Contract/fraud/civil conspiracy, business sale

CONTRACT/FRAUD/CIVIL CONSPIRACY: Release not obtained by undue influence, release of all claims and payment is valid accord & satisfaction discharging contractual obligations, obviating breach of contract claim… claim of fraudulent misrepresentation of health of principal, value of company, and need to sell time-barred, not tolled by close relationship of parties, constructive fraud claim similarly time-barred… no colorable claim of civil conspiracy, object (sale of company), means (transfer of assets) were lawful, claim also time-barred… 3 other Defendants not party to contract, not liable for breach… Molloy.

Landtech Corp. was an oil & gas service company with principal place of business in Sidney. Elmer Christensen was president 1983-05. John Lence was attorney 1981-8/05 and had a 25-50% equity interest. He was paid a $2,500/mo retainer, later raised to $5,000. He is senior trustee of Lence Family Trust, a Texas trust. Landtech was dissolved by the Montana SOS in 12/06. Landtech Enterprises Ltd, also an oil & gas service company, was incorporated in Montana in 1998 with its principal place of business in Sidney. Christensen and Gary Wygal each had a 50% capital percentage. From 1999-2006 Christensen and his wife were members. It was dissolved by the Montana SOS in 12/07. Landtech Ltd’s assets were sold in 12/04 to Badlands Power Fuels of North Dakota which organized a new entity in 6/05 as a single member LLC, Landtech Enterprises LLC. Assets were transferred between Landtech Ltd and Landtech LLC through 7/05. The sale totaled $3.6 million and resulted in a net profit of $2.5 million+ for Landtech Ltd. Landtech Ltd, Lence Family Trust, and Lence’s attorney James Bartlett agreed in an Acknowledgment & Assignment in 3/04 that if Landtech Ltd or its assets were sold the net would be shared 50% to Christensens and 50% to Lence Family Trust. Over the course of correspondence, Christensen represented to Lence that he was in very poor health and unable to manage the company and it would have to be sold for far less than it was worth. when it sold in 12/04 to Landtech LLC. Lence Family Trust was not notified or given its 50%. On 8/11/05 Gary Jackson, a lawyer representing Landtech Ltd, wrote Lence and Bartlett offering $100,000 in full satisfaction of the Acknowledgment & Assignment. He included a document that would release Christensens and Landtech Ltd of all past & future claims including claims arising out of the Acknowledgment & Assignment. Bartlett asked for copies of the closing documents so Lence could make an informed decision. Jackson said Lence did not own an interest in Landtech Ltd and therefore he would not receive copies of the closing documents. Lence signed the Release that day. On 8/22/05 Bartlett sent Jackson the signed release along with a letter explaining that Lence signed because he was in dire straits and needed the money for his family and attorney. On 8/25/05 Jackson sent Bartlett a check for $100,000.

Lence’s secretary Janet Hagel on 9/9/05 signed a Notice of Rescission which stated that Lence and Lence Family Trust rescind the Release of Claims and that Christensen make a reasonable offer to settle payment of the half share owed to Lence Family Trust if he wanted to avoid being sued for fraud. Accompanying the notice was a handwritten letter from Lence to Christensen: “SHAME ON YOU. I THOUGHT OF YOU LIKE A BROTHER ALL OF THESE YEARS. SHAME ON YOU, ELMER.” Christensen maintained that he “did not owe John any money.” In 2012 Lence tried to look up Christensen to determine if he had died. A dozen Bakken trade journals and the Sidney Herald contained ads for Landtech LLC, all listing Christensen as manager. Lence then concluded he had been defrauded and sued 10/5/12 alleging breach of contract, fraud, civil conspiracy, and constructive fraud. Defendants request summary judgment.

The complaint implies that the breach of contract claim is asserted against all Defendants, but only Christensen and Landtech Ltd were parties to the contract. “The obligation of the contracts is limited to the contracting parties.” Gambles (Mont. 1977). Lence Family Trust has no legal basis for its breach of contract claim against Mrs. Christensen, Landtech Corp., or Landtech LLC.

Defendants contend that a valid accord & satisfaction releases them from any obligations under the original contract. “An accord is an agreement to accept in extinction of an obligation something different from or less than that to which the person agreeing to accept is entitled. Though the parties to an accord are bound to execute it, yet it does not extinguish the obligation until it is fully executed.” MCA 28-1-1401. “Acceptance by the creditor of the consideration of an accord extinguishes the obligation and is called satisfaction.” MCA 28-1-1402. Lence (creditor) agreed to take something less than that to which he was arguably entitled and Defendants fully executed their new obligation: to pay him $100,000. The Release of All Claims is an accord and the $100,000 check Lence took is a satisfaction. “The Montana Supreme Court defines a `release’ as `nothing more than an accord and satisfaction, or, one of several ways in which an obligation, contractually, may be discharged or “settled’` for less than or for something different than what is owed.”’ Greenwald (38 MFR 28) (quoting Watters (Mont. 2000). Lence is prevented by accord & satisfaction from enforcing a breach of contract claim against Christensen and Landtech Ltd. A party to a contract may rescind only if its consent “was given by mistake or obtained through duress, menace, fraud, or undue influence exercised by or with the connivance of the party as to whom the party rescinds.” MCA 28-2-1711(1). Lence claims that his consent to the Release was obtained through undue influence. Undue influence consists of “taking a grossly oppressive and unfair advantage of another person’s necessities or distress.” MCA 28-2-407(3). “For there to be undue influence it is necessary that there be a destruction of free agency.” Baby M (Mont. 1996). Although Christensen knew of Lence’s financial situation, there is no evidence that he used this knowledge in a grossly oppressive manner or to destroy Lence’s free agency and thereby convince him to sign the Release. He cannot meet the standard for undue influence and so cannot rescind the Release on that basis. Summary judgment for Defendants on breach of contract.

Lence Family Trust argues that Christensen’s representations about his health, value of Landtech Ltd, and the need to sell were fraudulent because he knew that what he was saying was false but made the representations anyway, hoping to convince Lence to take $100,000 instead of his half share. Defendants deny the fraud accusations, but claim that in any event the claim is time-barred. The acts that constitute fraud, according to Plaintiff, occurred in 2004 when Christensen made false representations about his health and need to sell, in 12/04 when Landtech Ltd was sold and the Lence Family Trust was not notified or given its 50%, and in 8/05 when Jackson offered Lence $100,000 as consideration for a Release of all Claims but refused access to the closing documents. Lence signed off anyway. The 9/05 Notice of Rescission and accompanying letter shows that he knew or suspected by 9/05 that he had been defrauded by Christensen. Defendants argue that the statute on fraud has run, but do not specify a date on which the claim accrued. This matters little, because at least 7 years passed between the events giving rise to the fraud claim and the filing of the suit in 10/12. Lence argues that he did not learn of the falsity of Christensen’s representations about his health until 2012. Nothing in the record shows why he waited 7 years to investigate. He also argues that the statute should be tolled because “the defendant was in a position of trust or confidence with the plaintiff,” citing Skierka (Mont. 1981) (“there must be some active affirmative concealment of the fraud … in order to postpone the running of the statute … unless there is some relation of trust or confidence between the parties which imposes upon a defendant the duty of making a full disclosure of the facts.” Christensen and Lence were friends and business partners for over 25 years. Whether Christensen had a duty to disclose all the facts to Lence is irrelevant because Lence allegedly learned of the fraud on his own. He rescinded the Release, demanded his half share, and threatened to sue in 9/05, indicating that he knew of facts & circumstances giving rise to Christensen’s fraud before he discovered that Christensen had prevaricated about his health and even though Christensen may have failed to make a full disclosure of the facts surrounding the sale of Landtech Ltd. There is no circumstance that would have tolled the statute. Summary judgment for Defendants on the fraud claim.

Plaintiffs’ civil conspiracy claim is based on the allegation that Defendants “agreed by words and conduct to accomplish the unlawful goal of cheating [Lence Family Trust] of its share of the proceeds of the sale of the companies through the unlawful means of defrauding [Lence Family Trust] with misrepresentations regarding the business and Mr. Christensen’s health.” However, the object of the alleged conspiracy (sale of Landtech Ltd) was lawful, and the means used to attain that object (transfer of company assets to Landtech LLC) were lawful. Duffy (Mont. 1975); CJS Conspiracy. The transfer of assets may have been with a malicious motive, as Plaintiff asserts, but malice is not enough to transform a legal transfer of assets into an unlawful conspiracy. Thus Plaintiff does not have a colorable civil conspiracy claim. It is also barred by the 3-year statute for an action upon a liability not founded upon an instrument in writing, since the misrepresentations and transfer of assets occurred in 2004 & 2005.

Plaintiff’s constructive fraud claim is based on the argument that Christensen and the Landtech companies breached their duty to disclose all material information about the sale by misrepresenting certain material facts. Fraud can be actual or constructive, MCA 28-2-404, but both are subject to a 2-year statute, MCA 27-2-203. The statute that bars Plaintiff’s fraud claim also bars its constructive fraud claim.

Summary judgment for Defendants on all counts.

Lence Family Trust v. Christensen, Landtech Enterprises Ltd et al, 40 MFR 496, 8/20/13.

Terry Wallace, Missoula, for Lence; Doug James (Moulton Bellingham), Billings, and William Crowley & Tracey Johnson (Boone Karlberg), Missoula, for Defendants.