Grengs v. Grengs , 2023 ND 239 ( 2023 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
DECEMBER 15, 2023
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2023 ND 239Greg Grengs, Plaintiff
v.
Lisa Grengs, Defendant and Appellee
and
GLG Farms, LLC, Intervenor and Appellant
No. 20230105
Appeal from the District Court of Renville County, Northeast Judicial District,
the Honorable Anthony S. Benson, Judge.
AFFIRMED.
Opinion of the Court by Crothers, Justice.
H. Malcolm Pippin, Williston, ND, for defendant and appellee.
Michael L. Gust, Fargo, ND, for intervenor and appellant.
Grengs v. Grengs, et al.
No. 20230105
Crothers, Justice.
[¶1] GLG Farms, LLC appeals the district court’s order for contempt. GLG
argues the court erred in determining two new LLC members who bought an
interest in GLG were not required to execute a mortgage previously ordered by
the court, erred by concluding the addition of two new members had little
practical impact on the order that a mortgage be executed, erred in concluding
an agreement in bankruptcy court had little impact on the court’s decision, and
failed to sufficiently describe the terms of the mortgage. We affirm and
conclude GLG’s argument that North Dakota law does not have a standard
mortgage is frivolous, warranting sanctions.
[¶2] On July 20, 2017, Greg Grengs filed for divorce from Lisa Grengs, now
Lisa Genareo. The divorce was granted and, on July 9, 2019, the district court
ordered GLG’s property be mortgaged to provide Genareo security for a
“property settlement payment” valued at $1,300,000. Grengs then was the sole
member of GLG and held complete control of its decision making. GLG was
established by Grengs to hold ownership of Grengs’ farm property and
equipment. On March 3, 2020, Grengs paid Genareo $150,000. In September
2020, the district court granted Genareo’s motion to place Grengs’ and GLG’s
operation in receivership. The court ordered the receivership to control GLG’s
operation and make operating decisions for the LLC. Grengs personally and on
behalf of GLG objected to the receivership. Grengs appealed the divorce and
subsequent proceedings. Grengs v. Grengs, 2020 ND 242, 951 N.W.2d 260(Grengs I). In Grengs I, this Court affirmed the district court’s finding that
Grengs was in contempt for failing to provide Genareo with a security interest
and mortgage on property owned by GLG. Id. at ¶ 27.
[¶3] Weeks later, Grengs and GLG filed for bankruptcy protection. Grengs
petitioned the bankruptcy court to sell 5% of GLG for $75,000. On December
22, 2020, the bankruptcy court permitted Grengs to sell 1% of GLG for $15,000
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to Ian Thomas and Myla Grengs, Grengs’ step-son and daughter who was a
senior in high school. Thomas and Myla Grengs each purchased a half percent
of GLG. On January 1, 2021, GLG added Thomas and Myla Grengs as member-
managers to the LLC and changed Grengs’ position from president to member-
manager. All member-managers have equal voting rights and management
powers. GLG’s operating agreement requires a majority vote approving entry
into an agreement outside the normal course of business and to encumber land.
[¶4] While the bankruptcy action was pending, the parties negotiated a
settlement agreement. That agreement incorporated a recital stating, “In order
to develop a plan in which Grengs can pay the remainder of his obligation to
Genareo, the Parties mediated their dispute with the assistance of Bankruptcy
Judge William Fisher serving as mediator.” On February 23, 2021, as a product
of the mediation Grengs, GLG, and Genareo resolved the bankruptcy cases by
agreeing to mortgage and payment terms, and executing a stipulation. Grengs
signed the stipulation for himself and GLG. Grengs and GLG represented in
the stipulation that they executed the agreement after receiving advice of
counsel. All parties represented that, “intending to be legally bound, [they]
have caused this Agreement to be executed effective as of the date above by
their duly authorized representatives.” They also represented they “will
execute and deliver any document or instrument reasonably requested by any
of them after the date of the Agreement that may be necessary or desirable to
obtain the approvals required hereby and consummate or effectuate the intent
of this Agreement.” Thomas and Myla Grengs did not sign the stipulation, even
though they were member-managers at the time.
[¶5] The stipulation stated Grengs and GLG “will file a motion seeking
approval of this Agreement or dismissal of the bankruptcy cases from the
bankruptcy court within three business days of its execution.” Grengs and GLG
did not obtain approval of the stipulation, but GLG confirmed at oral argument
that the stipulation contained the terms of the agreement between all parties,
and that it was enforceable without bankruptcy court approval.
[¶6] In accord with terms of the stipulation, and upon the parties’ request, on
March 30, 2021, the district court removed the receivership and released a
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$115,000 bond to Genareo from Grengs. The next day the bankruptcy court
dismissed the Chapter 12 proceedings for Grengs and GLG without objection
from Genareo.
[¶7] In September 2021, Genareo moved in state court to compel Grengs to
comply with the payment terms and the mortgage requirement of the
stipulation. On December 28, 2021, the district court heard arguments to
determine if it held jurisdiction. Grengs petitioned the bankruptcy court to
reopen the case and reassume jurisdiction; however, the bankruptcy court
found it did not retain jurisdiction.
[¶8] On May 5, 2022, Genareo filed another motion in district court to hold
Grengs in contempt. On June 9, 2022, the court granted GLG’s motion to
intervene. GLG intervened 415 days after Grengs signed the bankruptcy
stipulation for himself and GLG. On September 7, 2022, the court held a
hearing on the contempt motions. On November 29, 2022, Genareo filed
another contempt motion.
[¶9] On February 17, 2023, the district court ordered Grengs and GLG to
create a mortgage that matches the bankruptcy stipulation terms and
provisions. The court found the new member-managers had “little practical
consequence to the Court as regards the issue of the mortgage,” the mortgage
terms must match the agreement and did not require Genareo to renegotiate
terms of the mortgage with GLG, even though the agreement had “no
appreciable impact to this Court’s current decision.” The court ordered Grengs
and GLG to use a “standard mortgage” that is “fully and properly executed” in
favor of Genareo with provisions and terms “identical to the terms of the”
bankruptcy stipulation. GLG timely appealed.
[¶10] GLG argues the district court erred by finding that adding two new
member-managers to GLG had little impact on the court’s order requiring GLG
to execute a mortgage in favor of Genareo and that the bankruptcy stipulation
did not appreciably impact its decision.
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[¶11] This Court applies “de novo standard of review for questions of law, a
clearly erroneous standard of review for questions of fact, and an abuse of
discretion standard of review for discretionary matters.” Bertsch v. Bertsch,
2006 ND 31, ¶ 6, 710 N.W.2d 113.
[¶12] In Grengs I, we affirmed the district court’s order holding Grengs in
contempt for failing to execute a mortgage on GLG’s real estate, securing
Genareo’s payment of divorce proceedings. Grengs I, 2020 ND 242, ¶ 27. By
this appeal GLG essentially asks us to revisit that holding after Grengs and
GLG engaged in conduct aimed at avoiding the district court’s order and after
GLG stipulated to mortgaging GLG’s property. The district court rejected
Grengs’ and GLG’s latest efforts but did not articulate a legal basis for
determining the two new member-managers and the bankruptcy stipulation
did not alter GLG’s obligation to execute a mortgage.
[¶13] The resolution of the issues raised in this appeal requires application of
agency law. Application of agency law requires the answers to four questions.
The first is whether Grengs’ actions for GLG, including attending the
mediation, negotiating the stipulation and signing the agreement for GLG,
show he acted as GLG’s ostensible agent who had apparent authority to
conduct business? See N.D.C.C. § 3-02-02 (“An agent has such authority as the
principal actually or ostensibly confers upon the agent.”); Transamerica Ins.
Co. v. Standard Oil Co., 325 N.W.2d 210, 214 (N.D. 1982) (same); N.D.C.C. §
3-01-03 (defining actual and ostensible agency); Hagel v. Buckingham Wood
Prod., Inc., 261 N.W.2d 869, 877 (N.D. 1977) (Principal “is bound by the mere
ostensible authority it created and permitted to continue.”). Second, if Grengs
acted as ostensible agent, did he bind GLG via agent-principal relationship?
N.D.C.C. § 3-03-03 (“A principal is bound by acts of his agent under a merely
ostensible authority to those persons only who in good faith and without
ordinary negligence have incurred a liability or parted with value upon the
faith thereof.”); Hagel, at 874-75; Pfliger v. Peavey Co., 310 N.W.2d 742, 747
(N.D. 1981). Third, did Genareo exercise diligence and prudence in
determining whether Grengs acted with apparent authority on behalf of GLG?
Hagel, at 875. Fourth, did GLG ratify or fail to timely disavow Grengs’ acts
once it learned of them? Askew v. Joachim Memorial Home, 234 N.W.2d 226,
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237-38 (N.D. 1975) (ratification may be by express or implied conduct that is
inconsistent with principal’s intent to repudiate an agent’s action); Kahn v.
Britt, 765 S.E.2d 446, 455 (Ga. Ct. App. 2014) (principal ratifies agent’s actions
by failing to timely object to those actions); Great American Fin. Servs. Corp.
v. Natalya Rodionova Med. Care, P.C., 956 N.W.2d 148, 154 (Iowa 2021)
(same).
A
[¶14] We combine the first two questions to consider whether Grengs was an
ostensible agent of GLG who acted with apparent authority, and whether,
acting as an ostensible agent, Grengs bound GLG to the bankruptcy stipulation
as a consequence of an agent-principal relationship.
[¶15] “Agency is generally a question of fact.” Lagerquist v. Stergo, 2008 ND
138, ¶ 9, 752 N.W.2d 168 (emphasis added). “[W]hether a principal-agent
relationship exists under established facts is a question of law for the court.”
First Nat. Acceptance Co. v. Bishop, 187 S.W.3d 710, 714 (Tex. App. 2006). The
court must review the record to determine if the facts conclusively establish
that an agent-principal relationship exists. Id. at 715; see also Ross v. Texas
One Partnership, 796 S.W.2d 206, 210 (Tex. App. 1990) (agency typically is a
question of fact, but agency can be a question of law when “the facts are
uncontroverted or otherwise established,” which is shown by the “alleged
principal [having] the right to assign the agent’s task and the right to control
the means and details of the process to be used to accomplish the task”).
[¶16] Agency requires a principal to authorize an agent to act on its behalf,
known as actual agency, or when a third party believes the agent is the
principal’s agent by “want of ordinary care,” known as ostensible agency.
N.D.C.C § 3-01-03; Lagerquist, 2008 ND 138, ¶ 10. Ostensible agency exists
when “the principal intentionally or by want of ordinary care causes a third
person to believe another to be the principal’s agent.” N.D.C.C. § 3-01-03. An
agent receives authority to act from the principal directly or ostensibly.
N.D.C.C. § 3-02-02. “‘Ostensible authority’ also is called ‘apparent authority.’”
Transamerica Ins. Co., 325 N.W.2d at 214. “Ostensible authority is such as the
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principal intentionally or by want of ordinary care causes or allows a third
person to believe the agent possesses.” N.D.C.C. § 3-02-02. “The scope of
[ostensible] authority is determined not only by what the principal knows and
acquiesces in, but also by what the principal should, in the exercise of ordinary
care and prudence, know his agent is doing.” Transamerica Ins. Co., 325
N.W.2d at 214.
[¶17] “Ostensible authority [of an agent] is based upon the principle of
estoppel.” McLane v. F. H. Peavey & Co., 72 N.D. 468, 8 N.W.2d 308 (1943). A
principal is bound by acts of an ostensible agent that contracts with third
parties who act in good faith with the agent, and “without ordinary negligence”
the third party “incurred a liability or parted with value” in agreement with
the agent and binding the principal. N.D.C.C. § 3-03-03; see also Transamerica
Ins. Co., 325 N.W.2d at 214 (“‘Ostensible authority’ also is called ‘apparent
authority.’”).
“[A]pparent authority to do an act is created as to a third person
by written or spoken words or any other conduct of the principal
which, reasonably interpreted, causes the third person to believe
that the principal consents to have the act done on his behalf by
the person purporting to act for him.”
Hagel, 261 N.W.2d at 875. “Apparent authority has limited effect” because it
“exists only to those third persons who learn of the manifestation from words
or conduct for which the principal is responsible.” Id.
[¶18] “A settlement agreement is a contract between parties.” Ryberg v.
Landsiedel, 2021 ND 56, ¶ 13, 956 N.W.2d 749. Grengs signed the bankruptcy
stipulation on GLG’s behalf to resolve the parties’ disputes. Doing so, he acted
as GLG’s ostensible agent with apparent authority. See Transamerica Ins. Co.,
325 N.W.2d at 214 (“‘Ostensible authority’ also is called ‘apparent authority.’”).
GLG revised its operating agreement on January 1, 2021, to require a majority
vote of its member-managers to approve land encumbrances and to enter into
any agreement, instrument or other writings outside the ordinary course of
business. On February, 23, 2021, Grengs, GLG, and Genareo signed the
bankruptcy stipulation, including an agreement to mortgage GLG property.
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Grengs signed the agreement personally and for GLG. The stipulation included
representations that Grengs had authority to sign on behalf of GLG and that
all parties entered the stipulation on advice of counsel. Thomas and Myla
Grengs did not sign the stipulation although they were member-managers at
the time.
[¶19] Grengs knew of the amended GLG operating agreement because he
signed it on January 1, 2021. GLG, Grengs, Thomas, and Myla Grengs
constructively, if not actually, knew the operating agreement details on
January 1, 2021, yet in February Grengs alone signed the bankruptcy
stipulation on behalf of GLG. GLG, the principal, allowed Grengs, the agent,
to mediate the bankruptcy court proceedings on its behalf, and to negotiate and
sign the resulting stipulation for GLG. These actions unmistakably manifest
actions by Grengs for GLG that show agency. By participating in the mediation,
engaging in the negotiations, and signing the stipulation, Grengs bound GLG
to the agreement.
[¶20] At a minimum, Grengs’ conduct for GLG in mediating the bankruptcy,
and attendance and participation on behalf of GLG during bankruptcy
stipulation negotiations and execution show he acted with apparent authority
to bind GLG to the agreements. The district court’s dissolution of the
receivership and the bankruptcy court’s dismissal of the bankruptcy
proceedings also establish that those two judicial bodies believed Grengs had
authority to represent and bind GLG in resolution of the matters. GLG created
this impression by sending Grengs to participate in mediation and
negotiations, having the same attorney represent both Grengs and GLG during
the bankruptcy proceedings, and allowing Grengs to sign the stipulation for
GLG. Under these facts, as a matter of law, GLG is bound by the stipulated
promise to execute a mortgage.
B
[¶21] Because as matter of law Grengs was an ostensible agent of GLG who
acted with apparent authority, the next legal inquiry is whether Genareo
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exercised sufficient diligence and prudence before relying on Grengs’ actions
on behalf of GLG.
[¶22] The existence of an agency generally is a fact question. Lagerquist, 2008
ND 138, ¶ 9. Whether a third party exercised diligence and prudence to
determine if the agent acted as an ostensible agent within its apparent
authority is a question of fact. Peavey, 310 N.W.2d at 746-47. Questions of fact
can become questions of law when the facts are not in dispute. Bishop, 187
S.W.3d at 714; Ross, 796 S.W.2d at 210.
[¶23] To resolve this inquiry a court is required to consider if a third party, who
deals with agents, blindly trusted the agent’s authority or statements. Hagel,
261 N.W.2d at 875. The third party must use “reasonable diligence and
prudence to ascertain whether the agent is acting and dealing” within the
scope of his powers. Id. The third party has the burden to determine “by the
exercise of reasonable diligence and prudence, the existence or nonexistence of
the agent’s authority to act.” Id.; see also Hodson v. Wells & Dickey Co., 154
N.W. 193, 194 (N.D. 1915) (a party dealing with an agent “must, at his peril,
ascertain what authority the agent possesses, and is not at liberty to charge
the principal by relying upon the agent’s assumption of authority”). The
principal “may act on the presumption that third persons dealing with his
agent will not be negligent in failing to ascertain the extent of his authority as
well as the existence of his agency.” Hagel, at 875.
[¶24] As applied to this case, the question is whether Grengs’ and GLG’s
actions in bankruptcy court and during execution of the stipulation negated
the need for Genareo to exercise additional diligence and prudence to
determine if GLG permitted Grengs to act on its behalf as an agent. Here, this
is a question of law because the facts are not in dispute. Bishop, 187 S.W.3d at
714; Ross, 796 S.W.2d at 210.
[¶25] The stipulation signed by Grengs, GLG, and Genareo resulted from a
mediation and negotiations where Grengs participated for himself and GLG.
GLG and Grengs were represented by the same attorney. In the stipulation,
GLG and Grengs represented that they had authority to execute the
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stipulation, and that they intended to be legally bound to terms of the
stipulation. GLG, by Grengs’ act as ostensible agent, and with apparent
authority, is bound by the agreement. GLG allowed Grengs to sign the
stipulation, which Genareo and two courts understood and relied on to mean
that Grengs acted on behalf of GLG. GLG argues that Grengs lacked the
authority to bind it to the stipulation, but only did so starting 415 days after
the stipulation was signed. Before that, nothing and no one suggested Grengs
acted without GLG’s full authority. Under the facts and circumstances of this
case, GLG’s conduct reasonably allowed Genareo to believe GLG consented to
Grengs acting as its agent. This conduct negated a need for Genareo to exercise
further diligence or prudence.
C
[¶26] Because Grengs was an ostensible agent of GLG and acted with apparent
authority, the final inquiry is whether GLG ratified Grengs’ acts by retaining
the benefit of the acts or failing to timely disavow the acts.
[¶27] The existence of an agency generally is a fact question. Lagerquist, 2008
ND 138, ¶ 9. Whether a principal timely disavowed an ostensible agent’s acts
generally is a question of fact. Britt, 765 S.E.2d at 455. So too is the
determination whether the principal ratified an agent’s actions. Natalya
Rodionova Med. Care, P.C., 956 N.W.2d at 154. Questions of fact can become
questions of law when the facts are not in dispute. Bishop, 187 S.W.3d at 714;
Ross, 796 S.W.2d at 210.
[¶28] Here, the facts are not in dispute and the issues of ratification, retention,
and failure to timely disavow the acts are questions of law. Bishop, 187 S.W.3d
at 714; Ross, 796 S.W.2d at 210.
[¶29] The stipulation was executed on February 23, 2021, and quickly
thereafter the district court dissolved the receivership and the bankruptcy
court dismissed its proceedings. Not until after Genareo filed several contempt
motions seeking enforcement of the stipulation and execution of a mortgage
and a motion to compel did GLG attempt to intervene and argue the mortgage
could not be executed. It was not until this late date that GLG suggested that
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refusal by the two new member-managers prevented it from executing the
mortgage. GLG’s reliance on the stipulation to obtain advantageous relief from
both the district court and the bankruptcy court, and its 415-day delay in
seeking to avoid its stipulated obligation to execute a mortgage drives the
conclusion, as a matter of law, that Grengs’ actions on behalf of GLG were both
ratified and not timely disavowed. Therefore, under applicable law and the
facts of this case, GLG ratified Grengs’ actions by embracing their advantages
and using them in judicial proceedings. Therefore, in view of GLG’s acceptance
of the benefits of Grengs’ actions, and waiting more than 400 days to contest
the legal consequences of Grengs’ actions, GLG did not timely disavow Grengs’
actions as GLG’s agent.
[¶30] Although the district court did not articulate the legal reasons, it did not
err by finding the new managing-members “had little impact” on its decision
to require GLG to execute a mortgage because their signatures on the
mortgage were not required. Nor did the district court err in determining the
stipulation did not alter the requirement that GLG execute a mortgage
securing Grengs’ debt to Genareo.
[¶31] GLG argues the district court abused its discretion by failing to
sufficiently describe terms of the required mortgage and by repeatedly
requiring execution of a “standard mortgage.”
[¶32] The district court’s requirements for a mortgage were part of its
resolution of Genareo’s contempt motion. “When reviewing a contempt
sentence, the ultimate determination of whether or not a contempt has been
committed is within the trial court’s sound discretion. A trial court’s finding of
contempt will not be overturned unless there is a clear abuse of discretion.”
Grengs I, 2020 ND 242, ¶ 13. We review whether the court sufficiently
described the terms of the mortgage under the abuse of discretion standard.
“The district 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
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leading to the reasoned determination.” Lehnerz v. Christopher, 2022 ND 122,
¶ 4, 975 N.W.2d 585.
[¶33] GLG argued in its brief and stated seven times at oral argument that
North Dakota does not have a standard mortgage form or that the Century
Code does not provide for a standard mortgage. GLG represented at oral
argument that, unlike Minnesota, North Dakota does not have a statutory
standard mortgage. See Minn. Stat. Ann. § 507.15 (West) (Minnesota Uniform
short form mortgage). GLG’s statements ignore N.D.C.C. § 35-03-05, titled
“[f]orm of real estate mortgage.” The North Dakota statute states “[a] mortgage
of real property may be made in substantially the following form” and provides
mortgage terms. Id. The “standard form set forth in the statute is not a
mandatory prerequisite to the creation of a valid mortgage between the parties
to the transaction,” but provides a guideline for the creation of a mortgage.
Poyzer v. Amenia Seed and Grain Co., 381 N.W.2d 192, 195 (N.D. 1986).
[¶34] GLG also argued “The district court’s findings of fact and conclusions of
law are woefully incomplete.” Assuming N.D.R.Civ.P. 52(a) applies to contempt
findings, see State ex rel. City of Marion v. Alber, 2013 ND 189, ¶ 15, 838
N.W.2d 458, the district court’s findings here are adequate. The district court
required that GLG use a standard mortgage that complies with terms of the
parties’ stipulation in bankruptcy. At the time of the district court’s order, that
agreement required Grengs to pay Genareo certain sums, secured by GLG’s
mortgage. The sums due Genareo were provided in paragraph 3 of the
stipulation:
“3. Settlement Payment. In settlement of his obligations under
Paragraph 24 of the divorce judgment, Grengs will make payments
to Genareo pursuant to one of the two following plans:
* ***
b. Plan B: Grengs will pay Genareo the remaining One Million
Thirty-five Thousand ($1,035,000) plus 8.5% interest accrued at
the North Dakota statutory judgment rate for 2019, the year in
which the judgment was entered, up to November 29, 2020.
Commencing on the November 30, 2020 bankruptcy filing date,
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interest will accrue on the $1,035,000 principal sum at the rate of
five percent (5%) per annum. Grengs will make semi-annual
payments of $41,230.50 to Genareo on June 30 and December 31
of each year. The semi-annual payment is based on the principal
sum of $1,035,000 amortized over a 20-year period at a rate of five
percent (5%) per annum. Payments will be applied first to interest
and then to principal. The entire balance of principal and interest
will be paid no later than December 31, 2024.”
[¶35] Because a statutory mortgage form exists, and because the amounts due
by Grengs, secured by a mortgage of GLG’s real estate, were plainly provided
in the stipulation, the district court did not abuse its discretion by ordering
GLG and Grengs to create what the court described as a standard mortgage.
[¶36] Genareo argues GLG’s appeal is frivolous and she should be awarded
damages and costs under N.D.R.App.P. 38. Rule 38 “allows an award of
attorney fees if the appeal is frivolous. An appeal is frivolous if it is flagrantly
groundless, devoid of merit, or demonstrates persistence in the course of
litigation which could be seen as evidence of bad faith.” Larson v. Larson, 2002
ND 196, ¶ 13, 653 N.W.2d 869.
[¶37] Here, the district court did not fully explain the basis for its rulings. Nor
did either party provide this Court with meaningful legal analysis to assist us
in determining whether the district court erred. Therefore, we decline to award
Genareo sanctions for the bulk of the appeal. However, GLG’s argument
regarding the district court’s requirement that it execute a standard mortgage
ignored N.D.C.C. § 35-03-05, miscited North Dakota law, and failed to
recognize the repayment terms it agreed to in the bankruptcy court stipulation.
To that extent, we deem GLG’s argument frivolous and award Genareo
$1,000.00.
[¶38] We affirm the district court’s order requiring GLG to execute a standard
mortgage securing payment to Genareo of amounts GLG agreed to pay. We also
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award $1,000 to Genareo as a sanction for GLG’s frivolous argument that
North Dakota law does not provide a standard mortgage that GLG must
execute.
[¶39] Jon J. Jensen, C.J.
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
Douglas A. Bahr
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