Kruger v. Goossen , 2021 ND 88 ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
MAY 20, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 88Thomas M. Kruger and North Dakota
Safety Professionals, LLC, Plaintiffs and Appellees
v.
Sally V. Goossen, Defendant and Appellant
No. 20200287
Appeal from the District Court of Mountrail County, North Central Judicial
District, the Honorable Douglas L. Mattson, Judge.
AFFIRMED.
Opinion of the Court by Tufte, Justice.
Jonathan P. Sanstead, Bismarck, N.D., for plaintiffs and appellees.
Kent A. Reierson (argued) and Lisa M. Six (on brief), Williston, N.D., for
defendant and appellant.
Kruger v. Goossen
No. 20200287
Tufte, Justice.
[¶1] Sally Goossen appeals from a judgment determining Thomas Kruger’s
and Goossen’s ownership interests in North Dakota Safety Professionals, LLC
(“NDSP”). Goossen argues the district court erred in finding that she owns 45
percent of NDSP and that certain expenses were business expenses for NDSP
and were not draws Kruger made from NDSP’s account for his personal benefit.
We affirm, concluding the district court’s findings are not clearly erroneous.
I
[¶2] Kruger and Goossen own NDSP. In 2017, Kruger and NDSP sued
Goossen, requesting that the district court order dissolution of NDSP and
seeking damages for conversion. Kruger alleged he owns a 55 percent interest
in NDSP and is the President of the company, Goossen owns 45 percent of
NDSP and is the Vice-President of the company, Goossen improperly converted
over $200,000 from NDSP’s checking account, and it was no longer practical to
carry on the activities of NDSP because of Goossen’s actions. Goossen
counterclaimed and requested the court dissolve NDSP and order distribution
of NDSP’s assets based upon the parties’ contributions to NDSP and the
amount of the parties’ prior draws on NDSP’s checking account. Goossen
alleged she has a 50 percent interest in NDSP, she is entitled to draw from
NDSP’s account, and the checks written for her personal benefit were properly
allocated to her draw account.
[¶3] The parties stipulated to certain facts and issues for the district court to
decide at trial. The parties agreed there were three main issues for the court
to decide:
ISSUE ONE: Determine the ownership percentage by each of the
two parties as partners in North Dakota Safety Professionals,
LLC.
ISSUE TWO: Determine the equality of the draws from the entity
by the parties and, if unequal, determine if there is any sum owed
by one of the two partners to the other.
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ISSUE THREE: Determine the date of valuation and the value of
[listed] assets . . . .
[¶4] After a bench trial, the district court found NDSP was dissolved on
December 31, 2016, Kruger has a 55 percent ownership interest in NDSP, and
Goossen has a 45 percent ownership interest. The court made findings about
whether certain draws from NDSP’s account were for personal expenses and
the benefit of the individual parties, determined the total amount of each
party’s draws from NDSP’s account, and ordered Goossen to pay Kruger
$128,754.14 to equalize the parties’ draws. Judgment was entered.
II
[¶5] In an appeal from a bench trial, the district court’s findings of fact are
reviewed under the clearly erroneous standard of review and its conclusions of
law are fully reviewable. Titan Machinery, Inc. v. Renewable Res., LLC, 2020
ND 225, ¶ 7, 950 N.W.2d 149. 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 of the evidence, this Court is left with a definite and
firm conviction a mistake has been made. Id.[¶6] “In a bench trial, the district court is the determiner of credibility issues
and we will not second-guess the district court on its credibility
determinations.” Titan Machinery, 2020 ND 225, ¶ 7 (quoting Gimbel v.
Magrum, 2020 ND 181, ¶ 5, 947 N.W.2d 891). The district court’s findings are
presumptively correct. Titan Machinery, at ¶ 7. “We do not reweigh evidence
or reassess credibility, nor do we reexamine findings of fact made upon
conflicting testimony. We give due regard to the trial court’s opportunity to
assess the credibility of the witnesses, and the court’s choice between two
permissible views of the evidence is not clearly erroneous.” B.J. Kadrmas, Inc.
v. Oxbow Energy, LLC, 2007 ND 12, ¶ 7, 727 N.W.2d 270 (quoting Buri v.
Ramsey, 2005 ND 65, ¶ 10, 693 N.W.2d 619).
III
[¶7] Goossen argues the district court erred by finding she owns 45 percent
of NDSP and by requiring distribution from NDSP to be made on a 55-45 basis.
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She claims the court erred by requiring a specific document conveying or
transferring an additional five percent interest to her to establish she owns 50
percent of NDSP. She contends the evidence, including tax documents and
testimony from both parties, established the parties agreed and intended that
she would have 50 percent ownership of NDSP. She also argues Kruger is
estopped from claiming the income allocation was anything but 50-50.
[¶8] “A contract is either express or implied. An express contract is one the
terms of which are stated in words. An implied contract is one the existence
and terms of which are manifested by conduct.” N.D.C.C. § 9-06-01. But for
either type of contract to be enforceable, there must be a mutual intent to
create a legal obligation. Kadrmas, 2007 ND 12, ¶ 11. The parties’ mutual
assent is determined by their objective manifestations and not their secret
intentions. Id. The parties’ conduct and the surrounding circumstances are
relevant in deciding whether the parties intended to form a binding legal
agreement. Kadrmas, at ¶ 14.
[¶9] Whether a contract exists is a question of fact. Kadrmas, 2007 ND 12,
¶ 7. “The trier of fact determines whether a contract is intended to be a
complete, final, and binding agreement.” Id. (quoting Lonesome Dove
Petroleum, Inc. v. Nelson, 2000 ND 104, ¶ 15, 611 N.W.2d 154).
[¶10] The district court considered the parties’ arguments, testimony
presented at trial, and documentary evidence and found Goossen owns 45
percent of NDSP. The court found documentary evidence established Goossen
was initially given a 45 percent interest in NDSP on August 13, 2013, and there
were no documents transferring an additional five percent interest from
Kruger to Goossen. The court found the 2013 tax statement was the first time
there was a purported 50-50 ownership, and NDSP’s tax accountant, Richard
Diehl, testified the 2013 tax documents were prepared by another accounting
agency and he relied on the 2013 tax forms for the ownership percentage in
subsequent years. The court considered the Virginia Supreme Court’s decision
in Knop v. Knop, 830 S.E.2d 723 (Va. 2019), in the context of using tax returns
to determine whether an ownership interest was transferred, and rejected
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Goossen’s argument that the tax returns supported her claim that she owns 50
percent of NDSP, stating:
[W]hile the government taxing certain property may cause the
government to eventually acquire the property for unpaid taxes,
this Court is unaware of how a private individual claiming to own
a certain property interest on their tax returns can cause one—at
some time—to legally acquire the property—in this case a 5%
membership interest of NDSP, LLC after August 13, 2013.
The court found Goossen owns 45 percent of NDSP and Kruger owns 55
percent, explaining:
Based on the testimony and exhibits received during trial,
this Court finds Kruger’s testimony credible that he never
transferred or relinquished control of any membership interest to
Goossen after August 13, 2013. So this Court finds there is
sufficient credible evidence showing Kruger has a 55% ownership
interest of NDSP, LLC, while Goossen has a 45% ownership
interest. This conclusion relies upon the above discussion,
including—but not limited to—Diehl’s testimony of his reliance on
the 2013 tax return prepared by Whitewater Tax & Consulting
which erroneously set forth the 50 – 50 ownership format and that
both parties acknowledged there were no NDSP, LLC minutes or
documents which show a post August 13, 2013 transfer of 5%
membership interest to Goossen.
[¶11] A document was admitted into evidence entitled “Written Action in Lieu
of Initial Meeting of Members and Governors of North Dakota Safety
Professionals, L.L.C.,” signed by Kruger and Goossen and dated August 13,
2013, showing Goossen had a 45 percent interest in NDSP and Kruger had a
55 percent interest. The language of that document is not ambiguous. But
there was conflicting evidence about whether the parties agreed to transfer an
additional five percent to Goossen.
[¶12] Kruger testified that he was the sole owner of NDSP when it was created
in 2012 and that Goossen was an employee until she was added as an owner
on August 13, 2013. He testified he owns 55 percent of the company because
he was the person primarily responsible for establishing the company, Goossen
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did not contribute any capital or purchase any interest in the company, he
never sold Goossen any of his interest in the company, there was no other
written action of NDSP that created a different ownership interest, and the
parties’ ownership percentages never changed after August 13, 2013.
[¶13] Goossen testified the August 2013 document showed she owned 45
percent of NDSP, but she did not read the document showing her interest and
she assumed she was receiving 50 percent. She testified, “[I]f I would have
realized it said 45/55 I probably would have disputed it at that time. I didn’t
read through it. I assumed it was 50/50 because that’s what we were looking
at as far as taxes and everything else.” She testified it was her understanding
that she was getting 50 percent and the K-1s showed a 50 percent interest. She
testified she had a discussion with Kruger about her interest sometime after
she signed the August 13, 2013 document, they discussed equal ownership, and
they did not think they needed to redo the document showing a 45 percent
interest because that document was only good for one year. She testified their
discussion occurred after August 2013 and before the end of 2013.
[¶14] Documents related to NDSP’s tax returns, including the schedule K-1,
state each party owns 50 percent of NDSP, starting with the 2013 tax year.
Diehl testified he did NDSP’s tax returns for 2014-2016 and he sent both
parties a K-1 each year. Diehl testified that when he first started doing NDSP’s
tax returns, he thought the parties each owned 50 percent of the company
owing to information from the prior accountant, he just followed that each year
after, and he sent the parties the K-1s. In a March 23, 2015 email, from Kruger
to Diehl, Kruger said he was overdrawn from NDSP, asked what would be the
best way to even things up for fiscal year 2014, and stated, “I believe the K-1
shows equal shares are to be distributed.” Kruger testified about the email and
whether he recognized that Goossen was to get equal shares, and he said he
had been informed at that time that was what had been done and he did not
object to her receiving 50 percent of the income, but he did not realize that the
K-1 showed the parties’ ownership interest.
[¶15] Goossen argues the district court erred by relying on Knop, 830 S.E.2d
723, as the sole support for its decision that ownership of NDSP was not 50-50.
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She contends this case is different from Knop and the court erred in concluding
she claimed the tax documents acted to convey or transfer an interest to her.
[¶16] In Knop, 830 S.E.2d at 724, minority shareholders of a corporation
brought an action against a majority shareholder to determine what
percentage of shares each minority shareholder owned, arguing the majority
shareholder had gifted additional shares to each minority shareholder. The
court explained there must be a donative intent at the time of the gift and
actual or constructive delivery divesting the donor of all control over the
property to complete an inter vivos gift under Virginia law. Id. at 726. The
minority shareholders argued that statements on various tax documents
reflecting the minority shareholders’ larger share of ownership constituted
constructive delivery of certificated shares of stock. Id. at 728. The court held
there was a donative intent to gift shares, but statements on a tax return
reflecting the gift of shares did not constitute a relinquishment of control of the
shares by the donor and therefore did not satisfy the element of delivery, which
was required under statutory law for gifts of certificated shares of stock. Id. at
726, 728.
[¶17] The court’s holding in Knop is not particularly relevant to the issues
before the court in this case, including whether there was an intent and
agreement to transfer to Goossen an additional five percent interest in NDSP.
This Court has indicated tax documents may be used as evidence of a change
in a party’s ownership interest. See Larson v. Midland Hosp. Supply, Inc., 2016
ND 214, ¶¶ 16, 18, 891 N.W.2d 364. Although there was documentary evidence
that supported Goossen’s claim that Kruger agreed she would own 50 percent
of NDSP, including the K-1s, there was also testimony explaining that there
were errors in the documentary evidence and that the tax documents did not
reflect an intent to transfer an additional five percent interest to Goossen. The
parties gave conflicting testimony about the existence of an agreement to
transfer an additional five percent interest in NDSP to Goossen. Furthermore,
the district court considered all of the evidence presented, including the
parties’ testimony, and did not rely solely on Knop to determine Goossen’s
ownership interest.
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[¶18] The district court was given a choice between two permissible views of
the evidence. The court determined Kruger’s testimony was credible that he
never transferred an additional five percent to Goossen. The district court’s
credibility determinations will not be second-guessed on appeal. In re Estate of
Finstrom, 2020 ND 227, ¶ 13, 950 N.W.2d 401. Although there is evidence in
the record on which we could affirm a decision in favor of Goossen, there is also
evidence in the record capable of supporting the court’s decision. In such a
situation, our standard of review dictates that we do not substitute our
judgment for that of the district court or reexamine findings of fact made upon
conflicting testimony. Evidence supports the court’s finding Goossen failed to
establish that there was an agreement and that Kruger intended to transfer
an additional five percent ownership to Goossen after the initial transfer in
August 2013.
[¶19] Goossen also argues the doctrine of equitable estoppel applies and
prevents Kruger from claiming that Goossen owned only 45 percent of NDSP
and that distributions should be paid on a basis other than 50-50. After
examining the record, we were unable to find where Goossen raised this issue
before the district court. The district court did not make any findings about
whether Kruger was estopped from claiming Goossen owned less than 50
percent of NDSP. Issues raised for the first time on appeal will not be
considered. Fahey v. Fife, 2017 ND 200, ¶ 10, 900 N.W.2d 250.
[¶20] We conclude the district court’s findings about the parties’ ownership
interests in NDSP are not clearly erroneous.
IV
[¶21] Goossen argues the district court erred in determining $72,450 of the
expenses labeled “Tom Training Materials,” “Office Supplies WY,” and “WY
Office Set Up” are chargeable business expenses, which reduced the amount of
Kruger’s draws. She contends there was no evidence that any specific expenses
within these categories were legitimate business expenses of NDSP and there
was only evidence that expenses for Kruger’s Wyoming office were not
expenses for NDSP.
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[¶22] The district court considered the parties’ arguments about whether
certain expenses should be allocated to a specific party’s draw account and
calculated each party’s total draws from NDSP’s accounts for August 13, 2013,
through December 31, 2016. The court found that $72,450 of the 2014, 2015,
and 2016 expenses labeled “Tom Training Materials,” “Office Supplies WY,”
and “WY Office Set Up” are chargeable business expenses and that Kruger’s
draw account should be reduced by $72,450. After determining the total
amount of each party’s draws from NDSP’s accounts, the court calculated the
amount the parties were entitled to draw based on their percentage of
ownership to determine whether either party should be required to pay the
other party to equalize the draws. The court found Kruger had $417,343.76 in
draws and Goossen had $575,561.51 in draws. The court ordered Goossen to
pay Kruger $128,754.14 to equalize their draws.
[¶23] A list of Kruger’s expenses was admitted into evidence. Kruger testified
that he moved to Wyoming approximately four years ago, while he was still
providing services to NDSP. Kruger testified he worked and provided services
to NDSP from his home office in Wyoming and the expenses categorized as
“Office Supplies WY” appeared to be mainly expenses for his Wyoming home
office. He testified the expenses categorized as “Tom Training Materials”
appeared to be expenses for setting up his home and office in Wyoming, and
NDSP was responsible for paying for the training materials he used to conduct
his classes. He testified “Wyoming Office Set Up” expenses were also for his
Wyoming home office. He testified that if the expenses were for training
materials they should be allocated to the business and that if they were
expensed to the business on the taxes they should have been directed strictly
to the business.
[¶24] Both Doug Tracy, Kruger’s accountant, and Diehl, NDSP’s accountant,
testified the expenses listed in these categories were all deducted on NDSP’s
tax return as NDSP’s business expenses and if they were business expenses
they should not be included in the total of Kruger’s draws. Evidence
established Goossen handled NDSP’s bookkeeping, including maintaining
financial records and inputting data into the accounting software. Diehl
testified that he had NDSP’s profit and loss statement from its accounting
8
software when he was preparing the company’s taxes and that he would
discuss the expenses with Goossen. He testified that he is sure he would have
questioned Goossen about these amounts related to the Wyoming expenses
when he was preparing NDSP’s tax returns and that he would not have
included these amounts as business expenses unless he talked to her and was
comfortable they were business expenses. Goossen testified these expenses
were not for NDSP, there was no training done for NDSP in Wyoming, and she
did not realize they were included as business expenses on NDSP’s taxes.
[¶25] Evidence in the record supports the district court’s findings that the
expenses in these categories were business expenses included on NDSP’s tax
returns and should not have been included in Kruger’s draws. The court’s
finding that $72,450 of the 2014 through 2016 expenses labeled “Tom Training
Materials,” “Office Supplies WY,” and “WY Office Set Up” are chargeable
business expenses is not clearly erroneous, and the court did not err by failing
to include these expenses in the total amount of Kruger’s draws.
V
[¶26] We affirm the judgment.
[¶27] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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