Kortum v. Johnson

2010 ND 153, 786 N.W.2d 702, 2010 N.D. 153, 2010 N.D. LEXIS 151, 2010 WL 3222170
North Dakota Supreme Court·Decided August 17, 2010·No. No. 20090275·Published·Cited by 14 cases

Opinion

CROTHERS, Justice.

[¶ 1] Cynthia Kortum and Cynthia Kortum Enterprises, Ltd. (“Kortum”), appeal from a district court judgment dismissing their complaint and ordering Kor-tum to sell back her shares in Independent Family Doctors, Ltd., to the corporation. We affirm.

I

[¶ 2] In 2002, Cynthia Kortum, Steve Johnson, Theresa Johnson, Tracy Martin, and Michelle Radke-Hella, who were all physicians, incorporated Independent Family Doctors, Ltd., a medical clinic housing them medical practices. Each of the physicians was issued 5,000 shares in the corporation. They executed a buy-sell agreement which provided that, upon voluntary or involuntary termination of a shareholder’s employment with the corporation, the shareholder would be required to sell his or her shares back to the corporation for an amount specified in the agreement. In December 2005, Kortum’s employment with the corporation was terminated by the other shareholders. The other shareholders offered to repurchase her shares under the buy-sell agreement, but Kortum refused.

[¶ 3] Kortum sued the other shareholders and the corporation, alleging that she had been wrongfully expelled from the corporation and that the other shareholders had acted in a manner unfairly prejudicial to her and breached the fiduciary duty they owed her as a shareholder in a close corporation. See N.D.C.C. § 10-19.1-115(l)(b)(3). The other shareholders and the corporation answered and counterclaimed, denying any wrongdoing and seeking a judgment requiring Kortum to sell her shares back to the corporation in accordance with the buy-sell agreement. The case was tried to the district court, which “found that Kortum was an at-will employee” and that “[she] bargained away any rights she had to a breach of fiduciary duty claim by signing the [buy-sell] [a]greement,” which anticipated that the shareholders’ employment could be terminated. See Kortum v. Johnson, 2008 ND 154, ¶ 12, 755 N.W.2d 432. The district court concluded that the agreement provided Kortum’s remedy and that she was required to sell her shares to the corporation. Id. The district court therefore entered judgment dismissing Kortum’s complaint, awarding costs and disbursements to the other shareholders and the corporation, and ordering Kortum to sell her shares to the corporation for $1. Id.

[¶ 4] Kortum appealed, arguing she was entitled to relief under the Business Corporations Act, N.D.C.C. ch. 10-19.1, and the district court had misinterpreted the stock purchase price provisions in the buy-sell agreement. Kortum, 2008 ND 154, ¶ 13, 755 N.W.2d 432. A majority of this Court held that the other shareholders owed Kortum a fiduciary duty and that the district court had failed to make required findings on whether Kortum had a reasonable expectation of continued employment and whether the other shareholders had acted in a manner unfairly prejudicial to Kortum, entitling her to relief under N.D.C.C. § 10-19.1-115(l)(b)(3). See Kortum, at ¶¶ 41-42, 53. This Court therefore reversed and remanded for further findings of fact. See id. at ¶¶42, 53. A majority of the Court also determined that the district court had misinterpreted the share price provision of the buy-sell agreement and that Kortum was entitled to $200, not $1, for her shares if the buy-sell [704] agreement applied. The Court directed that, if the district court on remand again concluded Kortum was not entitled to relief under N.D.C.C. § 10-19.1-115(l)(b)(3), Kortum would be entitled to $200 for her 5,000 shares of stock in the corporation. Kortum, at ¶¶ 51-52.

[¶ 5] The district court held a supplemental hearing on remand and made additional findings, determining that the provisions in the buy-sell agreement reflected the parties’ reasonable expectations at the venture’s inception regarding Kortum’s expectation of continued employment or status as a shareholder; that Kortum did not have a reasonable expectation of continued employment and return on her investment; that the other shareholders had not acted in a manner unfairly prejudicial toward Kortum when she was terminated as an employee and shareholder; that there was a legitimate business purpose for terminating Kortum; and that the shareholders had not breached any fiduciary duty owed to Kortum. Judgment was entered dismissing Kortum’s complaint, ordering Kor-tum to sell her shares to the corporation for $200, and awarding costs and disbursements to the other shareholders and the corporation.

II

[¶ 6] Kortum raises numerous issues on this appeal which are premised upon her assertion that she continued to be a shareholder in the corporation after her employment was terminated in December 2005 and that she is in fact still a shareholder. Thus, she argues the district court erred in determining her status as a shareholder terminated when her employment was terminated; as a shareholder, she was entitled to request revaluation of the corporate stock after her employment was terminated; as a shareholder, she is entitled to an accounting for distribution of corporate profits; and the other shareholders have breached their fiduciary duty owed to her as a continuing shareholder.

[¶ 7] Kortum did not raise these issues and arguments in her first appeal. Kor-tum’s arguments in that case were premised upon her contention that she had a reasonable expectation of continued employment and resulting return on investment, and that the other shareholders acted in a manner unfairly prejudicial to her when they terminated her employment, thereby entitling her to damages under N.D.C.C. § 10 — 19.1—115(l)(b)(3). Although a majority of this Court agreed with Kortum that the district court had erred in concluding she had bargained away any fiduciary duty claims by signing the buy-sell agreement, see Kortum, 2008 ND 154, ¶¶ 36-37, 53, 755 N.W.2d 432, the Court limited the scope of the remand to further fact-finding on the delineated issues:

“We cannot conclude, as a matter of law, whether Kortum was entitled to relief under N.D.C.C. § 10-19.1-115. The district court did not make findings necessary to the determination of whether the Shareholders acted in a manner unfairly prejudicial to Kortum. The district court made no finding regarding whether the Shareholders breached the fiduciary duty owed Kor-tum. The district court did not make any findings regarding whether the Agreement reflects the parties’ reasonable expectations at the venture’s inception. It did not make any findings regarding whether Kortum had a reasonable expectation of continued employment and return on her investment, and, if so, whether that expectation was frustrated by the Shareholders or whether they demonstrated a legitimate business purpose for their action. The district court’s decision was induced by an erroneous view of the law which led [705] to an absence of findings on Kortum’s claims under N.D.C.C. ch. 10-19.1.”
“We, therefore, reverse and remand for further fact-finding and application of N.D.C.C. ch. 10-19.1 to Kortum’s claims.”

Kortum, at ¶¶ 41-42.

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Kortum v. Johnson, 2010 ND 153, 786 N.W.2d 702, 2010 N.D. 153, 2010 N.D. LEXIS 151, 2010 WL 3222170 (N.D. 2010).

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