Broten, 2017 ND 47, ¶ 10, 890 N.W.2d 847). “A
finding of fact is clearly erroneous if there is no evidence to support it, or if,
based on the entire record, we are left with a definite and firm conviction a
mistake has been made.” Nelson, at ¶ 17 (quotation omitted).
A
[¶15] AgCountry argues an inconsistency between the findings of the judge
and the jury in a bifurcated trial constitutes reversible error. AgCountry has
provided no persuasive authority on this point. AgCountry attempts to rely on
Continental Resources, Incorporated v. P&P Industries, LLC I, 2018 ND 11,
906 N.W.2d 105. However, Continental involved a jury trial where the district
court denied several motions for a new trial which were based on perverse
inconsistencies in the jury’s verdict. Id. at ¶¶ 7, 28. The facts of that case are
very different from the facts here.
[¶16] Here, the district court conducted a bifurcated trial where the deceit
claim was tried by the jury and the unjust enrichment claim was tried by the
judge. The jury filled out a verdict form answering the single question “Do you
find by clear and convincing evidence that Defendant, AgCountry Farm Credit
Services, PCA committed deceit?” The jury answered “no.” In its findings of
fact, conclusions of law, and order for judgment on the unjust enrichment
claim, the district court stated:
“This Court specifically finds, by clear and convincing evidence,
that 1) AgCountry, via [the loan officer], represented to Kent and
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Erica McDougall that the Home Quarter mortgage would further
a refinancing or operating loan, 2) AgCountry, via [the loan
officer], knew this would be relayed to the McDougalls and would
serve as the basis for Kent and Erica McDougall to grant a
mortgage on the same, and 3) AgCountry did not intend, from at
least March 14th 2016, to ever use the mortgage as collateral for a
refinance or operating loan, but as extra collateral upon which to
collect existing debt.”
It is unclear that the district court engaged in an analysis of deceit when the
only question for the judge was whether AgCountry was unjustly enriched. The
district court did utilize part of the analysis in its finding there was no
justification for the McDougalls’ impoverishment and AgCountry’s
enrichment. Further, this Court cannot be certain the district court’s findings
are inconsistent with the jury’s findings because the jury answered only the
broad question of whether AgCountry committed deceit. Therefore, any
perceived inconsistency between the court and the jury’s findings does not
serve as a basis for reversal.
B
[¶17] AgCountry argues the McDougalls were not impoverished because they
intended to give the home quarter to Kent and Erica McDougall for no
consideration. AgCountry cites Apache Corporation v. MDU Resource Group,
Incorporated, 1999 ND 247, ¶ 13, 603 N.W.2d 891, for the proposition no unjust
enrichment exists when impoverishment is due to contractual arrangements
between the plaintiff and a third party. However, our holding in Apache
explains the reason the defendant was not unjustly enriched was because it
did not receive a benefit from the plaintiff which would be inequitable to retain
without paying for its value. Id. at ¶ 15. Although the plaintiff received less
money than it expected when the defendant breached its obligations with a
third party, Koch, the money the defendant saved was not a benefit at the
direct expense of plaintiff. Id. Instead, the plaintiff’s loss resulted from the way
it calculated pricing factors in a valid contractual arrangement with Koch and
thus the result was not contrary to equity. Id.
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[¶18] The facts here are different than those in Apache. It is clear the
McDougalls had a valid contractual arrangement with Kent and Erica
McDougall. However, in contrast to Apache, the McDougalls retained no
benefit from the transfer of their land to Kent and Erica McDougall. Michael
McDougall testified he would not have transferred the home quarter if he knew
Kent and Erica McDougall would not qualify for a refinance or operating loan.
Unlike Apache’s contractual arrangement with Koch, the McDougalls’ transfer
of the home quarter did not confer onto them some, but not all of the benefit
they expected to receive. The benefit conferred on AgCountry through the
McDougalls’ transfer of the home quarter was a benefit at the direct expense
of the McDougalls. The district court’s finding the McDougalls were
impoverished was not clearly erroneous.
C
[¶19] AgCountry argues the district court erred in finding a causal connection
between the McDougalls’ impoverishment and AgCountry’s enrichment
because of intervening acts or omissions of both the McDougalls and Kent and
Erica McDougall.
[¶20] AgCountry claims this Court has held a lack of direct connection between
the parties defeats the connection element required for an unjust enrichment
claim. In Thimjon, we affirmed a summary judgment dismissal of an unjust
enrichment claim due to a lack of causal connection between the enrichment
and the impoverishment. Thimjon Farms P’ship v. First Int’l Bank & Trust,
2013 ND 160, ¶ 24, 837 N.W.2d 327. Thimjon involved a bank’s retention of
payments from a third-party contractor, Northern Grain, who utilized down
payments from the plaintiffs to pay its operating loans with First International
Bank. Id. at ¶ 3. When Northern Grain went out of business, the plaintiffs
brought unjust enrichment claims against First International, which were
dismissed. Id. at ¶¶ 3-7. This Court affirmed the dismissal, explaining First
International was a legal stranger to the plaintiff because First International
received no benefit directly from the plaintiff, instead receiving the funds
directly from Northern Grain. Id. at ¶ 21.
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[¶21] Thimjon is inapposite. Here, the district court specifically noted the
McDougalls’ impoverishment was based upon representations made by
AgCountry, via the loan officer, to Kent and Erica McDougall which were then
relayed to the McDougalls to effectuate a transfer of the home quarter. The
court concluded it was reasonable “[The loan officer] knew his conversation
with Kent McDougall would be relayed to Michael McDougall, as the title
owner, in order for a mortgage upon the Home Quarter to occur.” The court
found credible Kent McDougall’s testimony that the loan officer repeatedly
represented refinancing looked good. The loan officer testified he never
informed Kent and Erica McDougall that refinancing looked good. However,
transcripts from proceedings in 2017 revealed he stated it was possible he said
things looked good. Communications between the loan officer and other
AgCountry officers established that despite the representations to Kent and
Erica McDougall about the possibility of refinancing, there were extreme
concerns about the past-due status of their accounts. Those extreme concerns
were borne out by AgCountry transferring Kent and Erica McDougall’s loans
to special credit a mere two days after recording the home quarter deed.
[¶22] Through its representations to Kent and Erica McDougall, AgCountry
led the McDougalls to believe mortgaging the home quarter would assist in
extending a new operating loan to Kent and Erica McDougall. “[A] third party
who derives gain from an agreement between others has not necessarily been
unjustly enriched. . . . If, however, the third party has participated somehow
in the transaction through which the benefit is obtained, that fact must be
considered by the court.” Midland Diesel Serv. & Engine Co. v. Sivertson, 307
N.W.2d 555, 558 (N.D. 1981). AgCountry’s participation in Kent and Erica
McDougall’s acquisition of the home quarter was a basis upon which the
district court could have found a causal connection between the
impoverishment and enrichment. The court’s finding of a connection was not
clearly erroneous.
D
[¶23] AgCountry argues the district court erred in finding there was a lack of
justification for AgCountry’s enrichment. AgCountry asserts there was
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justification because Kent and Erica McDougall received benefit from the loan
extension as a result of the mortgage on the home quarter.
[¶24] AgCountry again relies on Thimjon to support its argument the
enrichment was justified. In Thimjon, this Court concluded the claimants
could not establish a lack of justification for First International’s enrichment
because First International paid value by lending money to Northern Grain
and Northern Grain was free to use the down payments in the course of
business. Thimjon, 2013 ND 160, ¶ 22.
[¶25] The district court concluded neither the McDougalls nor Kent and Erica
McDougall received a material benefit or value from the transfer and mortgage
of the home quarter. The court explained AgCountry knew there was no value
behind its statement in documents signed by Kent and Erica McDougall that
“[e]fforts will be made to refinance all of this debt into a FLCA loan secured by
all real estate owned.” The loan officer was asked several times by superiors
about sending Kent and Erica McDougall’s accounts to special credit prior to
obtaining the mortgage on the home quarter. The testimony and evidence
established that despite serious concerns about the viability of Kent and Erica
McDougall’s accounts, AgCountry continued to represent there was a
possibility of refinancing and/or extending further operating loans in exchange
for additional collateral. Based on the evidence, the court concluded AgCountry
knew Kent and Erica McDougall’s farming operation was doomed and even a
60-day extension on their current accounts would be pointless and absent any
value. On the evidence presented, the district court’s finding there was a lack
of justification for AgCountry’s enrichment was not clearly erroneous.
E
[¶26] AgCountry argues the district court erred in finding the McDougalls
lacked an adequate remedy at law. According to AgCountry, the McDougalls
could have pursued claims against Kent and Erica McDougall in bankruptcy
court but did not do so. AgCountry acknowledges those claims are no longer
available.
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[¶27] Unjust enrichment is an alternative claim, and a legal claim which has
yet to fail or succeed does not preclude a plaintiff from also asserting an unjust
enrichment claim. See McColl Farms, LLC v. Pflaum, 2013 ND 169, ¶ 20, 837
N.W.2d 359; McDougall I, 2020 ND 6, ¶ 24. Similarly, a legal claim that is no
longer available to the plaintiff is squarely within the definition of “absent” as
intended by this Court’s jurisprudence regarding unjust enrichment claims.
Although the McDougalls at one time may have been able to assert claims
against Kent and Erica McDougall, those claims were no longer available when
the unjust enrichment claim was submitted to the district court, therefore the
McDougalls had no legal claims remaining. With no remaining legal claims,
the district court did not err in finding the McDougalls lacked a remedy at law.
IV
[¶28] AgCountry argues the district court abused its discretion in awarding
the McDougalls prejudgment interest dating back to April 6, 2016. AgCountry
asserts the North Dakota Century Code provides for prejudgment interest only
for legal claims, and because unjust enrichment is an equitable claim, an
award of prejudgment interest was an abuse of discretion.
[¶29] Section 32-03-05, N.D.C.C., provides “In an action for the breach of an
obligation not arising from contract and in every case of oppression, fraud, or
malice, interest may be given in the discretion of the court or jury.” Section 32-
03-04, N.D.C.C., further provides “Every person who is entitled to recover
damages certain or capable of being made certain by calculation, the right to
recover which is vested in the person upon a particular day, also is entitled to
recover interest thereon from that day . . . .”
[¶30] The amount owed to the McDougalls was certain and calculable on a
particular day, meaning it vested on that day. The district court found interest
calculations should commence on the date AgCountry perfected its mortgage
on the home quarter. Because neither the amount nor the date the obligation
accrued was in dispute, the district court did not abuse its discretion in
awarding the McDougalls prejudgment interest.
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V
[¶31] AgCountry argues the district court abused its discretion in awarding
the McDougalls costs and fees. AgCountry asserts it was an abuse of discretion
to award the McDougalls the costs incurred in taking depositions during the
bankruptcy proceedings which were ultimately used in the proceedings at the
district court. According to AgCountry, the McDougalls should have sought an
award of those costs from the bankruptcy court. Section 28-26-06, N.D.C.C.,
controls taxation of costs and disbursements from actions proceeding in state
courts. Fees allowed include “[t]he necessary expenses of taking depositions
and procuring evidence necessarily used or obtained for use on the trial.” Id.The McDougalls’ use of prior depositions prevented duplicative depositions and
saved costs not only for themselves but for AgCountry. The district court did
not abuse its discretion in awarding the McDougalls costs and fees in this
action for the expenditures made during the bankruptcy court proceeding.
[¶32] AgCountry argues the district court erred in awarding costs to the
McDougalls that included the filing fee in McDougall I. No costs were awarded
to either party in that appeal, and the district court was without authority to
award costs when we said they were not recoverable. See Viscito v.
Christianson, 2016 ND 139, ¶ 7, 881 N.W.2d 633 (quoting Carlson v. Workforce
Safety & Ins., 2012 ND 203, ¶ 16, 821 N.W.2d 760) (“The mandate rule, a more
specific application of law of the case, requires the trial court to follow
pronouncements of an appellate court on legal issues in subsequent
proceedings of the case and to carry the [appellate court’s] mandate into effect
according to its terms.”). We therefore direct that the cost judgment in this case
be reduced by $125.00 to reflect our denial of costs in McDougall I.
VI
[¶33] The district court judgment is affirmed as modified.
[¶34] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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