Arnold v. Trident Res., LLC

942 N.W.2d 465

Douglas ARNOLD and Thomas Arnold, Plaintiffs and Appellees

v. TRIDENT RESOURCES, LLC , American Power Company, Inc. and American Power Group Corporation, Defendantsand Thomas Lockhart, individually and as an officer and director of Trident Resources, LLC, Defendant and Appellant

No. 20190322

Supreme Court of North Dakota.

Filed May 7, 2020

Thomas E. Kalil, Williston, ND, for plaintiffs and appeleees.

William C. Black, Bismarck, ND, for defendant and appellant.

Jensen, Chief Justice.

[¶1] Thomas Lockhart appeals from an order finding him in contempt, imposing a sanction requiring the forfeiture of $300,000 to Douglas Arnold and Thomas Arnold, and divesting him of any management rights in Trident Resources, LLC. Lockhart argues the district court’s order improperly imposes a punitive sanction for his contempt. We reverse and remand this case to the district court for further findings in support of the sanction imposed for Lockhart’s contempt.

I

[¶2] In 2013, Lockhart and the Arnolds entered into business capturing and compressing natural gas. The parties formed Trident Resources, with Lockhart owning a 70% interest and each of the Arnolds owning a 15% interest. Trident Resources owned two well processing units (WPUs), each purchased for $300,000.

[¶3] In 2015, the Arnolds initiated this action seeking reformation of the Trident Resources’ member control and operating agreement to clarify the parties’ respective ownership interests. Following a bench trial, the court ordered the entry of a judgment confirming Lockhart’s ownership of a 70% interest and each of the Arnold’s 15% ownership interest in Trident Resources.

[¶4] Before the entry of the judgment, Lockhart informed the Arnolds he had received an offer from Black Butte Resources to purchase one of the WPUs for $300,000. The Arnolds consented to the sale of the WPU, provided the proceeds were deposited into their attorney’s trust account. Lockhart agreed to deposit the funds into the trust account as requested by the Arnolds.

[¶5] When it appeared Lockhart had failed to deposit the funds into the trust account, the Arnolds filed a motion seeking to discover the location of the WPU and the sale proceeds. Before the hearing on the Arnolds’ motion, Lockhart deposited $100,000 into the trust account. At the hearing, the court ordered Lockhart to provide the Arnolds and the court with information regarding the WPU that had been sold and the date the remaining $200,000 would be deposited into the trust account. The court further ordered that if Lockhart failed to provide the information within 15 days of the hearing a sanction of $5,000 would be imposed with an additional $1,000 sanction for every subsequent week the information was not provided. Additionally, the court provided that if the information was not given within 30 days, the Arnolds could request a hearing for the court to consider additional sanctions. Lockhart eventually deposited $200,000 into the trust account and filed an affidavit stating Black Butte had purchased the WPU and the WPU had been transferred to Black Butte.

[¶6] Subsequent to Lockhart filing his affidavit, the Arnolds learned the WPU had not been sold to Black Butte for $300,000, but had instead been sold to another party for $500,000. The Arnolds filed a motion requesting the court to find Lockhart in contempt and for the imposition of appropriate sanctions. At the hearing on the motion, Lockhart conceded his affidavit was false and stipulated to the entry of a finding of contempt.

[¶7] The court found Lockhart in contempt "by virtue of having knowingly made and filed a false affidavit" and imposed the following sanction:

a. Defendants Thomas Lockhart and Trident Resources, LLC have no right, claim or interest in the $300,000.00 placed into escrow with the Plaintiffs’ attorney. The Plaintiff’s attorney may immediately disperse this money to the Plaintiffs. Any remaining debts owed by Trident Resources, LLC, with the exception of any unpaid storage fees from May 1, 2019 forward, shall be paid using the $200,000.00 received by Thomas Lockhart and which he failed to disclose to the Court.

b. With regard to any remaining property of Trident Resources, LLC, Thomas Lockhart shall have no right whatsoever to dispose of, assign, or sell said property. The sale of any remaining property shall be negotiated solely by the Plaintiffs, but all contracts shall be signed by Thomas Lockhart and the Plaintiffs, with each person signing in their capacity as members and with Lockhart additionally signing as an officer/director of the LLC.

The court denied the Arnolds’ request for an award of attorney fees, noting it had provided the $300,000 sanction.

[¶8] Lockhart does not contest the finding of contempt and challenges only the forfeiture of the $300,000. He argues the forfeiture is either an improperly imposed punitive sanction or a remedial sanction which exceeds the available remedial remedies.

II

[¶9] District courts have broad discretion in making contempt findings and those findings will be disturbed on appeal only if the district court has abused its discretion. Upton v. Nolan , 2018 ND 243, ¶ 18, 919 N.W.2d 181 (quoting Booen v. Appel , 2017 ND 189, ¶ 24, 899 N.W.2d 648 ). "A district court abuses its discretion when it acts in an arbitrary, unreasonable, or unconscionable manner; its decision is not the product of a rational mental process leading to a reasoned determination; or it misinterprets or misapplies the law." Id. [¶10] This Court exercises a very limited review of a district court’s determination regarding contempt. Upton v. Nolan, 2018 ND 243, at ¶ 18, 919 N.W.2d 181 . Our limited review of a finding of contempt requires the district court to provide an adequate explanation of the basis for its finding. Johnson v. Gehringer , 2006 ND 157, ¶ 11, 717 N.W.2d 920 (quoting In re Spicer , 2006 ND 79, ¶ 8, 712 N.W.2d 640 ). If valid reasons for the district court’s finding are fairly discernable, either by deduction or inference, the finding will not be reversed. Id.

[¶11] Courts have the authority to impose remedial or punitive sanctions for contempt of court. N.D.C.C. § 27-10-01.2(1). When considering an alleged contempt, the district court must first decide whether a remedial or punitive sanction is applicable, and then apply the appropriate procedures for imposing the sanction. Holkesvig v. Welte , 2012 ND 14, ¶ 9, 809 N.W.2d 323. When a district court has failed to follow the appropriate procedure in contempt proceedings, this Court generally remands the case to the district court for a determination of whether the appropriate contempt proceedings should be initiated. See Holkesvig v. Welte , 2012 ND 14, ¶ 14, 809 N.W.2d 323 ; Millang v. Hahn , 1998 ND 152, ¶ 19, 582 N.W.2d 665 ; Endersbe v. Endersbe , 555 N.W.2d 580, 583 (N.D. 1996).

III

[¶12] Lockhart argues the sanction imposed by the court was improper because it was either a procedurally deficient punitive sanction or a remedial sanction exceeding the available remedial sanction statutory remedies. Punitive sanctions and remedial sanctions are statutorily defined within N.D.C.C. § 27-10-01.1 as follows:

....

3. "Punitive sanction" includes a sanction of imprisonment if the sentence is for a definite period of time. A sanction requiring payment of a sum of money is punitive if the sanction is not conditioned upon performance or nonperformance of an act, and if the sanction’s purpose is to uphold the authority of the court.

4. "Remedial sanction" includes a sanction that is conditioned upon performance or nonperformance of an act required by court order. A sanction requiring payment of a sum of money is remedial if the sanction is imposed to compensate a party or complainant, other than the court, for loss or injury suffered as a result of the contempt.

[¶13] The imposition of punitive sanctions for contempt is limited to two sets of circumstances. First, "[t]he state’s attorney of a county, the attorney general, or a special prosecutor appointed by the court may seek the imposition of a punitive sanction by issuing a complaint charging a person with contempt of court and reciting the sanction sought to be imposed." N.D.C.C. § 27-10-1.3(1)(b). "The state’s attorney, attorney general, or special prosecutor may initiate issuance of the complaint or may issue the complaint on the request of a party to an action or proceeding in a court or of the judge presiding in an action or proceeding." N.D.C.C. § 27-10-1.3(1)(b). While the issuance of a complaint as described in this paragraph may be appropriate and may occur in the future, no complaint has been issued in this case.

[¶14] The second set of circumstances allowing for the imposition of punitive sanctions arise when "[t]he judge presiding in an action or proceeding may impose a punitive sanction upon a person who commits contempt of court in the actual presence of the court." N.D.C.C. § 27-10-1.3(2). "The judge shall impose the punitive sanction immediately after the contempt of court and only for the purpose of preserving order in the court and protecting the authority and dignity of the court." N.D.C.C. § 27-10-1.3(2). The sanction imposed in this case was not initiated as the result of actions occurring in the presence of the court and were not imposed to preserve "order in the court and protecting the authority and dignity of the court."

[¶15] Neither of the two sets of circumstances allowing for the imposition of a punitive sanction were satisfied prior to the court imposing the sanctions in this case. We agree with Lockhart, to the extent the sanction was punitive, it was improperly imposed.

IV

[¶16] Lockhart also asserts the sanction exceeds the statutorily defined remedial sanctions. A court may impose one or more of the following remedial sanctions:

a. Payment of a sum of money sufficient to compensate a party or complainant, other than the court, for a loss or injury suffered as a result of

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