Puklich v. Puklich

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
AUGUST 4, 2022
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2022 ND 158Blayne Puklich, individually and derivatively
on behalf of B&E Holdings, LLP, Plaintiff, Appellant,
and Cross-Appellee
v.
Elyse Puklich, and END, L.L.L.P., Defendants, Appellees,
and Cross-Appellants
No. 20220062
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable David E. Reich, Judge.
AFFIRMED.
Opinion of the Court by McEvers, Justice.
Ryan R. Dreyer, Minnetonka, MN, for plaintiff, appellant, and cross-appellee.
Michael J. Geiermann, Bismarck, ND, for defendants, appellees, and cross-
appellants.
Puklich v. Puklich
No. 20220062
McEvers, Justice.
[¶1] Blayne Puklich appeals, individually and derivatively on behalf of B&E
Holdings, LLP, from a judgment dismissing his breach of fiduciary duty claim
against Elyse Puklich and END L.L.L.P. Elyse Puklich cross appeals arguing
the district court erred when it denied her motion for N.D.R.Civ.P. 11 sanctions.
The court held Blayne Puklich’s claim, which alleges Elyse Puklich breached
fiduciary duties by usurping a real estate opportunity, was res judicata but not
frivolous. We affirm the judgment.
I
[¶2] Blayne Puklich and Elyse Puklich are the children of Stan Puklich, who
owned and operated an automobile dealership before his death. The dispute
arises from the parties’ ownership of various business interests they either
purchased or received from Stan Puklich. Puklich Chevrolet, Inc. (PCI) owns
the automobile dealership. B&E Holdings owned the real estate where the
dealership is located. Blayne Puklich and Elyse Puklich each owned interests
in these entities, and Elyse Puklich had assumed management responsibilities
for both.
[¶3] In 2014, Elyse Puklich filed a petition to dissolve B&E Holdings. Blayne
Puklich filed counterclaims alleging, as relevant to this appeal, that Elyse
Puklich breached fiduciary duties she owed to PCI by usurping an opportunity
to purchase an automobile dealership in Valley City. Puklich Ketterling, Inc.
(PKI), which Elyse Puklich created to purchase the dealership, was added as a
party. After Blayne Puklich moved to amend his pleadings, the Valley City real
estate where the dealership is located was transferred to another entity Elyse
Puklich created named END, L.L.L.P. END was not added as a party to the
2014 litigation. The case proceeded to a bench trial, and the district court
entered a judgment ordering, among other things, that B&E holdings be
dissolved and Elyse Puklich purchase Blayne Puklich’s interest in the
partnership for roughly $3,000,000.
1
[¶4] The parties appealed. But, before their appeal was decided, Blayne
Puklich filed another lawsuit against Elyse Puklich that included a claim
based on the Valley City real estate transaction. The district court held it
lacked jurisdiction to hear the case because “these issues are currently before
the Supreme Court on appeal, and the parties are waiting for a decision.” The
court dismissed the case without prejudice, and neither party appealed. We
then issued our opinion in Puklich v. Puklich, 2019 ND 154, 930 N.W.2d 593,
in which we affirmed dissolution of B&E Holdings and reversed the judgment
based on other issues not relevant here. As to the Valley City real estate claim,
we held the district court “did not err in refusing to address this unpled claim.”
Id. at ¶ 47.
[¶5] Blayne Puklich subsequently filed this third lawsuit in June 2021. His
complaint alleges B&E Holdings was formed for the purpose of owning and
managing real estate for profit, the partnership agreement prohibited Elyse
Puklich from engaging in similar business without approval from the B&E
Holdings partners, she had a duty to present the Valley City real estate
opportunity to B&E Holdings, and she breached that duty by usurping the
opportunity. The district court granted Elyse Puklich’s N.D.R.Civ.P. 12(b)(6)
motion to dismiss the case holding the claim is res judicata because it “was or
could have been raised” in the litigation that commenced in 2014. The court
denied Elyse Puklich’s motion for N.D.R.Civ.P. 11 sanctions concluding Blayne
Puklich had provided case law supporting his argument that res judicata did
not apply. Blayne Puklich appeals, and Elyse Puklich cross appeals.
II
[¶6] Blayne Puklich argues res judicata does not apply to his claim because
the Valley City real estate deal occurred after he moved to amend his
pleadings. He alleges he was unaware the deal had occurred at the time he
filed his amended counterclaims. Elyse Puklich argues the claim is res
judicata because Blayne Puklich submitted relevant evidence and the court
decided the issues relating to his claim.
[¶7] The legal sufficiency of a claim is tested by a motion to dismiss under
N.D.R.Civ.P. 12(b)(6). Estate of Nelson, 2015 ND 122, ¶ 5, 863 N.W.2d. 521. We
2
apply the following standard when reviewing an N.D.R.Civ.P. 12(b)(6)
dismissal judgment:
[W]e construe the complaint in the light most favorable to the
plaintiff and accept as true the well-pleaded allegations in the
complaint. A district court’s decision granting a Rule 12(b)(6)
motion to dismiss a complaint will be affirmed if we cannot discern
a potential for proof to support it. We review a district court’s
decision granting a motion to dismiss under N.D.R.Civ.P. 12(b)(6)
de novo on appeal.
Atkins v. State, 2021 ND 83, ¶ 9, 959 N.W.2d 588 (quoting Curtiss v. State,
2020 ND 256, ¶ 4, 952 N.W.2d 43).
A
[¶8] We conclude the doctrine of issue preclusion bars Blayne Puklich from
bringing this lawsuit to obtain relief in his individual capacity.
[¶9] Various terms have been used, sometimes interchangeably, to describe
preclusion principles, including “res judicata,” “collateral estoppel,” “claim
preclusion,” and “issue preclusion.” See Riverwood Commercial Park, L.L.C. v.
Standard Oil Co., Inc., 2007 ND 36, ¶ 13, 729 N.W.2d 101. There is a trend
towards speaking “the language of preclusion,” which the broad term “res
judicata” encompasses. See 18 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 4402 (3d ed. April 2022 Update). 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.” Great Plains Royalty Corp. v. Earl Schwartz Co., 2021 ND 62, ¶ 19,
958 N.W.2d 128 (quoting Riverwood, ¶ 13). Preclusion principles operate to
promote finality and conserve judicial resources. Witzke v. City of Bismarck,
2006 ND 160, ¶ 8, 718 N.W.2d 586. They should be applied flexibly to achieve
fairness and justice. Riverwood, at ¶ 14. Whether issue preclusion applies is
a question of law that is fully reviewable on appeal. Sorenson v. Bakken Invs.
LLC, 2017 ND 127, ¶ 9, 895 N.W.2d 302.
3
[¶10] In the 2014 action, Blayne Puklich claimed Elyse Puklich breached
fiduciary duties by usurping the Valley City real estate deal, and he presented
evidence concerning his alleged damages relating to the lost opportunity. After
hearing the testimony and reviewing the evidence, the district court made the
following findings:
Elyse testified that GM was offering the opportunity to her,
personally, as the authorized dealer at PCI, and not to PCI as the
corporation. The Court finds this evidence credible and
compelling.
. . .
The Court finds that PKI’s purchase of the Valley City
dealership did not deprive PCI of a business opportunity. PKI is
entitled to operate the Valley City dealership free and clear from
any claim by PCI or Blayne.
Likewise, the Court finds that the purchase and lease of the
real estate in Valley City did not deprive PCI of a business
opportunity. Elyse and PKI are entitled to own that property free
and clear of any claim of PCI or Blayne.
Read together, the district court’s findings are dispositive of whether Blayne
Puklich had a personal interest in the Valley City deal or a right to be involved
in it. He did not. The findings are also dispositive of whether Elyse Puklich
breached a duty to Blayne Puklich personally by purchasing the real estate.
The court unambiguously found Elyse Puklich is entitled to the real estate
“free and clear of any claim of PCI or Blayne.” These central issues to Blayne
Puklich’s claim in this case were decided in the 2014 action. We therefore hold
Blayne Puklich’s claim for damages in his individual capacity concerning the
Valley City real estate opportunity is barred by the doctrine of issue preclusion.
B
[¶11] Blayne Puklich styled this suit as being brought both individually and
“derivatively on behalf of B&E Holdings, LLP.” He alleges B&E Holdings was
formed to purchase, hold, and sell real estate for profit. He claims the
4
partnership agreement prohibited Elyse Puklich from engaging in business
similar to that of B&E Holdings, and she breached her fiduciary duty by doing
so. The parties have raised arguments concerning whether claim preclusion
bars Blayne Puklich from bringing this derivative lawsuit on behalf of B&E
Holdings. We need not address their arguments to decide this appeal. As a
matter of law, Blayne Puklich cannot bring a derivative lawsuit on behalf of a
partnership in which he held no interest.
[¶12] North Dakota has adopted a version of the Uniform Limited Partnership
Act. See N.D.C.C. ch. 45-10.2. Under N.D.C.C. § 45-10.2-90, a partner may
maintain a derivative action to enforce a right of a limited partnership if the
partner first makes a demand on the general partners requesting the
partnership bring the action and they refuse to do so or if such a demand would
be futile. Section 45-10.2-91 specifies who may bring a derivative action.
Among other requirements, the person must be “a partner at the time the
action is commenced.” Id.; see also Gale v. Rittenhouse, 686 N.W.2d 50, 53
(Minn. Ct. App. 2004) (applying Minnesota’s uniform limited partnership act
and affirming dismissal of derivative lawsuit when plaintiff was removed as a
partner prior to suing); 68 C.J.S. Partnership § 590 (May 2022 update) (“[a]
derivative action may be maintained only by a person that is a partner at the
time the action is commenced”).
[¶13] In his complaint, Blayne Puklich alleges a demand to bring the present
suit would be futile, but he does not allege he is a partner in B&E Holdings.
Nor could he. Prior to commencement of this lawsuit, we affirmed the
judgment dissolving the partnership. See Puklich, 2019 ND 154, ¶ 49. Blayne
Puklich subsequently filed satisfaction of judgments acknowledging Elyse
Puklich paid him for his partnership interest and that she made the
distributions to which he was entitled. The satisfactions were dated before
service of the summons and complaint in this case. Because Blayne Puklich
did not allege he was a partner at the time he brought this derivative lawsuit
and the record demonstrates he was not, he lacks standing to sue derivatively
on behalf of B&E Holdings, which appears to no longer exist. Although the
district court dismissed Blayne Puklich’s claim on another ground—that it is
res judicata—we affirm its dismissal judgment for the foregoing reasons. See
5
State v. Lafromboise, 2021 ND 80, ¶ 20, 959 N.W.2d 596 (we will affirm if the
result is the same under the correct law and reasoning).
III
[¶14] Elyse Puklich cross appeals. She argues the district court erred when it
denied her motion for sanctions. She asserts Blayne Puklich’s claim is
frivolous, and the district court should have awarded sanctions under
N.D.R.Civ.P. 11.
[¶15] Under N.D.R.Civ.P. 11(b), by presenting filings to the court, a party
certifies:
(1) [the party’s filings are] not being presented for any improper
purpose, such as to harass, cause unnecessary delay, or needlessly
increase the cost of litigation;
(2) the claims, defenses, and other legal contentions are warranted
by existing law or by a nonfrivolous argument for extending,
modifying, or reversing existing law or for establishing new law;
(3) the factual contentions have evidentiary support or will likely
have evidentiary support after a reasonable opportunity for
further investigation or discover; and
(4) the denials of factual contentions are warranted on the evidence
or are reasonably based on belief or a lack of information.
The district court may sanction a party if it determines the party has violated
Rule 11(b). See N.D.R.Civ.P. 11(c); see also In re Pederson Trust, 2008 ND 210,
¶ 22, 757 N.W.2d 740.
[¶16] Whether to impose sanctions under Rule 11 is within the district court’s
sound discretion. Empower the Taxpayer v. Fong, 2013 ND 187, ¶ 6, 838
N.W.2d 452. This Court reviews the district court’s decision on a Rule 11
motion for sanctions under the abuse of discretion standard. Id. “A court
abuses its discretion when it acts in an arbitrary, unreasonable, or
unconscionable manner, it misinterprets or misapplies the law, or when its
decision is not the product of a rational mental process leading to a reasoned
6
determination.” Toman Eng’g Co. v. Koch Constr., Inc., 2022 ND 104, ¶ 17,
974 N.W.2d 680.
[¶17] The district court disagreed with Blayne Puklich’s arguments but
concluded they were not frivolous because there is “some support” for them in
“some Federal case law.” A claim is frivolous if it has “a complete absence of
actual facts or law” that no reasonable person would expect it to succeed.
McCarvel v. Perhus, 2020 ND 267, ¶ 19, 952 N.W.2d 86. Given the court’s
determination that Blayne Puklich provided legal authority to support his
claims, albeit insufficient support, we are not convinced the court abused its
discretion.
IV
[¶18] We affirm the judgment.
[¶19] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
7