McDougall v. AgCountry Farm Credit Services, PCA

Filed 1/23/20 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2020 ND 6
Michael McDougall and Bonita McDougall, Plaintiffs and Appellants
v.
AgCountry Farm Credit Services, PCA, Defendant, Third-Party Plaintiff,
and Appellee
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. 20190140
Appeal from the District Court of Towner County, Northeast Judicial District,
the Honorable Donovan J. Foughty, Judge.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Opinion of the Court by VandeWalle, Justice.
Kip M. Kaler (argued) and Patrick J. Sinner (appeared), Fargo, ND, for
plaintiffs and appellants.
John D. Schroeder, Grand Forks, ND, for defendant, third-party plaintiff and
appellee.
McDougall v. AgCountry Farm Credit Services, PCA
No. 20190140
VandeWalle, Justice.
[¶1] Michael and Bonita McDougall (“McDougalls”) appealed from a
judgment dismissing their deceit and unjust enrichment claims against
AgCountry Farm Credit Services, PCA and granting summary judgment in
favor of AgCountry on its claims to enforce assignment of rents and to foreclose
a mortgage. We conclude the district court erred by concluding the
McDougalls’ deceit claim was precluded by the statute of frauds. We reverse
the judgment as to the deceit and unjust enrichment claims, affirm the
judgment on the remaining claims, and remand.
I
[¶2] The McDougalls owned agricultural property (“home quarter”) described
as:
The North half of the Southeast Quarter (N1/2SE1/4) and the
South Half of the Northeast Quarter (S1/2NE1/4), Section Twenty-
five (25), Township One Hundred Sixty-two (162), Range Sixty-
seven West (67W) 5th P.M., Towner County, ND.
The McDougalls’ son and daughter-in-law, Kent and Erica McDougall, owned
the home quarter at one time, but sold the property to the McDougalls in 2011.
The McDougalls alleged Kent and Erica McDougall continued to use and live
on the property after the 2011 sale.
[¶3] Kent and Erica McDougall conducted a farming operation and received
some of the financing for the farming operation from AgCountry. In 2015 and
2016, Kent and Erica McDougall sought to refinance their debt through
AgCountry and to borrow additional funds. The McDougalls alleged Kent and
Erica McDougall’s AgCountry loan officer, Dean Aanderud, told Kent and
Erica McDougall that he was working on refinancing their existing loans and
obtaining a new loan and that the prospects for receiving financing “looked
good.” The McDougalls further alleged that Aanderud advised Kent and Erica
McDougall that they needed a loan extension to continue working on the
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refinancing and suggested they offer more collateral to secure their debt and
that Kent McDougall agreed to speak to the McDougalls about transferring the
home quarter to use as collateral with the understanding that AgCountry
would agree to lend additional funds. The McDougalls claimed Kent and Erica
McDougall’s loans became delinquent and AgCountry executives internally
expressed concern about the delinquencies and its ability to be paid for the
existing debt.
[¶4] On March 31, 2016, Kent and Erica McDougall signed various loan
agreement modifications for their AgCountry loans, which extended the
installment payments on some of the loans and the maturity dates on other
loans. They also signed a mortgage on most of the home quarter to secure the
loans. On April 5, 2016, the McDougalls transferred the home quarter to Kent
and Erica McDougall. The McDougalls alleged Kent McDougall called
AgCountry on April 6, 2016, to check on the progress of the refinancing and
the new loan and learned Aanderud no longer worked at AgCountry. They
alleged that on April 7, 2016, an AgCountry executive told Kent and Erica
McDougall “we should have had this discussion a long time ago and been sat
down to talk about our financial situation” and “things weren’t looking good.”
On April 7, 2016, Kent and Erica McDougall deeded the home quarter back to
the McDougalls.
[¶5] In 2018, the McDougalls sued AgCountry, requesting the district court
declare the mortgage on the home quarter is void. They also sought damages
on claims of deceit, conversion, estoppel, and unjust enrichment. The
McDougalls claimed AgCountry asked Kent and Erica McDougall for
additional collateral to refinance their debt and advance a new loan knowing
the only other collateral they may have access to was the property owned by
the McDougalls, AgCountry created a scheme to acquire that property, and
AgCountry knew or should have known it would not refinance their debt or
make a new loan. The McDougalls alleged that AgCountry made
misrepresentations to Kent and Erica McDougall intending those
communications be relayed to the McDougalls to persuade them to make the
home quarter available to AgCountry as additional collateral and that the
McDougalls relied on AgCountry’s misrepresentations.
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[¶6] AgCountry answered and counterclaimed, seeking to foreclose the
mortgage on the property and enforce an assignment of rents arising from the
property.
[¶7] AgCountry moved for summary judgment, arguing the McDougalls’
claims failed as a matter of law based on the undisputed material facts.
AgCountry argued the McDougalls’ claims were barred by a prior judgment in
an adversary proceeding in Kent and Erica McDougall’s bankruptcy action
under the doctrines of res judicata or collateral estoppel. They also argued that
the claim for deceit should be dismissed because AgCountry did not make any
misrepresentations to the McDougalls and the claim was precluded by the
statute of frauds and that the claim for unjust enrichment should be dismissed
because the McDougalls have adequate remedies at law and AgCountry’s
actions were justified. AgCountry argued it was entitled to summary judgment
on its claims.
[¶8] The McDougalls responded and also moved for summary judgment.
They argued res judicata and collateral estoppel do not preclude their claims,
their deceit claim was not barred by the statute of frauds, and summary
judgment should be granted in their favor based on the prior determination of
facts by the bankruptcy court. They also argued that AgCountry committed
deceit by making assertions it had no reasonable grounds to believe were true
or by suppressing the truth and that they justifiably relied on AgCountry’s
misrepresentations.
[¶9] After a hearing, the district court granted summary judgment in favor of
AgCountry on all of the McDougalls’ claims, concluding the McDougalls’ claims
were not barred by collateral estoppel, but the McDougalls could not prove two
elements of their unjust enrichment claim and the statute of frauds barred
their deceit claim. The court also granted summary judgment in favor of
AgCountry to foreclose the mortgage on the home quarter and for assignment
of rents for 2017 and 2018. The court reserved ruling on the assignment of
rents for 2016. After briefing from the parties, the court entered an order on
the reserved issues, concluding AgCountry was not seeking an award of rent
for 2016. Judgment was entered.
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II
[¶10] Our standard of review for summary judgments is well established:
Summary judgment is a procedural device under
N.D.R.Civ.P. 56(c) for promptly resolving a controversy on the
merits without a trial if there are no genuine issues of material
fact or inferences that can reasonably be drawn from undisputed
facts, or if the only issues to be resolved are questions of law. The
party seeking summary judgment must demonstrate there are no
genuine issues of material fact and the case is appropriate for
judgment as a matter of law. In deciding whether the district court
appropriately granted summary judgment, we view the evidence
in the light most favorable to the opposing party, giving that party
the benefit of all favorable inferences which can reasonably be
drawn from the record. A party opposing a motion for summary
judgment cannot simply rely on the pleadings or on unsupported
conclusory allegations. Rather, a party opposing a summary
judgment motion must present competent admissible evidence by
affidavit or other comparable means that raises an issue of
material fact and must, if appropriate, draw the court’s attention
to relevant evidence in the record raising an issue of material fact.
When reasonable persons can reach only one conclusion from the
evidence, a question of fact may become a matter of law for the
court to decide. A district court’s decision on summary judgment is
a question of law that we review de novo on the record.
N.D. Private Investigative & Sec. Bd. v. TigerSwan, LLC, 2019 ND 219, ¶ 8,
932 N.W.2d 756 (quoting Heartland State Bank v. Larson, 2019 ND 129, ¶ 7,
927 N.W.2d 407).
III
[¶11] The McDougalls argue the district court erred in dismissing their deceit
claim. They contend the statute of frauds does not apply to preclude their
claim.
[¶12] Under N.D.C.C. § 9-10-03, “[o]ne who willfully deceives another with
intent to induce that person to alter that person’s position to that person’s
4
injury or risk is liable for any damage which that person thereby suffers.”
Deceit is defined as:
1. The suggestion as a fact of that which is not true by one who
does not believe it to be true;
2. The assertion as a fact of that which is not true by one who has
no reasonable ground for believing it to be true;
3. The suppression of a fact by one who is bound to disclose it, or
who gives information of other facts which are likely to mislead or
want of communication of that fact; or
4. A promise made without any intention of performing.
N.D.C.C. § 9-10-02. Deceit requires the misrepresentation of facts, suppression
of facts, misleading another, or promising without intending to perform.
Schneider v. Schaaf, 1999 ND 235, ¶16, 603 N.W.2d 869. Proof of actual
damage proximately caused by the misrepresentation or nondisclosure is an
essential element of a deceit claim. Id.
[¶13] In granting summary judgment in favor of AgCountry and dismissing
the McDougalls’ deceit claim, the district court relied on Irish Oil & Gas, Inc.
v. Reimer, 2011 ND 22, 794 N.W.2d 715, and concluded the statute of frauds
precludes the deceit claim. The court explained, “It is clear here that alleged
promise is an oral agreement to loan money in excess of $25,000.00 in exchange
for the Home Quarter mortgage, which falls under the statute of frauds.” The
court said a majority of this Court held in Irish Oil that the “use of a deceit
claim to defeat the statute of frauds cannot stand.” The court concluded:
There is no dispute [the McDougalls’] claim relies on alleged
oral promises made by AgCountry to [Kent and Erica McDougall]
that fall under the statute of frauds in a contract context. After
extensive review of the decision in Irish Oil, and finding no
subsequent cases which shed more light on this issue, this Court
concludes, as a matter of law, [that] which would prevent a breach
of contract claim by [Kent and Erica McDougall], should also bar
[the McDougalls’] deceit claim, particularly as title to real property
is involved.
[¶14] In Irish Oil, 2011 ND 22, ¶¶ 2-6, 794 N.W.2d 715, an oil and gas lessee
sued the lessors for breach of the leases, the lessee moved to amend its
5
complaint to add a deceit claim against one of the lessors related to an alleged
oral agreement, and the district court denied the motion to amend the
complaint. This Court issued a divided decision in reviewing the district court’s
denial of the lessee’s motion to amend its complaint. The Court’s opinion
discussed a split in jurisdictions on the issue of whether the statute of frauds
bars a deceit claim when it precludes a breach of contract claim. Id. at ¶¶ 39-
50. Two justices agreed they would reverse the district court’s decision because
the statute of frauds is a rule of evidence that gives rise to a defense in a
contract action but does not preclude a deceit claim because it is not an action
on the contract. Id. at ¶ 51.
[¶15] In two separate dissenting opinions, three justices agreed to affirm the
district court’s denial of the motion to amend. Irish Oil, 2011 ND 22, ¶¶ 65-
75, 794 N.W.2d 715. The author of this opinion dissented from the Court’s
opinion and stated that he would affirm the judgment, explaining he was
“particularly concerned about the use of a deceit claim to defeat the statute of
frauds with regard to written instruments involving the title to real property.”
Id. at ¶ 65 (Justice Sandstrom concurred). Justice Kapsner also dissented,
stating the proposed deceit claim was an “end-run around the statute of frauds”
and the lessee was a sophisticated dealer in mineral leases, who had a simple
solution available by getting a written modification of the leases. Id. at ¶ 72.
A majority of the Court affirmed the district court’s denial of the lessee’s
motion to amend its complaint.
[¶16] This case is different than Irish Oil. The McDougalls do not allege they
had a contract with AgCountry. They are a third party to the alleged promise.
The McDougalls claim AgCountry falsely represented to Kent and Erica
McDougall that it would give them a new operating loan if they had more
collateral and AgCountry never had any intention of performing the promise.
The McDougalls claim AgCountry knew Kent and Erica McDougall did not
have any other collateral and it made the misrepresentations about the new
operating funds with the intent to induce the McDougalls to transfer the home
quarter to Kent and Erica McDougall so the property could become additional
collateral to secure existing debt to AgCountry. The McDougalls claim they
relied on AgCountry’s misrepresentations and were deceived into transferring
6
the home quarter. Their deceit claim is based on an alleged deliberate
misrepresentation of fact. The McDougalls are not seeking to enforce the
alleged promise either directly or indirectly through the deceit claim. They are
not requesting the court order AgCountry to lend Kent and Erica McDougall
more funds. The McDougalls are seeking damages for reliance on the alleged
misrepresentations, not enforcement of the agreement.
[¶17] “The purpose and intent of the statute of frauds is to prevent fraud and
perjury, and the statute should not be used as a defense where the effect would
be to accomplish a fraud or to enable a party to enrich himself unjustly at the
expense of another.” Wilhelm v. Berger, 297 N.W.2d 776, 779 (N.D. 1980); see
also Smestad v. Harris, 2012 ND 166, ¶ 13, 820 N.W.2d 363. Under N.D.C.C.
§§ 9-10-01, 9-10-02(4), and 9-10-03, “a promise made without any intention of
performing it which does not meet the requirements of a contract between the
parties may nevertheless satisfy the requirements of deceit, and the victim of
that deceit may recover for any damage suffered.” Delzer v. United Bank of
Bismarck, 527 N.W.2d 650, 653 (N.D. 1995). Extra-contractual statements,
such as a promise of a future loan or to restructure a current loan, made
without any intent of performing may be a basis for a claim of deceit. See State
Bank of Kenmare v. Lindberg, 471 N.W.2d 470, 474 (N.D. 1991).
[¶18] This is consistent with other states that have recognized the statute of
frauds may preclude some fraud or deceit claims. See 61 N.Y. Jur. 2d Frauds,
Statute of § 322 (2019) (stating “where an oral contract unenforceable under
the Statute of Frauds is made without intention of performance for the purpose
of inducing the other party to act or refrain from acting to its damage, an action
in fraud may be based thereon as long as the defrauded party does not seek to
enforce the alleged oral agreement.”); Channel Master Corp. v. Aluminum Ltd.
Sales, Inc., 151 N.E.2d 833, 836 (N.Y. 1958) (stating a tort action depends on
the deliberate misrepresentation of fact relied on by the plaintiff to their
detriment, and the policy of the statute of frauds is not directed at cases of
dishonesty in making a promise). See also Stine v. Sanders, 987 S.W.2d 289,
295 (Ark. Ct. App. 1999); Tenzer v. Superscope, Inc., 702 P.2d 212, 218-19 (Cal.
1985). If the McDougalls are able to present sufficient evidence to meet the
elements of a claim of deceit and AgCountry is allowed to assert the statute of
7
frauds to preclude that claim, the purpose of the statute of frauds would be
defeated.
[¶19] The district court granted summary judgment dismissing the
McDougalls’ deceit claim because the court concluded the statute of frauds
precluded the claim as a matter of law. We conclude the statute of frauds does
not preclude the McDougalls’ deceit claim and the court erred in its conclusion
of law. There are genuine issues of material fact about the elements of the
deceit claim, and the court erred in granting summary judgment.
IV
[¶20] The McDougalls argue the district court erred by dismissing their unjust
enrichment claim.
[¶21] In McColl Farms, LLC v. Pflaum, 2013 ND 169, ¶ 18, 837 N.W.2d 359,
we explained the doctrine of unjust enrichment:
Unjust enrichment is a broad, equitable doctrine which rests
upon quasi or constructive contracts implied by law to prevent a
person from unjustly enriching himself at the expense of another.
To recover under a theory of unjust enrichment, the plaintiff must
prove: (1) an enrichment, (2) an impoverishment, (3) a connection
between the enrichment and the impoverishment, (4) the absence
of a justification for the enrichment and impoverishment, and (5)
the absence of a remedy provided by law. The theory may be
invoked when a person has and retains money or benefits which in
justice and equity belong to another. For a complainant to recover,
it is sufficient if another has, without justification, obtained a
benefit at the direct expense of the complainant, who then has no
legal means of retrieving it. The essential element in recovering
under the theory is the receipt of a benefit by the defendant from
the plaintiff which would be inequitable to retain without paying
for its value.
(Citations and quotations omitted).
[¶22] The district court granted summary judgment dismissal of the
McDougalls’ unjust enrichment claim. The court concluded evidence could
8
show three of the five elements of unjust enrichment could be met, but the
court stated it could not conclude that there was an absence of justification for
the enrichment or that there was an absence of a remedy provided by law. The
court concluded the repayment agreements for Kent and Erica McDougall’s
loans provided justification for the enrichment because the agreements
extended the installment payments and maturity dates on the loans in
exchange for the mortgage on the home quarter. The court also concluded
there was not an absence of a remedy provided by law because the McDougalls
could have a claim in Kent and Erica McDougall’s bankruptcy case or a claim
for breach of the warranties contained in the deed conveying the home quarter
back to the McDougalls.
[¶23] The McDougalls argue the two-month extension on Kent and Erica
McDougall’s loans was not a justification for the enrichment and
impoverishment because the extension did not benefit the McDougalls and did
not have any value to Kent and Erica McDougall. They argue the repayment
agreements stated the property offered as collateral would secure all existing
and possible future debt and also promised efforts would be made to refinance
all of the debt. The McDougalls claim there was evidence the brief extension
of the loans did not have any value to Kent and Erica McDougall, including an
email from Kent McDougall to AgCountry stating that an extension of the
loans had no value to him without additional funds. The March 10, 2016, email
from Kent McDougall to AgCountry stated they needed additional funds to care
for their cattle; they had done everything they could to continue operating
without additional funds, including maxing out their credit cards; and “It does
no good for me to refinance and pay down the operating debt if nothing will be
readvanced.” The McDougalls claim they only transferred the property on the
promise of a new operating loan, they would not have transferred the property
without that promise, AgCountry had no intention of loaning any additional
funds, and therefore there was no justification for the enrichment and
impoverishment.
[¶24] The unjust enrichment claim is an alternative claim, and it is possible
the McDougalls may fail to prove any other potential claims, which would leave
them without a remedy provided by law. See McColl Farms, 2013 ND 169, ¶
9
20, 837 N.W.2d 359. If the McDougalls are not successful on their deceit claim
after a trial on remand, it is possible there would be an absence of a remedy at
law and there may be sufficient evidence to support the unjust enrichment
claim.
[¶25] Viewing the evidence in the light most favorable to the McDougalls, we
conclude genuine issues of material fact exist on the elements of the unjust
enrichment claim. The district court erred by granting summary judgment.
V
[¶26] We have considered the remaining arguments and conclude they are
either unnecessary to our decision or do not affect the outcome of the appeal.
We conclude the district court erred by granting summary judgment dismissal
of the deceit and unjust enrichment claims. We reverse that part of the
judgment dismissing the deceit and unjust enrichment claims, we affirm the
judgment on the remaining claims, and remand for further proceedings
consistent with this opinion.
[¶27] Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
Jon J. Jensen, C.J.
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