Great Plains Royalty Corp. v. Earl Schwartz Co. , 2021 ND 62 ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
APRIL 5, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 62Great Plains Royalty Corporation,
a North Dakota Corporation, Plaintiff, Appellee,
and Cross-Appellant
v.
Earl Schwartz Company, a North Dakota
partnership, Basin Minerals, LLC, a North
Dakota limited liability company, and
Kay Schwartz York, Kathy Schwartz Mau, and
Kara Schwartz Johnson, as the Co-Personal
Representatives of the Estate of
Earl N. Schwartz, SunBehm Gas, Inc., a
North Dakota corporation, Defendants, Appellants,
and Cross-Appellees
No. 20200133
Appeal from the District Court of McKenzie County, Northwest Judicial
District, the Honorable Daniel S. El-Dweek, Judge.
AFFIRMED IN PART, VACATED IN PART, REVERSED IN PART, AND
REMANDED.
Opinion of the Court by McEvers, Justice.
James J. Coles, Bismarck, ND, for plaintiff, appelleee, and cross-appellant;
submitted on brief.
Lawrence Bender and Spencer D. Ptacek, Bismarck, ND, for defendants,
appellants, and cross-appellees Earl Schwartz Company, a North Dakota
partnership, Basin Minerals, LLC, a North Dakota limited liability company,
and Kay Schwartz York, Kathy Schwartz Mau, and Kara Schwartz Johnson,
as the Co-Personal Representatives of the Estate of Earl N. Schwartz;
submitted on brief.
Jon Bogner and Jordan L. Selinger, Dickinson, ND, for SunBehm Gas, Inc., a
North Dakota corporation; submitted on brief.
Great Plains Royalty Corp. v. Earl Schwartz Co.
No. 20200133
McEvers, Justice.
Earl Schwartz Company; Basin Minerals, LLC; Kay Schwartz York,
Kathy Schwartz Mau, and Kara Schwartz Johnson, as the co-personal
representatives of the Estate of Earl N. Schwartz (together “ESCO”) and
SunBehm Gas, Inc. (“SunBehm”) appeal from a judgment quieting title to oil
and gas interests in Great Plains Royalty Corporation (“Great Plains”). Great
Plains cross appeals arguing the district court erred when it denied its claims
for damages. We affirm in part, vacate in part, reverse in part, and remand.
I
We provided the background of the case in Great Plains Royalty Corp. v.
Earl Schwartz Co., 2019 ND 124, 927 N.W.2d 880 (“Great Plains I”). We repeat
the history of the dispute here only as pertinent to the issues raised in the
present appeal.
Great Plains’ creditors filed an involuntary petition for bankruptcy
under Chapter 11 of the Bankruptcy Code in 1968. The case was converted to
a Chapter 7 liquidation proceeding. The bankruptcy trustee prepared an
inventory and published a notice of sale that listed various assets, including
oil and gas interests. Earl Schwartz was the highest bidder.
The bankruptcy court issued an order confirming “the sale of all of the
assets of the bankrupt corporation to Earl Schwartz.” The order also noted
that Schwartz had entered into an agreement with SunBehm to sell certain
interests described in the notice, and the order approved the transfer of those
interests directly from the bankruptcy estate to SunBehm. The bankruptcy
court later issued an amended order confirming “the sale of all of the assets of
the bankrupt corporation included in the Notice of Sale to Earl Schwartz.”
It is undisputed that there is no valid instrument of conveyance from the
bankruptcy trustee to either ESCO or SunBehm concerning the interests now
in dispute. It is also undisputed that Great Plains owned other interests that
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were not identified in the inventory or notice of sale. The bankruptcy case was
closed in 1974. Great Plains’ creditors were not initially paid in full.
The bankruptcy case was reopened in 2013, Great Plains’ creditors were
paid in full with interest, and adversary proceedings were brought to
determine ownership of various oil and gas interests. ESCO was a party to the
proceedings. It argued the bankruptcy sale transferred all of the interests
owned by Great Plains, regardless of whether they were listed in the notice of
sale. The bankruptcy court rejected ESCO’s argument and determined title to
various properties that are not the subject of the present appeal.
In 2016, Great Plains brought this quiet title action against ESCO and
SunBehm. Great Plains also brought claims for slander of title and conversion
of royalty proceeds. ESCO and SunBehm brought quiet title cross claims. The
district court held a bench trial and found the bankruptcy trustee intended to
sell “100%” of all of the oil and gas interests Great Plains owned at the time of
the bankruptcy.
We reversed the district court’s judgment in Great Plains I. We held the
district court erred when it determined the bankruptcy trustee intended to sell
all of Great Plains’ interests, including those not listed in the notice of sale.
Great Plains I, 2019 ND 124, ¶ 38. We concluded ESCO, as a party to the
bankruptcy proceedings, was bound by the bankruptcy court’s determination
as to the trustee’s intent under the doctrine of collateral estoppel. Id. at ¶ 21.
We also held the evidence presented at the bench trial did not support a finding
that the bankruptcy trustee intended to sell assets not identified in the notice
of sale. Id. at ¶ 38. We remanded the case “for further proceedings to
determine the parties’ claims and ownership of the properties consistent with
this opinion.” Id. at ¶ 46.
On remand, ESCO and SunBehm claimed they hold equitable title to oil
and gas interests in various tracts that were identified in the notice of sale.
These interests (the “Disputed Interests”) are the focus of the present appeal.
ESCO and SunBehm asserted the Disputed Interests were identified in the
notice of sale, which was confirmed by the bankruptcy court. They argued the
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bankruptcy order confirming the sale operated to vest them with ownership.
The district court rejected their arguments and quieted title in Great Plains
based on the absence of conveying instruments from the bankruptcy trustee.
The court also rejected Great Plains claims to damages for slander of title and
conversion.
II
ESCO and SunBehm appeal arguing the district court’s quiet title
determination is erroneous. Great Plains cross appeals arguing the court erred
when it denied Great Plains’ claims for damages for slander of title and
conversion. Our standard of review for appeals from a bench trial is as follows:
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. 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 convinced a mistake has been made. 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. Findings of the trial court are presumptively
correct.
McCarvel v. Perhus, 2020 ND 267, ¶ 9, 952 N.W.2d 86 (quoting Larson v.
Tonneson, 2019 ND 230, ¶ 10, 933 N.W.2d 84).
III
ESCO and SunBehm argue Great Plains is precluded from claiming
ownership of the Disputed Interests because it did not adequately identify and
list its interests in the bankruptcy proceedings. Although these arguments
were not made to the district court, SunBehm claims they may be advanced at
any time because they implicate Great Plains’ standing and our subject matter
jurisdiction.
Issues involving subject matter jurisdiction may be raised at any time.
Instasi v. Hiebert, 2020 ND 180, ¶ 6, 948 N.W.2d 25. For us to exercise our
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appellate jurisdiction, there must be an actual and justiciable controversy.
Johnston Land Co., L.L.C. v. Sorenson, 2018 ND 183, ¶ 7, 915 N.W.2d 664.
“Standing is the concept used to determine if a party is sufficiently affected so
as to insure that a justiciable controversy is presented to the court.” Schmidt
v. City of Minot, 2016 ND 175, ¶ 13, 883 N.W.2d 909 (internal quotations
omitted) (quoting Whitecalfe v. N.D. Dep’t of Transp., 2007 ND 32, ¶ 15, 727
N.W.2d 779). Standing analysis requires us to determine whether a plaintiff
has suffered a threatened or actual injury and whether a plaintiff is asserting
his or her own rights. Nodak Mut. Ins. Co. v. Ward Cty. Farm Bureau, 2004
ND 60, ¶ 11, 676 N.W.2d 752. Whether standing exists is a question of law.
Flatt v. Kantak, 2004 ND 173, ¶ 38, 687 N.W.2d 208.
SunBehm claims Great Plains lacks standing to claim ownership of the
Disputed Interests based on a bankruptcy rule that precludes a bankrupt
debtor from evading creditors by failing to disclose assets. See Moore v. Slonim,
426 F.Supp. 524, 527-28 (D. Conn. 1977) (bankrupt debtor cannot assert title
to property after withholding knowledge of the property and omitting it from
the schedule of assets). ESCO argues Great Plains is barred from claiming
ownership of the Disputed Interests based on judicial estoppel, which is an
equitable doctrine that precludes parties from taking inconsistent or
contradictory legal positions in the same or successive litigation. See In re
Estate of Lindvig, 2020 ND 236, ¶ 20, 951 N.W.2d 214. Neither argument
asserts the absence of an injury to Great Plains. Nor do the arguments assert
the absence of a justiciable controversy. They therefore do not implicate
jurisdictional standing. Because the arguments do not involve our jurisdiction
and they were presented for the first time on appeal, we will not address them.
See Grengs v. Grengs, 2020 ND 242, ¶ 18, 951 N.W.2d 260 (“This Court will not
address issues raised for the first time on appeal.”).
IV
ESCO and SunBehm argue they acquired ownership of the Disputed
Interests by virtue of the bankruptcy order confirming the sale. Great Plains
claims their argument is barred by the law of the case doctrine and our
mandate in Great Plains I.
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Under the law of the case doctrine, if an appellate court has ruled
on a legal question and remanded the case to the lower court for
further proceedings, the legal question thus determined becomes
the law of the case and will not be differently determined on a
subsequent appeal in the same case where the facts remain the
same.
Riverwood Commercial Park, L.L.C. v. Standard Oil Co., Inc., 2007 ND 36, ¶
12, 729 N.W.2d 101. The law of the case doctrine precludes parties from
relitigating issues resolved in a prior appeal or issues that “would have been
resolved had they been properly presented.” Johnston Land Co., LLC v.
Sorenson, 2019 ND 165, ¶ 11, 930 N.W.2d 90 (emphasis omitted) (quoting
Viscito v. Christianson, 2016 ND 139, ¶ 7, 881 N.W.2d 633). The mandate rule
requires the district court to follow our decision in subsequent proceedings and
to carry our mandate into effect. Viscito, at ¶ 7.
The issue we addressed in Great Plains I was whether the district court
erred when it held the bankruptcy trustee intended to sell “all of Great Plains’
assets, including those not listed in the auction sale notice.” 2019 ND 124, ¶
9. On remand, ESCO and SunBehm argued they acquired ownership to
interests in tracts identified in the notice of sale. They claimed the bankruptcy
order confirming the sale vested them with equitable title to Great Plains’
interests “referenced in the Notice of Sale.” Our decision in Great Plains I did
not determine which interests were included in the notice of sale. Nor did we
decide the effect of the bankruptcy court’s order confirming the sale. The issue
we decided in Great Plains I and the issues raised on remand are distinct.
Great Plains also asserts the issues raised on remand were “omitted from
the first appeal and waived” because they “logically could have been raised.”
We conclude the issue was not waived. The judgment appealed in Great Plains
I determined ESCO and SunBehm acquired all of the interests Great Plains
owned regardless of whether they were included in the notice of sale. ESCO
and SunBehm urged us to affirm the district court’s judgment, which we
instead reversed. Although they could have argued alternate grounds to
affirm, the alternate grounds had not been reached by the district court and it
is not clear it was a purely legal issue. The issues they raised on remand
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focused on what assets transferred by virtue of the bankruptcy sale and
confirmation order. This is consistent with our mandate in Great Plains I,
which was for the district court “to determine the parties’ claims and ownership
of the properties consistent with this opinion.” 2019 ND 124, ¶ 46. We conclude
ESCO and SunBehm’s arguments are not barred by the law of the case doctrine
or our mandate in Great Plains I.
V
SunBehm asserts Great Plains committed fraud by intentionally failing
to provide the bankruptcy trustee with accurate descriptions of its interests.
SunBehm argues that “as a result of the fraud, the property descriptions
should be reformed under [N.D.C.C. §] 32-04-17 to reflect Great Plains’ actual
ownerships in the Properties.” SunBehm did not plead fraud or request
reformation in its answer. Nor did SunBehm make this argument to the
district court on remand. We therefore conclude SunBehm has waived its
argument concerning fraud and reformation. See Gadeco, LLC v. Indus.
Comm’n, 2013 ND 72, ¶ 13, 830 N.W.2d 535 (“issues not properly preserved
may be waived or not considered by this Court”).
VI
ESCO and SunBehm argue the district court’s title determination is
erroneous. The court rejected their claims to ownership based on collateral
estoppel and a lack of conveying instruments from the bankruptcy trustee.
A
We first address the district court’s application of collateral estoppel.
Collateral estoppel, also referred to as issue preclusion, is a branch of res
judicata. Hector v. City of Fargo, 2014 ND 53, ¶ 7, 844 N.W.2d 542.
“Although collateral estoppel is a branch of the broader law of res
judicata, the doctrines are not the same.” Res judicata, or claim
preclusion, prevents relitigation of claims that were raised, or
could have been raised, in prior actions between the same parties
or their privies. Thus, res judicata means a valid, existing final
judgment from a court of competent jurisdiction is conclusive with
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regard to claims raised, or those that could have been raised and
determined, as to the parties and their privies in all other actions.
Res judicata applies even if subsequent claims are based upon a
different legal theory. Collateral estoppel, or issue preclusion,
forecloses relitigation of issues of either fact or law in a second
action based on a different claim, which were necessarily litigated,
or by logical and necessary implication must have been litigated,
and decided in the prior action.
Riverwood Commercial Park, 2007 ND 36, ¶ 13 (quoting Ungar v. N.D. State
Univ., 2006 ND 185, ¶ 11, 721 N.W.2d 16. Collateral estoppel and res judicata
operate to promote the finality of judgments and conserve judicial resources.
Witzke v. City of Bismarck, 2006 ND 160, ¶ 8, 718 N.W.2d 586. “[T]he doctrines
should apply as fairness and justice require, and should not be applied so
rigidly as to defeat the ends of justice or to work an injustice.” Riverwood
Commercial Park, at ¶ 14. Whether collateral estoppel applies is a question of
law that is fully reviewable on appeal. Ungar, at ¶ 10.
ESCO and SunBehm’s arguments on remand relied on various
bankruptcy court decisions for the proposition that “[o]nce a sale made by a
trustee in bankruptcy is confirmed by an order of the bankruptcy court, the
sale becomes complete and whatever interest or estate the bankrupt debtor
formerly had in the property passes from the trustee and the estate of the
bankrupt to the purchaser.” Blaustein v. Aiello, 182 A.2d 353, 355 (Md. 1962);
see also Coulter v. Blieden, 104 F.2d 29, 33 (8th Cir. 1939) (“By the act of
confirmation, the sale becomes complete and the title passes.”); In re Hereford
Biofuels, L.P., 466 B.R. 841, 859 (Bankr. N.D. Tex. 2012) (judicial approval of
a bankruptcy sale is an in rem proceeding that transfers property rights).
Despite the lack of a valid conveying instrument from the bankruptcy trustee,
ESCO and SunBehm claimed ownership based on equitable title.
The district court held ESCO was estopped from claiming ownership of
the Disputed Interests because it was a party to the bankruptcy litigation. The
court found the issue litigated in the bankruptcy proceeding was identical to
the issue before the court on remand. We conclude the district court erred as
a matter of law. The bankruptcy court’s holding did not determine which
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interests were included in the notice of sale. Rather, the court’s holding was
limited to whether the trustee intended to sell all of Great Plains’ assets,
including those not listed in the notice of sale. The bankruptcy court’s decision
also did not determine whether ESCO and SunBehm acquired equitable title
to the Disputed Interests by way of the sale and confirmation order. We hold
the district court erred when it applied the doctrine of collateral estoppel, and
therefore reverse.
B
The district court also rejected ESCO and SunBehm’s claims to
ownership based on the absence of a valid conveying instrument from the
bankruptcy trustee. The court quieted title in Great Plains to the Disputed
Interests because ESCO and SunBehm did not provide evidence of any “deeds
or other instruments of conveyance” for the “specific assets purchased at the
auction.”
The district court’s decision did not address ESCO and SunBehm’s
arguments concerning equitable title. ESCO and SunBehm argued the
Disputed Interests were sufficiently identified in the notice of sale. They
claimed ownership by virtue of the bankruptcy sale and confirmation order.
They alternatively argued that regardless of whether the Disputed Interests
were sufficiently identified, ownership of any interests held by Great Plains in
the tracts listed on the notice of sale transferred because the terms of the sale
were “as is.” The court rejected ESCO and SunBehm’s arguments concluding
there was no evidence “as to the nature of the specific assets sold . . . within
the bounds of the notice of sale.” However, as the court noted in its findings of
fact in Great Plains I, the evidence established which interests Great Plains
actually owned in the tracts identified in the notice of sale.
The district court’s decision does not provide a rationale for rejecting
ESCO and SunBehm’s claims to ownership based on equitable title. Because
we are unable to discern the court’s rationale, we vacate the portion of the
judgment determining title and remand the case. See Johnson v. Johnson,
2000 ND 170, ¶ 42, 617 N.W.2d 97 (remand is appropriate when the rationale
underlying a district court’s decision is unclear). On remand, the district court
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must decide whether ownership of any interests in the tracts identified in the
notice of sale passed to ESCO or SunBehm by virtue of the bankruptcy sale
and confirmation order.
VII
Great Plains cross appeals arguing the district court erred when it
rejected Great Plains’ claims for damages based on slander of title and
conversion of royalty proceeds.
A
We first address the slander of title claim. Great Plains asserts ESCO
slandered its title by recording various instruments that purported to transfer
or assign the Disputed Interests.
Under N.D.C.C. § 47-19.1-09, attorney fees and damages shall be
awarded in a quiet title action if the district court determines a party recorded
an instrument or notice “for the purpose of slandering the title to real estate or
to harass the owner of the real estate.” Slander of title requires the party
claiming slander to demonstrate the opposing party “acted with malice,
intending to injure, vex, or annoy the plaintiff.” Maragos v. Union Oil Co. of
California, 1998 ND 180, ¶ 4, 584 N.W.2d 850; see also Serhienko v. Kiker, 392
N.W.2d 808, 815 (N.D. 1986) (“it must be shown that the defendant acted
maliciously”). “[M]alice must be proved as a substantive fact.” Briggs v.
Coykendall, 57 N.D. 785, 224 N.W. 202, 205 (reversing jury verdict awarding
damages for slander of title; holding the evidence was insufficient to support a
finding of malice). In an appeal from a bench trial, we review a district court’s
factual findings under the clearly erroneous standard of review. McCarvel,
2020 ND 267, ¶ 9.
The district court found Great Plains was not entitled to damages
because there was no evidence ESCO acted with malice. Great Plains claims
the court’s finding is erroneous arguing “malice” means “deliberate conduct
without reasonable cause.” Great Plains asserts ESCO improperly elected to
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use a “self-help” remedy by recording instruments rather than seeking to
resolve title issues in the bankruptcy proceedings.
Great Plains misinterprets our slander of title standard. Deliberate
conduct without reasonable cause does not necessarily constitute malice. A
showing of malice is required “otherwise every time one asserted a claim of
title to property, and was unable to substantiate it, one would subject himself
to a suit for slander of title.” Briggs, 224 N.W. at 205. There must be evidence
of an intent to injure, vex, or annoy. Maragos, 1998 ND 180, ¶ 4. We have
reviewed the record and conclude it supports the district court’s finding that
there is insufficient evidence to establish malicious intent. We hold the court’s
decision is not clearly erroneous.
B
Great Plains argues the district court erred when it denied its claim for
conversion. Conversion is “a tortious detention or destruction of personal
property, or a wrongful exercise of dominion or control over the property
inconsistent with or in defiance of the rights of the owner.” Van Sickle v.
Hallmark & Assocs., Inc., 2008 ND 12, ¶ 21, 744 N.W.2d 532. “The gist of
conversion is not in acquiring the complainant’s property, but in wrongfully
depriving the complainant of the property.” Ritter, Laber & Assocs., Inc. v.
Koch Oil, Inc., 2004 ND 117, ¶ 11, 680 N.W.2d 634.
Great Plains claimed ESCO and SunBehm converted its property by
accepting and retaining royalty proceeds that Great Plains was entitled to from
lessees and well operators. The district court denied Great Plains’ claim
finding Great Plains “provided no evidence that [ESCO and SunBehm] are
lessees of Great Plains or operators of wells producing from the Subject
Properties.” The court’s finding—that ESCO and SunBehm were not lessees
or operators—does not address Great Plains’ claim to conversion based on an
alleged improper acceptance and retention of royalty proceeds. Because we are
unable to determine the court’s rationale for rejecting Great Plains’ argument
and we have vacated its title determination, we also vacate its denial of Great
Plains’ conversion claim. On remand, the district court must reconsider the
issue based on the record and in light of its title determination.
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C
Great Plains’ brief on appeal cites case law concerning unjust enrichment
and asserts ESCO and SunBehm “have wrongfully converted or
misappropriated Great Plains’ mineral royalties and have been unjustly
enriched thereby.” To the extent Great Plains asserts damages based on unjust
enrichment, we conclude its claim is forfeited. Conversion and unjust
enrichment are distinct causes of action. Compare Hayden v. Medcenter One,
Inc., 2013 ND 46, ¶ 14, 828 N.W.2d 775 (unjust enrichment is an equitable
doctrine that rests upon constructive contracts implied by law), with Buri v.
Ramsey, 2005 ND 65, ¶ 14, 693 N.W.2d 619 (conversion is a tortious
interference of property inconsistent with the owner’s rights). Great Plains
asserted a claim for conversion before the district court, but it did not argue or
brief a theory of unjust enrichment. Great Plains has consequently forfeited
any claim to damages based on the equitable doctrine of unjust enrichment.
See Moe v. State, 2015 ND 93, ¶ 11, 862 N.W.2d 510 (“issues not raised or
considered in the district court cannot be raised for the first time on appeal”);
see also Sorum v. Dalrymple, 2014 ND 233, ¶ 15, 857 N.W.2d 96 (issues are
waived if not supported by argument, reasoning, or authority).
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VIII
We affirm the district court’s denial of Great Plains’ slander of title claim.
We reverse the district court’s ruling on collateral estoppel as a misapplication
of the law, and we vacate the court’s title determination and its denial of Great
Plains’ conversion claim. We remand the case with instructions for the court
to determine whether ownership of any interests in the tracts identified in the
notice of sale passed to ESCO or SunBehm by virtue of the bankruptcy sale
and confirmation order. The court must reconsider Great Plains’ conversion
claim based on the record and in light of the title determination it makes on
remand. The court may order additional briefing or conduct additional
argument as it deems necessary.
Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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