Kaiser v. Imperial Oil of N. Dakota

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LILLIAN WALTERS KAISER, Plaintiff, v. IMPERIAL OIL OF NORTH DAKOTA and WILLIAM D. WALTERS Defendants.

No. CV 23-59-BLG-SPW

United States District Court, D. Montana, Billings Division

February 14, 2024

ORDER

Susan P. Watters, United States District Judge

Before the Court is Plaintiff Lillian Kaiser's (“Kaiser”) Motion for Leave to File Amended Complaint and Jury Demand (Doc. 122), Defendant William Walters's (“Walters”) Motion to Dismiss Plaintiffs Complaint (Doc. 16), Defendant Imperial Oil of North Dakota's (“Imperial Oil”) Motion to Dismiss for Failure to State a Claim (Doc. 19), and Kaiser's Motion for Involuntary Dissolution of Imperial Oil of North Dakota (Doc. 86). For the reasons below, the Court grants in part and denies in Kaiser's Motion for Leave to Amend (Doc. 122), grants in part and denies in Part Walters's Motion to Dismiss (Doc. 16), grants in part and denies in part Imperial Oil's Motion to Dismiss (Doc 19), and denies Kaiser's Motion for Involuntary Dissolution (Doc. 86).

I. Facts and Background

At its core, this case is a dispute between siblings about how one sibling runs the corporation that comprises their collective inheritance.

Kaiser Walters, and Carrie Walters Smith (“Smith”) are the children of Lillian Y. Walters (“Lillian”). (See Doc. 17 at 2). Smith did not join this suit. (Doc. 1 ¶ 5). Lillian established a trust, the Lillian Y. Walters Revocable Trust (the “Trust”), and named Walters, Kaiser, and Smith as the beneficiaries. (Doc. 1 ¶¶ 1, 4, 5). Walters and American State Bank & Trust of Williston are the co-trustees of the Trust. (Id. ¶¶ 1, 4). Walters, Kaiser, and Smith each inherited an ownership interest in Imperial Oil in 2011, which seems to have been disbursed through the Trust. (See id. ¶ 26; Doc. 116 at 14-15).

Imperial Oil is an oil and gas corporation incorporated in North Dakota with its principal office in Billings, Montana. (Id. ¶ 3). It derives almost all its revenue from oil and gas operations in North Dakota. (Id.) Imperial Oil employs Walters as the president and sole officer and employs his sons and one grandson. (Id. ¶¶ 4,13). Walters owns 100% of the voting shares of Imperial Oil. (Id. ¶ 4). The non-voting shares are divided equally between Walters, Kaiser, and Smith. (Id. ¶¶ 1, 4-5).

The finances of Walters and Imperial Oil seem intertwined. Imperial Oil loaned money to two companies in which Walters has an ownership interest: Walters Petroleum Enterprises, L.L.C., a North Dakota corporation in which Walters has a 50% ownership, and The Mineral Mart, Inc., a North Dakota corporation which Walters owns in whole or in part. (Id. ¶¶ 14-15). Imperial Oil has paid and possibly continues to pay rent for space in a building that Walters owns. (Id. ¶ 16). In 2011, Walters moved Imperial Oil's principal office from North Dakota to Billings, Montana, supposedly to be closer to Walters's home and family. (Id. ¶ 30). In 2019, Imperial Oil financed the purchase of Walters's home in Billings. (Id. ¶ 17).

Kaiser originally filed her Complaint in the U.S. District Court for the District of North Dakota on October 14, 2022, pursuant to the court's diversity jurisdiction. (Doc 1). Kaiser alleged various violations of the North Dakota Business Corporations Act, N.D. Cent. Code § 10-19.1, as well as breach of trust under Title 59 of the North Dakota Century Code. (Doc. 1 ¶¶ 45-83). The crux of Kaiser's Complaint is that Walters has used his position as director of Imperial Oil and co-trustee of the Trust to benefit himself, his children, and his grandchildren to the detriment of his sisters. In the Complaint, Kaiser alleges eight counts against Walters, six of which apply to his role as president, director, and sole voting shareholder of Imperial Oil (collectively, “Shareholder Claims”): Fraudulent and/or Illegal Conduct Toward Shareholders (Count I); Unfairly Prejudicial Conduct Toward Shareholders (Count II); Misapplication and/or Waste of Corporate Assets (Count III); Breach of Fiduciary Duties by a Corporate Officer (Count IV); Breach of Fiduciary Duties by a Corporate Director (Count V); Breach of Fiduciary Duties by a Shareholder in a Closely Held Corporation (Count VI), and unjust enrichment in Walters's role at Imperial Oil (Count VIII). Kaiser also alleges Counts I, II, and III against Imperial Oil. Kaiser further alleges that, as co-trustee of the Trust, Walters breached his duty to administer the trust in good faith (Count VII) and unjustly enriched himself to the detriment of Kaiser (Count VIII) (collectively, “Trust Claims”).^[1] (Doc. 1 ¶¶ 45-82).

On December 5, 2022, Imperial Oil and Walters each moved to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and for improper venue under Federal Rule of Civil Procedure 12(b)(3) (collectively “Motions to Dismiss”). (Docs. 16, 19). In the alternative, Defendants each sought to transfer venue to the District of Montana. (Docs. 16, 19, 21, 22). On May 24, 2023, Judge Daniel Traynor of the District of North Dakota found venue in North Dakota improper, granted the motions to transfer, and transferred the case to this Court pursuant to 28 U.S.C. § 1406(a). (Doc. 51 (granting Docs. 21, 22)).

Subsequently, Kaiser filed a Motion to Appoint Receiver (Doc. 74), a Motion for a Hearing on the Motion to Appoint Receiver (Doc. 84), a Motion for Involuntary Dissolution of Imperial Oil of North Dakota (Doc. 86), and the present Motion for Leave to File Amended Complaint. Defendants oppose each motion. (Docs. 79,96, 98, 99, 124).

Additionally, Defendants filed two joint motions: a Motion to Stay Discovery (Doc. 37) and a Motion to Strike. (Doc. 105). Kaiser opposes both these motions. (Docs. 44, 107).

In the Proposed Amended Complaint (“PAC”), Kaiser seeks to add an additional count for exemplary damages and to provide additional facts supporting that claim (“Exemplary Damages Claim”) (Count IX). (See Doc. 122 ¶¶ 85-91).

Kaiser requests the following legal and equitable relief in the PAC: (1) monetary damages; (2) appointment of a receiver over Imperial Oil; (3) distributions, dissolution, or the sale of Imperial Oil to a third party; (4) reasonable expenses; (5) exemplary damages, and (6) any other relief the Court deems just and proper. (Id. ¶91).

II. Legal Standards

A. Motion to Amend

A party may amend its pleading once as a matter of course within the time limits set in Federal Rule of Civil Procedure 15(a)(1). If a party seeks to amend their complaint after the Rule 15(a)(1) deadline, the party must have the opposing party's written consent or the leave of the court. Fed.R.Civ.P. 15(a)(2). Such leave should be given freely “when justice so requires.” Id.

B. Motion to Dismiss

A Rule 12(b)(6) motion tests the legal sufficiency of a pleading. Under Rule 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” To survive Rule 12(b)(6) motion, the pleading must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible if the pleading alleges enough facts to draw a reasonable inference that the accused is liable. Id. Though the pleading does not need to provide detailed factual allegations, it cannot merely assert legal conclusions. Twombly, 550 U.S. at 555.

When ruling on a Rule 12(b)(6) motion, the Court must accept the complaint's well-pled factual allegations as true and construe them in the light most favorable to the non-movant. See Autotel v. Nev. Bell Tel. Co., 697 F.3d 846, 850 (9th Cir. 2012). Dismissal “is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).

III. Discussion

As the parties dispute which law governs the various issues before the Court, the Court must first establish the governing law. Because granting a motion to amend changes the operative pleading, the Court must then address Kaiser's Motion to Amend. See Davis v. TXO Prod. Corp., 929 F.2d 1515, 1518 (10th Cir. 1991). The Court will then address Defendants' Motions to Dismiss, starting with whether Smith is a necessary party to this suit, and then turning to the merits of the motions.

A. Governing Law

A federal court sitting in diversity applies state substantive law and federal procedural law. See In re County of Orange, 784 F.3d 520, 523-24 (9th Cir. 2015). Additionally, when a case has been transferred to another district, the receiving court must decide which state's substantive law applies. See Jarrett v. Terrell, No. 2155263, 2022 WL 1056645, at *1 (9th Cir. Apr. 8, 2022). Here, the Court first will decide which state's substantive law applies. Then the Court will decide whether each issue-motions to amend and motions to join-is procedural, and therefore governed by Federal Rules of Civil Procedure 15 or 19, respectively, or substantive, and therefore governed by the applicable state law.

1. North Dakota Substantive Law Governs

When the court sitting in diversity grants a motion to transfer from a district court in one state to a district court in another state, which state's substantive law applies depends on the basis for transfer. If the case is transferred under § 1406(a) for improper venue, the court receiving the case applies the substantive law of the state in which it sits, including its choice-of-law rules. Jarrett, 2022 WL 1056645, at *1.

Because this case was transferred to this district from the District of North Dakota under 28 U.S.C. § 1406(a), the Court uses Montana choice-of-laws...