Opinion
No. 17-CV-203-LRR
2019-08-12
NORTH AMERICAN BULLION EXCHANGE, LLC, Plaintiff, v. CC TRADING, LLC, et al. Defendants.
Brent J. Edison, Matthew W. Sorensen, Steven Francis Lamb, Vogel Law Firm, Fargo, ND, for Plaintiff. Nicholas C. Grant, Shea Ashley Thomas, Ebeltoft Sickler Lawyers PLLC, Dickinson, ND, for Defendants.
Brent J. Edison, Matthew W. Sorensen, Steven Francis Lamb, Vogel Law Firm, Fargo, ND, for Plaintiff.
Nicholas C. Grant, Shea Ashley Thomas, Ebeltoft Sickler Lawyers PLLC, Dickinson, ND, for Defendants.
ORDER
LINDA R. READE, JUDGE
TABLE OF CONTENTS
I. INTRODUCTION...1124
II. RELEVANT PROCEDURAL HISTORY...1124
III. SUBJECT MATTER JUISDICTION...1124
IV. SUMMARY JUDGMENT STANDARD...1125
V. RELEVANT FACTUAL BACKGROUND...1125
A. Parties...1126
B. Overview of the Dispute...1126
VI. ANALYSIS...1126
A. NABX's Conversion Claim and Unjust Enrichment Claim...1126
1. Parties' arguments...1126
2. Applicable law...1127
a. Conversion...1127
b. Unjust Enrichment...1127
c. Rule 8(d)(2)...1128
3. Application...1128
B. Fraud Claims...1129
1. Fraud claims against CC Trading...1129
a. Parties' arguments...1129
1. Actual fraud...1129
2. Constructive fraud...1130
b. Applicable law...1130
1. Actual fraud...1130
2. Constructive fraud...1131
c. Application...1131
2. Actual and constructive fraud claims against Christensen...1132
a. Parties' arguments...1132
b. Applicable law...1132
c. Application...1133
3. Summary...1133
VII. CONCLUSION...1133 I. INTRODUCTION
The matter before the court is Defendants CC Trading, LLC ("CC Trading") and Charles Conrad Christensen's "Motion for Partial Summary Judgment" ("Motion") (docket no. 21).
II. RELEVANT PROCEDURAL HISTORY
On September 29, 2017, Plaintiff North America Bullion Exchange, LLC ("NABX") filed a Complaint (docket no. 1), alleging breach of contract (Count I), conversion (Count II), unjust enrichment (Count III), actual fraud (Count IV) and constructive fraud (Count V). See generally Complaint ¶¶ 31-56. On November 6, 2017, CC Trading and Christensen filed an Answer and Affirmative Defenses (docket no. 5).
All five counts in the Complaint are alleged against CC Trading. Counts IV and V are also alleged against Christensen. In its "Memorandum of Law in Opposition to Defendants' Motion for Partial Summary Judgment" ("NABX's Brief") (docket no. 24), NABX asserts that "a review of the allegations in the Complaint and the prayer for relief demonstrate that NABX has brought a breach of contract claim against both [CC Trading and Christensen]." NABX's Brief at 15. However, in the Complaint, the breach of contract claim only references CC Trading. See Complaint ¶¶ 31-36. Nowhere in the Complaint does NABX allege that Christensen was a party to the contracts at issue in this case. Further, the only trading account with the parties was between NABX and CC Trading. NABX did not have a separate trading account with Christensen. Christensen's involvement in the trades between NABX and CC Trading was in his capacity as an agent/member of CC Trading. See Exhibit 4 (docket no. 30-1), attached to Affidavit of Nicholas C. Grant (docket 30) at 5-6, ¶¶ 5, 8 (providing NABX's response to Defendants' interrogatories, where NABX refers to transactions between NABX and CC Trading, with documentation provided to "CC Trading member/agent Charles Christensen"). In a footnote, NABX states that, "[s]hould the [c]ourt find confusion as to NABX's breach of contract claim against Christensen, NABX respectfully requests permission to amend its Complaint under Rule 15(a)(2) to clarify claims against Christensen." NABX's Brief at 15 n. 1. While Federal Rule of Civil Procedure 15(a)(2) states that leave to amend should be freely given when justice so requires, "[t]he policy favoring liberal allowance of amendment does not mean that the right to amend is absolute." Kozlov v. Associated Wholesale Grocers, Inc. , 818 F.3d 380, 394 (8th Cir. 2016) (alteration in original) (quoting Thompson-El v. Jones , 876 F.2d 66, 67 (8th Cir. 1989). A motion to amend may be denied for undue delay and undue prejudice to the opposing party. Kozlov , 818 F.3d at 395. Further, "[w]hen a considerable amount of time has passed since the filing of a complaint and the motion to amend is made on the eve of trial and will cause prejudice and further delay, courts require the movant to provide some valid reason for the belatedness of the motion." Id. (alteration in original) (quoting Thompson-El , 876 F.2d at 67 ). Here, the Complaint was filed on September 29, 2017. The deadline to amend pleadings was May 1, 2018. The discovery deadline was October 15, 2018. Moreover, NABX offers no reason for the belatedness of its motion to amend and does not provide any specifics as to how it would amend its Complaint. Under such circumstances, the court finds that NABX's motion to amend its Complaint to "clarify" its breach of contract claim to include Christensen is denied for undue delay, prejudice to Defendants and failure to provide good reason for the delay.
On November 15, 2018, CC Trading and Christensen filed the Motion. On December 5, 2018, NABX filed a Resistance (docket no. 24). On December 19, 2018, CC Trading and Christensen filed a Reply ("Reply Brief") (docket no. 29). No party has requested oral argument, and the court finds that oral argument is unnecessary. The matter is fully submitted and ready for decision.
III. SUBJECT MATTER JURISDICTION
The court has diversity jurisdiction over the claims because complete diversity exists between the parties and NABX alleges that the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332(a)(1) ("The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000 ... and is between ... citizens of different States.").
IV. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a). "Summary judgment is proper ‘if the pleadings, the discovery and disclosure materials on file, and any affidavits show’ " an absence of a genuine dispute as to a material fact. Hilde v. City of Eveleth , 777 F.3d 998, 1003 (8th Cir. 2015) (quoting Torgerson v. City of Rochester , 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc)). "A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party; a fact is material if its resolution affects the outcome of the case." Massey-Diez v. Univ. of Iowa Cmty. Med. Servs., Inc. , 826 F.3d 1149, 1157 (8th Cir. 2016) (quoting Gazal v. Boehringer Ingelheim Pharm., Inc. , 647 F.3d 833, 837-38 (8th Cir. 2011) ). "The movant ‘bears the initial responsibility of informing the district court of the basis for its motion,’ and must identify ‘those portions of [the record] ... which it believes demonstrate the absence of a genuine issue of material fact.’ " Torgerson , 643 F.3d at 1042 (alterations in original) (quoting Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). Once the movant has done so, "the nonmovant must respond by submitting evidentiary materials that set out ‘specific facts showing that there is a genuine issue for trial.’ " Id. (quoting Celotex Corp. , 477 U.S. at 324, 106 S.Ct. 2548 ).
On a motion for summary judgment, the court must view the facts "in the light most favorable to the nonmoving party." Id. (quoting Ricci v. DeStefano , 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009) ). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial," and summary judgment is appropriate. Ricci , 557 U.S. at 586, 129 S.Ct. 2658 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). "The nonmovant ‘must do more than simply show that there is some metaphysical doubt as to the material facts....’ " Torgerson , 643 F.3d at 1042 (quoting Matsushita , 475 U.S. at 586, 106 S.Ct. 1348 ). Instead, "[t]o survive a motion for summary judgment, the nonmoving party must substantiate [its] allegations with sufficient probative evidence [that] would permit a finding in [its] favor based on more than mere speculation, conjecture, or fantasy." Williams v. Mannis , 889 F.3d 926, 931 (8th Cir. 2018) (third alteration in original) (quoting Barber v. C1 Truck Driver Training, LLC , 656 F.3d 782, 801 (8th Cir. 2011) ). Mere "self-serving allegations and denials are insufficient to create a genuine issue of material fact." Anuforo v. Comm'r of Internal Revenue , 614 F.3d 799, 807 (8th Cir. 2010). "Evidence, not contentions, avoids summary judgment." Reasonover v. St. Louis Cty. , 447 F.3d 569, 578 (8th Cir. 2006) (quoting Mayer v. Nextel W. Corp. , 318 F.3d 803, 809 (8th Cir. 2003) ).
V. RELEVANT FACTUAL BACKGROUND
Viewing the evidence in the light most favorable to the nonmoving party, and allowing them all reasonable inferences, the uncontested material facts are as follows.
A. Parties
NABX is a North Dakota limited liability company with its principal place of business in North Dakota. Complaint ¶ 2. CC Trading is a Wisconsin limited liability company with its principal place of business in Wisconsin. Id. ¶ 3. Christensen is a Wisconsin resident and is the sole member of CC Trading, serving all roles as governor, manager and officer of the limited liability company. Id. ¶¶ 4-5.
B. Overview of the Dispute
Both NABX and CC Trading are in the business of buying and selling bullion product. "Memorandum in Support of Defendants' Motion for Partial Summary Judgment" ("Defendants' Brief") (docket no. 22) at 3, ¶¶ 3, 5; "Memorandum of Law in Opposition to Defendants' Motion for Partial Summary Judgment" ("NABX's Brief") (docket no. 24) at 1. In January 2016, CC Trading opened a trading account with NABX and the parties began transacting business with each other. Complaint ¶ 11; Defendants' Brief at 3, ¶ 10; NABX's Brief at 1. During the parties' trading relationship, NABX bought bullion product from CC Trading, and also sold bullion product to CC Trading. Defendants' Brief at 3, ¶ 11; NABX's Brief at 1. NABX and CC Trading did not have a written contract specifying the terms and conditions of CC Trading's account with NABX. Defendants' Brief at 3, ¶ 12; NABX's Brief at 1. Instead, the trading relationship between NABX and CC Trading involved both parties purching and selling bullion product with each other on a transaction-by-transaction basis. Defendants' Brief at 3, ¶ 13; NABX's Brief at 1. When CC Trading started buying and selling bullion product with NABX, the transactions were in relatively small dollar amounts. Complaint ¶ 17; NABX's Brief at 2. Over time, however, the transaction amounts increased greatly. Id. In May 2017, NABX terminated its trading relationship with CC Trading. Defendants' Brief at 4, ¶ 17; NABX's Brief at 2.
VI. ANALYSIS
A. NABX's Conversion Claim and Unjust Enrichment Claim
1. Parties' arguments
CC Trading argues that they it is entitled to summary judgment on NABX's conversion claim because "the tort of conversion is not available to [NABX]." Defendants' Brief at 5. Specifically, CC Trading argues that, "[w]hile CC Trading's alleged failure to deliver the bullion product NABX purchased from CC Trading may constitute a breach of contract, it cannot alone constitute the tort of conversion because the obligation to deliver bullion [product] to NABX arises under the parties' contracts and is not a duty that exists independent of those contracts." Id. at 7.
Similarly, CC Trading argues that it is entitled to summary judgment on NABX's unjust enrichment claim because "[i]t is black-letter North Dakota law that a party cannot maintain a cause of action for unjust enrichment in the presence of an express contract," and NABX "has brought a cause of action for breach of contract against CC Trading, alleging CC Trading has breached its contractual obligations by failing to deliver bullion [product] it agreed to sell to NABX." Defendants' Brief at 8-9.
As to the conversion claim, in response, NABX argues that its "right to payment under contracts with CC Trading exists independently of [its] right to recover damages from CC Trading for wrongful detention, deprivation, and disposal of the funds and bullion [product it] provided to CC Trading." NABX's Brief at 4. Further NABX argues that "CC Trading not only breached its contracts with NABX, but [CC Trading] has taken the property of NABX, deprived NABX of its use, and used it for CC Trading's own purposes." Id. at 5. NABX maintains that [t]his deprivation is the essence of conversion and independent of any contract claim." Id.
As to both the conversion claim and unjust enrichment claim, NABX notes that "[t]he sole argument advanced by [CC Trading] as it relates to NABX's conversion and unjust enrichment theories is that they are inconsistent with the existence of a valid contractual agreement between the parties." Id. at 6. Relying on Federal Rule of Civil Procedure 8(d)(2), NABX asserts that, even if the claims of breach of contract, conversion and unjust enrichment are inconsistent, NABX is not precluded from advancing alternative claims/theories to trial "because there is a dispute as to whether any contracts ever existed." Id. NABX concludes that, "[b]ecause [it] is entitled to argue alternative, inconsistent theories at trial, summary judgment is improper as to [its] conversion and unjust enrichment claims[.]" Id. at 7.
2. Applicable law
a. Conversion
Under North Dakota law, "[c]onversion consists of a tortious detention or destruction of personal property, or a wrongful exercise of dominion or control over the property inconsistent with or in defiance of the rights of the owner." Ritter, Laber & Associates, Inc. v. Koch Oil, Inc. , 680 N.W.2d 634, 638 (N.D. 2004) (collecting cases). "The gist of conversion is not in acquiring the complainant's property, but in wrongfully depriving the complainant of the property." Id. at 639. Conversion claims "may arise under the same facts as claims for breach of contract." Id. ; see also OBO, Inc. v. Continental Res., Inc. , 2005 WL 3333262, at *5 (D.N.D. Dec. 5, 2005) ("A claim for conversion may arise under the same facts as a claim for breach of contract."). Citing a Fifth Circuit Court of Appeals case, the North Dakota Supreme Court described the interplay between breach of contract claims and conversion claims as follows:
If the defendant's conduct—such as negligently burning down a house—would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff's claim may also sound in tort. Conversely, if the defendant's conduct—such as failing to publish an advertisement—would give rise to liability only because it breaches the parties' agreement, the plaintiff's claim ordinarily sounds only in contract.
Ritter , 680 N.W.2d at 641 (quoting Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Care Flight Air Ambulance Serv., Inc. , 18 F.3d 323, 326 (5th Cir. 1994) ). In other words, in order to sustain its conversion claim, a plaintiff "must demonstrate that the alleged tortious conduct existed independently of the alleged breach of contract." Doe v. Southwest Grain , 309 F.Supp.2d 1119, 1122 (D.N.D. 2004). Further, a plaintiff "must present additional, independent facts not connected to the manner of the breach of contract to support the tort claims." Id.
b. Unjust Enrichment
Under North Dakota law, "[u]njust enrichment is an equitable doctrine based upon a quasi or constructive contract implied by law to prevent a person from being unjustly enriched at the expense of another." Ritter , 680 N.W.2d at 642. In order for a plaintiff to recover under a theory of unjust enrichment, he or she 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." McColl Farms, LLC v. Pflaum , 837 N.W.2d 359, 367 (N.D. 2013). "The doctrine of unjust enrichment may be invoked ‘when a person has and retains money or benefits which in justice and equity belong to another.’ " Ritter , 680 N.W.2d at 642 (quoting Midland Diesel Serv. & Engine Co. v. Sivertson , 307 N.W.2d 555, 557 (N.D. 1981) ). However, the doctrine of unjust enrichment "only applies in the absence of a contract between the parties, and there can be no implied-in-law contract where there is an express contract between the parties concerning the same subject matter." OBO, Inc. , 2005 WL 3333262, at *5. In other words, if "the parties have voluntarily entered into an express written contract which defines their rights, unjust enrichment is not available." Id.
c. Rule 8(d)(2)
Fed. R. Civ. P. 8(d)(2) provides that: "A party may set out [two] or more statements of a claim ... alternatively ... either in a single count ... or in separate ones. If a party makes alternative statements, the pleading is sufficient if any one of them is sufficient." Id. Further, under Fed. R. Civ. P. 8(d)(2), "a plaintiff may plead inconsistent theories of liability, and may even argue alternative claims to a jury." McNamara v. Picken , 950 F.Supp.2d 125, 128 (D.D.C. 2013) ; see also Scott v. District of Columbia , 101 F.3d 748, 753 (D.C. Cir. 1996) (providing that, under Fed. R. Civ. P. 8(d)(2), a plaintiff "could properly plead alternative theories of liability, regardless of whether such theories were consistent with one another" and "could properly argue alternative claims to the jury"). "Until an action has actually reached the point of entering a judgment, Rule 8 allows a plaintiff to explore alternative, mutually exclusive theories." Laurence v. Atzenhoffer Chevrolet , 281 F.Supp.2d 898, 900 (S.D. Tex. 2003).
3. Application
In its Complaint, NABX alleges that "CC Trading's sales of bullion [product] to NABX created a valid and binding contract, obligating CC Trading to deliver the volume of bullion [product] purchased." Complaint ¶ 32. NABX further alleges that "CC Trading has breached its contract with NABX by failing to deliver bullion [product] it agreed to sell to NABX." Complaint ¶ 35. In the Answer, CC Trading denied the existence of a valid contract between the parties. See Answer at ¶¶ 32, 35. Further, in the brief, CC Trading asserts that "NABX and CC Trading did not have a written contract specifying the terms and conditions of CC Trading's account with NABX." Defendants' Brief at 3, ¶ 12. Moreover, at his deposition, in response to a question regarding payment arrangements between CC Trading and NABX, Christensen testified that "[t]here were no specific arrangements, there was no contract, there was no listing of each item when that item was due or the purchases. We would discuss it at times, but it was not in a contract form or in a written statement." Affidavit of Nicholas C. Grant (docket no. 23-1), Exhibit 1 at 20. Under such circumstances, the court finds that there is a genuine dispute as to the existence of a contract(s) between NABX and CC Trading.
Based on the genuine dispute related to the existence of a contract(s) between the parties, and pursuant to Fed. R. Civ. P. 8(d)(2), the court determines that NABX may plead alternative theories of liability, even if the theories are inconsistent. See McNamara , 950 F.Supp.2d at 128. Specifically, in its Complaint, NABX alleges that, in the alternative to its breach of contract claim, it is entitled to damages for conversion and unjust enrichment. See Complaint ¶ 57; see also Winmar Constr., Inc. v. Kasemir , 233 F.Supp.3d 53, 60 n.5 (D.D.C. 2017) (providing that, in a complaint that clearly states alternative claims, "any internal inconsistency between [the alternative claims] and the other counts is permitted under [Fed. R. Civ. P.] 8(d)(2)"). Therefore, CC Trading's argument that it is entitled to summary judgment on NABX's conversion and unjust enrichment claims because NABX cannot bring such claims due to inconsistencies with NABX's breach of contract claim is without merit. Further, viewing the evidence in the light most favorable to NABX, the court finds that there are genuine disputed facts as to NABX's alternative claims for conversion and unjust enrichment. Accordingly, the court finds that CC Trading is not entitled to summary judgment on NABX's conversion and unjust enrichment claims.
B. Fraud Claims
1. Fraud claims against CC Trading
a. Parties' arguments
1. Actual fraud
CC Trading argues that it is entitled to summary judgment because NABX "has failed to produce any evidence that it was induced to enter [into] contracts with CC Trading based on promises CC Trading made without any intention of performing." Defendants' Brief at 14. CC Trading asserts that "there is no genuine issue of material fact and a reasonable person could only reach the conclusion that CC Trading intended to deliver bullion that NABX purchased." Id. at 16-17.
In response, NABX argues that the following evidence shows that CC Trading "used misrepresentations intending to induce NABX into a multitude of trade deals—each their own contract": (1) CC Trading initiated the majority of the trade deals; (2) CC Trading "misled NABX to believe that [it] already had acquired the [bullion] product [it] agreed to sell [to NABX]"; and (3) CC Trading "made promises to NABX to pay for [bullion] product sent to [CC Trading] and to deliver [bullion] product to NABX in a timely manner." NABX's Brief at 13. NABX asserts that it "entered into trades with [CC Trading] in reliance on these false promises and would not have entered into the trades had it not been for these false promises." Id. at 13-14. NABX contends that there are many instances where CC Trading failed to provide NABX with bullion product that NABX ordered from CC Trading. See id. at 14. NABX also maintains that CC Trading failed to pay down an increasing balance on bullion product CC Trading ordered from NABX. Id. NABX asserts that, "as [CC Trading's] balance with NABX increased, [CC Trading] ... [made] large withdrawals from its own bank account" and made large payments to third parties. Id. NABX contends that it "would not have continued to enter into transactions with [CC Trading] had it known that [CC Trading was] making large withdrawals and writing large checks to third parties." Id. at 15.
In its Reply, CC Trading asserts that NABX "has failed to point to sufficient evidence to create a genuine issue of fact as to whether NABX was induced to enter into contracts with CC Trading based on promises made by CC Trading that it did not have any intention of performing." Reply Brief at 2-3. Specifically, CC Trading argues that its alleged failure to perform under the alleged contracts is not evidence of an inference of fraudulent intent to not perform at the time CC Trading and NABX entered into any of the contracts. See id. at 3-4. Further, relying on Plaintiff's Exhibit 3 ("Table 1") (docket no. 27-3) attached to the Affidavit of Brent J. Edison (docket no. 27), CC Trading argues that the evidence shows that it "attempted to perform consistent with its promises." Reply Brief at 5. CC Trading asserts that Table 1 shows that "NABX ‘received payment’ and ‘received product’ from CC Trading numerous times from January 2, 2016 to May 26, 2017." Id. CC Trading maintains that "[t]he fact that [it] attempted to perform consistent with its promises to deliver [bullion] product to NABX, pay NABX for [bullion] product it purchased, and pay off its balance with NABX completely undermines [NABX's] allegation that CC Trading never intended to keep its promises at the time they were made to NABX." Id.
2. Constructive fraud
CC Trading argues that it is entitled to summary judgment on NABX's constructive fraud claim because "NABX and CC Trading did not have a special relationship and conducted ... business at arm's length." Defendants' Brief at 10. CC Trading maintains that NABX "has failed to produce and cannot produce any evidence to suggest that [their] relationship ... was anything other than at arm's length." Id. at 13.
NABX responds that CC Trading did not act in good faith, and therefore, the transactions between the two parties were not at arm's length. See NABX's Brief at 9. NABX maintains that CC Trading made bad faith promises that they would deliver product that NABX purchased and would pay down balances of product that NABX sold to CC Trading. See generally id. at 9-11. NABX asserts that such "promises gave NABX trust and confidence that [CC Trading] would fulfill [its] end of [the] bargains." Id. at 11. Further, NABX contends that CC Trading used its "heavily funded position to make large cash withdrawals as well as write checks to Stacks Bowers[, a third-party,] instead of fulfilling [its] promises to NABX." Id.
b. Applicable law
1. Actual fraud
Section 9-03-08, N.D.C.C. defines "actual fraud" as follows:
Actual fraud within the meaning of this title consists in any of the following acts committed by a party to a contract, or with the party's connivance, with intent to deceive another party thereto or to induce the other party to enter into the contract:
1. The suggestion as a fact of that which is not true by one who does not believe it to be true;
2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though that person believes it to be true;
3. The suppression of that which is true by one having knowledge or belief of the fact;
4. A promise made without any intention or performing it; or
5. Any other act fitted to deceive.
Id. Under North Dakota law, "[a] tort action for fraud requires a contract between the parties; a misrepresentation of facts, suppression of facts, misleading another, or promising without an intent to perform; reliance on the false or misleading representation; and proof of actual damages proximately caused by the misrepresentation or nondisclosure." Northstar Founders, LLC v. Hayden Capital USA, LLC , 855 N.W.2d 614, 626 (N.D. 2014). "Actual fraud requires proof of intent to deceive." Anderson v. Zimbelman , 842 N.W.2d 852, 857 (N.D. 2014) ; see also Castleman v. Wells Fargo Bank, N.A. , No. 4:09-CV-47, 2010 WL 11448209, at *6 (D.N.D. Aug. 20, 2010) ("[A]ctual fraud requires either an intent to deceive a party to the contract, or an intent to induce that party to enter into the contract."); Delzer v. United Bank , 559 N.W.2d 531, 534 (N.D. 1997) (explaining that "[t]he real gist of the fraud ... is not the breach of the agreement to perform, but the fraudulent intent of the promisor and the false representation of an existing intention to perform, where such intent is in fact nonexistent") (quotation omitted)).
2. Constructive fraud
Section 9-03-09, N.D.C.C. defines "constructive fraud" as follows:
Constructive fraud consists:
1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under that person, by misleading another to the other's prejudice or the prejudice of anyone claiming under the other; or
2. In any such act or omission as the law specially declares to be fraudulent without respect to actual fraud.
Id. Constructive fraud "confronts situations where the source of the claimant's injury is the breach of an existing duty between the contracting parties." Erickson v. Erickson , 782 N.W.2d 346, 349 (N.D. 2010). "Because constructive fraud negates a party's apparent consent to the formation of a contract, the claim can succeed only if a party was misled before or while entering a contract." Id. Thus, in analyzing a claim of constructive fraud, a court must review "the circumstances leading to the formation of the contract and determin[e] if one party breached a duty—that is, they were misled, by representations of another." Id. In Clausen v. Nat'l Geographic Soc'y , 664 F.Supp.2d 1038 (D.N.D. 2009), the district court explained constructive fraud under North Dakota law as follows:
Constructive fraud is generally used to characterize a misrepresentation made without knowing it is false. [ N.D.C.C. § 9-03-09 ]. "[C]onstructive fraud arises from a breach of a duty which is owed ordinarily because of a fiduciary or confidential relationship between the parties." Land Office Co. v. Clapp-Thomssen Co. , 442 N.W.2d 401, 406 (N.D. 1989). A fiduciary or confidential relationship exists in a "business agency, professional relationship, or family tie impelling or inducing the trusting party to relax the care and vigilance ordinarily exercised. In a fiduciary relationship, the superior party has a duty to act in the dependent party's best interest." Nesvig v. Nesvig , 676 N.W.2d 73, 80 (N.D. 2004) (citations omitted). "A person's implicit faith in another's honesty and integrity is insufficient to establish a fiduciary relationship; nor does a fiduciary or confidential relationship ordinarily exist when business persons deal with other at arm's length." Land Office Co. , 442 N.W.2d at 406 (citations omitted).
Id. at 1053 (second alteration in original).
c. Application
This matter is complicated by the fact that the parties did not enter into a general contract to conduct their business trades; but instead, entered into hundreds of individual contracts on a transaction-by-transaction basis. Viewing the evidence in the light most favorable to NABX, and even though there is evidence that CC Trading paid for some bullion product it purchased from NABX and delivered some bullion product NABX purchased from CC Trading, the court finds that there are genuine disputed issues of fact with regard to whether CC Trading dealt with NABX in a fraudulent manner. NABX has provided evidence that shows that, as CC Trading's balance with NABX increased, CC Trading made large withdrawals from its own bank account to make large payments to third parties. Such evidence raises genuine issues of disputed fact regarding whether CC Trading engaged in actual and/or constructive fraud. See Exhibits 1 (docket no. 26-1) and 2 (docket no. 26-2) attached to Affidavit of Makell L. Pauling-Normandin (docket no. 26). Accordingly, the court finds that CC Trading is not entitled to summary judgment on NABX's actual and constructive fraud claims.
2. Actual and constructive fraud claims against Christensen
a. Parties' arguments
Christensen argues that he is entitled to summary judgment on NABX's actual and constructive fraud claims because NABX "has failed to allege, let alone produce any evidence, that [he] was a party to any contract with NABX." Defendants' Brief at 17. Christensen maintains that "[i]t is undisputed that the only contracts at issue in this case are those transactions between CC Trading and NABX." Id. Christensen concludes that, because he was "not a party to any contract with NABX, [NABX's] claims for actual and constructive fraud against [him] must be dismissed as a matter of law." Id. at 17-18.
Christensen also argues that he can not be personally liable for any claims because all the claims in this action arise from business transactions between CC Trading, a limited liability company, and NABX, not between himself and NABX. See Defendants' Brief at 18. Christensen claims that it is "undisputed that [he] was acting in his capacity as a member and officer of CC Trading during all business transactions and at all times relevant to the allegations brought forth by [NABX] in the [Complaint]." Id. at 18-19. Christensen notes that, "[a]t no time did [he] have an individual trading account with NABX." Id. at 19.
In response, NABX asserts that the following evidence demonstrates that "all parties intended Christensen to be a party to the contracts": (1) invoices list both CC Trading and Christensen; (2) some shipping labels for bullion product delivered to NABX listed the sender as Christensen; (3) the transactions between the parties were conducted through Christensen's cell phone or email; (4) Christensen's only bank account is in CC Trading's name; (5) Christensen's personal and business expenses all come out of the CC Trading bank account; (6) Christensen is CC Trading's only employee; and (7) CC Trading has no membership certificates, does not keep corporate books and does not keep financial statements. See NABX's Brief at 16. NABX contends that the foregoing evidence "demonstrates that, while CC Trading may have been formed as an LLC, both Christensen and NABX believed they were transacting business with Christensen in his individual capacity." Id.
b. Applicable law
Under North Dakota law, "a LLC and its members are separate and distinct entities and its members generally are not personally liable for company actions." Haugrud v. Craig , 903 N.W.2d 537, 541 (N.D. 2017). "A limited liability company is a separate business entity and its owners or members are not exposed to personal liability for the entity's debts unless there are personal guarantees." Addy v. Myers , 616 N.W.2d 359, 362 (N.D. 2000). "[O]wners and members of [a] limited liability company generally are not, merely because of that status, personally liable for a judgment, decree or order of a court, or in any other manner for a debt, obligation or liability of the company." Id. However, a member or owner of a limited liability company may be personally liable, "if the conditions and circumstances under which the corporate veil of a corporation may be pierced under North Dakota law are present." Intercept Corp. v. Calima Financial , LLC , 741 N.W.2d 209, 213 (N.D. 2007). "The corporate veil may be pierced when the legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime." Id. "[A]n element of injustice, inequity or fundamental unfairness must be present before a court may properly pierce the corporate veil." Id. (alteration in original) (quoting Jablonsky v. Klemm , 377 N.W.2d 560, 564 (N.D. 1985) ). "The burden of establishing the necessary elements for piercing the corporate veil rests on the party asserting the claim." Intercept Corp. , 741 N.W.2d at 213.
c. Application
Here, NABX did not explicitly argue that the corporate veil has been pierced, but implicitly made this argument by pointing out that: (1) Christensen's only bank account is in CC Trading's name; (2) Christensen's personal and business expenses all come out of the CC Trading bank account; and (3) CC Trading has no membership certificates, does not keep corporate books and does not keep financial statements. Further, as discussed in section VI.B.2.c of this Order, NABX has provided evidence that, as CC Trading's balances with NABX increased, CC Trading made large withdrawals from its own bank account to make large payments to third parties, which raises genuine issues of disputed fact regarding whether CC Trading engaged in actual and/or constructive fraud. See Exhibits 1 (docket no. 26-1) and 2 (docket no. 26-2) attached to Affidavit of Makell L. Pauling-Normandin (docket no. 26). Because genuine issues of disputed fact also exist regarding whether the corporate veil has been pierced, the court finds that Christensen is not entitled to summary judgment on NABX's actual and constructive fraud claims against him personally.
3. Summary
In summary, the court finds that there are genuine factual disputes precluding summary judgment on NABX's claims for conversion, unjust enrichment, actual fraud and constructive fraud against CC Trading. The court also finds that there are genuine factual disputes precluding summary judgment on NABX's claims for actual fraud and constructive fraud against Christensen personally. Accordingly, CC Trading and Christensen's motion for partial summary judgment is denied in its entirety.
To the extent that recovery under breach of contract and conversion and/or unjust enrichment are inconsistent or precluded, the parties should be prepared to address the election of remedies to these claims at the bench trial. Similarly, to the extent that recovery under contract or fraud theory precludes recovery under the other, the parties should also be prepared to address the election of remedies on these claims at the bench trial.
VII. CONCLUSION
In light of the foregoing, CC Trading and Christensen's "Motion for Partial Summary Judgment" (docket no. 21) is DENIED in its entirety.