Meuchel v. Red Trail Energy, LLC

1

2024 ND 44

Donovan Meuchel a/k/a Donavon Meuchel, Plaintiff and Appellant v. Red Trail Energy, LLC, Defendant and Appellee

No. 20230127

Supreme Court of North Dakota

March 7, 2024

Appeal from the District Court of Stark County, Southwest Judicial District, the Honorable Rhonda R. Ehlis, Judge.

Justin D. Hager, Bismarck, ND, for plaintiff and appellant.

Robin W. Forward (argued), Bismarck, ND, and Jessica L. Knox (on brief), Minneapolis, MN, for defendant and appellee.

Bahr Justice.

AFFIRMED.

[¶1] Donavon Meuchel appeals from a judgment dismissing his complaint requesting the district court order Red Trail Energy, LLC, to provide him certain information, and awarding attorney's fees to Red Trail after the court denied Meuchel's motion to compel discovery. We conclude the court did not err in denying Meuchel's request for information and did not err in awarding attorney's fees to Red Trail. We affirm.

I

[¶2] Meuchel is a member and investor of Red Trail, a limited liability company. In October 2021, Meuchel commenced this action against Red Trail after his initial attempts to obtain information from Red Trail failed. Meuchel sought the information after Red Trail solicited bids for a project that involved drilling two groundwater monitoring wells as part of a carbon dioxide capture project. Meuchel's company had submitted an unsuccessful bid. Meuchel claimed a right to the information as a member of Red Trail under N.D.C.C. § 10-32.1-42.

[¶3] Red Trail answered, asserting Meuchel was not entitled to the information under N.D.C.C. § 10-32.1-42 because the information he demanded was not "material to the rights and duties" of Meuchel under Red Trail's operating agreement or N.D.C.C. ch. 10-32.1. In February 2022, Red Trail moved for summary judgment, which Meuchel opposed. Meuchel filed a motion to compel under N.D.R.Civ.P. 37, which Red Trail opposed. In May 2022, the district court held a hearing on the motions. In June 2022, the court entered orders denying summary judgment and Meuchel's motion to compel.

[¶4] In December 2022, the district court held a bench trial limited to whether Red Trail violated N.D.C.C. § 10-32.1-42. In an April 2023 memorandum opinion, the court held Meuchel was not entitled to the information. After a May 2023 hearing, the court entered an order awarding attorney's fees to Red Trail based on the court denying Meuchel's motion to compel discovery. A final judgment was subsequently entered.

II

[¶5] This Court's standard of review after a bench trial is well established:

"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." Larson v. Tonneson, 2019 ND 230, ¶ 10, 933 N.W.2d 84. 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, we are convinced a mistake has been made. Id. The court's findings are presumptively correct. Id. "[T]he district court is the determiner of credibility issues and we will not second-guess the district court on its credibility determinations." Id.

Zavanna, LLC v. GADECO, LLC, 2023 ND 142, ¶ 5 994 N.W.2d 133.

III

[¶6] Meuchel argues the district court erred in denying his request for information when it determined he did not have a right to the requested information from Red Trail.

[¶7] Red Trail is a board-managed limited liability company. The North Dakota Uniform Limited Liability Company Act, codified at N.D.C.C. ch. 10-32.1, governs LLCs. Section 10-32.1-42 N.D.C.C., provides a LLC member's right to information and provides, in relevant part:

1. In a member-managed or board-managed limited liability company, the following rules apply:

a. On reasonable notice, a member may inspect and copy during regular business hours, at a reasonable location specified by the company, any record maintained by the company regarding the activities, financial condition, and other circumstances of the company, to the extent the information is material to the rights and duties of the member under the operating agreement or this chapter. b. The company shall furnish to each member: (1) Without demand, any information concerning the activities, financial condition, and other circumstances of the company which the company knows and is material to the proper exercise of the rights and duties of the member under the operating agreement or this chapter, except to the extent the company can establish that it reasonably believes the member already knows the information; and

(2) On demand, any other information concerning the activities, financial condition, and other circumstances of the company, except to the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances.

c. The duty to furnish information under subdivision b also applies to each member to the extent the member knows any of the information described in subdivision b.

(Emphasis added.)

[¶8] Under N.D.C.C. § 10-32.1-42(1)(a), addressing records, and N.D.C.C. § 10-32.1-42(1)(b)(1), addressing information, a member has a right to "any record" and "any information" that is "material" to the member's "rights and duties" under the operating agreement or N.D.C.C. ch. 10-32.1. Under N.D.C.C. § 10-32.1-42(1)(b)(2), a member has a right to "any other information" unless "the demand or information demanded is unreasonable or otherwise improper under the circumstances."

[¶9] When interpreting and applying a uniform law's provisions, this Court may look to comments "from the official editorial board for guidance[.]" Shafer v. Scarborough, 2022 ND 233, ¶ 21, 982 N.W.2d 864. The comments to this uniform law explain, "For the meaning of 'material' as applied to information, see Section 409(f), comment." Unif. Ltd. Liability Co. Act (2013) § 410 cmt. subsection (a)(2)(A), 6C U.L.A. 115 (2016). The comment to section 409(f) reads, "Here and elsewhere in this act, information 'is material if there is a substantial likelihood that a reasonable [decision maker] would consider it important in deciding how to vote' or take other action under this act or the operating agreements." Id. § 409 cmt. subsection (f), 6C U.L.A. 111 (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). See also Merriam-Webster's Collegiate Dictionary 765 (11th ed. 2005) (defining "material" as "having real importance or great consequences"); American Heritage Dictionary 772 (2d Coll. ed. 1985) (defining "material" as "[o]f importance to a case; relevant"). In the context of records inspection, courts have held "[t]he determination of the reasonableness of a member's request for the inspection of records of a limited liability company will depend on the circumstances of the case and is addressed to the court's discretion." 54 C.J.S. Limited Liability Companies § 38 (Aug. 2023 Update).

[¶10] Neither party moved to admit an operating agreement for Red Trail into evidence. Therefore, the district court limited its analysis to N.D.C.C. ch. 10-32.1 in deciding whether Meuchel was entitled to the requested information about the bidding process. The court held Meuchel did not prove his demand for information was "material" to his rights and duties as a Red Trail member. Under N.D.C.C. § 10-32.1-42(1)(b)(1), the court found Meuchel did not provide evidence establishing he was entitled to information about the bidding process. The court found Meuchel was not a governor or board member of Red Trail and did not show he had voting power over Red Trail's activities. Without evidence Meuchel could be involved with Red Trail's bidding process, the court concluded it could not find his request was "material."

[¶11] Further, under N.D.C.C. § 10-32.1-42(1)(b)(2), the district court found Red Trail's refusal to provide information on the bidding process was not unreasonable since it kept information regarding the bidding process confidential and disclosure of the bidding information could have impacted the company's financial status. The court found Meuchel's request was "unreasonable and improper" given the impact disclosure would have on future bids and Red Trail's reputation. The court further held N.D.C.C. § 10-32.1-42(7) did not require an LLC to release information under restrictions, but that it "may" impose restrictions on information to be released.

[¶12] Meuchel argues the district court's analysis is flawed and incorrect. He argues that, although the operating agreement was not produced at trial, Red Trail's CEO testified that Meuchel as a member held both governance rights and financial rights, including being able to run for the board of governors and to vote for and request things to be on the annual meeting. Meuchel contends this "unrefuted testimony" shows that in denying information to him, Red Trail infringed on his rights to bring up information at the annual meeting, to possibly run for the board, or to suggest the board needed changes.

[¶13] Red Trail responds it was Meuchel's burden to prove the demanded records and information are material to his rights and duties as a member under N.D.C.C. ch. 10-32.1, and the district court correctly decided he did not meet his burden. Red Trail asserts there were no votes or other actions Meuchel could take on its bidding process, and the project and bidding were under the purview of the board and board-designated individuals, rather than the domain of Meuchel or other members. See N.D.C.C. § 10-32.1-39(4) (In a board-managed LLC, "[t]he activities and affairs of a limited liability company are to be managed by and under the direction of a board of governors[.]"). Red Trail contends members...