Paystrup v. Doman Farms Logistics, LLC et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
John James Paystrup, )
)
Plaintiff, ) ORDER DENYING DEFENDANTS’
) MOTION FOR SUMMARY
) JUDGMENT
vs. )
) Case No. 1:18-cv-050
Doman Farms Logistics, LLC, Nomarco )
Inc., and Thomas Doman, )
)
Defendants. )
______________________________________________________________________________
Before the Court is the Defendants’ motion for summary judgment filed on October 18,
2019. See Doc. No. 24. Plaintiff John James Paystrup filed a response in opposition to the motion
for summary judgment on November 8, 2019. See Doc. No. 31. The Defendants filed a reply
brief on November 20, 2019. See Doc. No. 33. The Defendants are asking the Court to dismiss
the remaining counts with prejudice. See Doc. No. 25, p. 1. For the reasons set forth below, the
Defendants’ motion for summary judgment is denied.
I. BACKGROUND
This case arises from the alleged formation of a business partnership to provide oil field
services. See Doc. No. 1-1, p.1. Plaintiff John James Paystrup (“Paystrup”) originally commenced
this action in state court, and Defendants removed the action to federal court on March 9, 2018.
See Doc. No. 1, 1-1, and 1-2. Defendant Doman Farms Logistics, LLC (“Doman Farms”) is an
Oregon limited liability company, and Defendant Nomarco, Inc. (“Nomarco”) is an Oregon
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corporation, both of which Defendant Thomas Doman (“Doman”) is the principal owner.1 See
Doc. No. 1-1, p.1.
In his original complaint, Paystrup alleged five claims: (1) declaratory action, (2) breach
of loyalty, (3) actual fraud, (4) constructive fraud, and (5) unjust enrichment. See Doc. No. 1-1,
pp. 2-4. Paystrup sought a declaration establishing a partnership between Doman and himself, as
well as claims for breach of loyalty, actual fraud, constructive fraud against Doman, and unjust
enrichment against all the Defendants. Id. On March 15, 2018, the Defendants brought a motion
to dismiss the unjust enrichment claim, and the claims of actual and constructive fraud brought
against Doman. See Doc. No. 6, p. 1. On September 7, 2018, the Court dismissed the claims of
actual and constructive fraud because Paystrup failed to satisfy the heightened pleading standard
of Rule 9. See Doc. No. 17, pp. 8-9. Paystrup’s claims for declaratory action, breach of loyalty
and unjust enrichment remain and are at the heart of Defendants’ motion for summary judgment.
See Doc. No. 24.
In 2012, Doman Farms began hauling loads of frac sand for operators in the oil fields. See
Doc. No. 27-2, p.1. Paystrup worked with Doman from 2012-2017, sometimes under the auspices
of Doman Farms. See Doc. 25, p. 2. Paystrup recruited “clients and staff, maintained vehicles
and equipment, dispatched trucks, oversaw numerous employees, and provided payroll and
invoicing services.” See Doc. No. 1-1, p. 2. In 2013, Paystrup obtained the ability to run trucks
under his own authority, but after consulting with Doman, he decided to continue running trucks
under Doman Farms’ authority. See Doc. No. 25, p. 2. In his affidavit, Paystrup stated he did not
run trucks under his own authority because Doman Farms was small at the time, and he and Doman
wanted to “build” Doman Farms. Id.
1 The Court will collectively refer to Doman Farms, Nomarco, and Doman as “Defendants.”
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Doman Farms employed independent contractors for the trucking services. Id. Many
independent contractors employed by Doman Farms were owner/operators of other trucking
entities and contracted to haul loads for Doman Farms. Id. The independent contractors were paid
on a “per-load basis, with a portion of the revenue reserved for Doman Farms.” Id. The reserved
revenue is referred to as a “Dispatch Fee.” Id. The Dispatch Fee allowed independent contractors
to receive approximately 85% of the revenue of a load, while the remaining 15% went to Doman
Farms. See Doc. No. 25, p. 2. The Defendants maintain that Paystrup was compensated through
the splitting of Dispatch Fees. See Doc. No. 26, p. 2. According to the Defendants, after Paystrup
was compensated, any remaining profit and loss flowed back to Nomarco, Doman’s construction
business. See Doc. No. 25, p. 3. The Defendants contend Paystrup has not shared in any Doman
Farms or Nomarco’s profits. Id. Paystrup contends he split the Dispatch Fee 50/50, as profits, with
Doman. See Doc. No. 31-1, p. 1.
The record demonstrates Doman and Paystrup reinvested their personal money into the
venture. See Doc. 31-1, p. 2. Paystrup stated “we were putting most of the money back into the
company.” Id. According to Paystrup, he reinvested a total of $189,000 into Doman Farms to
help with the cash flow issues in 2017. See Doc. 31-1, p. 5. Purchasing machinery and equipment
was a mutual decision; Paystrup and Doman would purchase and own the equipment 50/50. See
Doc. 31-1, p. 1. Eight of the trucks ran off Paystrup’s credit card. See Doc. No. 31-1, p. 5. The
equipment was maintained at Paystrup’s shop and Paystrup’s home was open to independent
drivers for cooking and rest. Id.
It is undisputed that a formal partnership agreement did not exist between Paystup and the
Doman. See Doc. 25, p. 3. It is also undisputed that Paystrup did not have the authority to sign
checks on behalf of the Defendants, he did not have co-ownership of Defendants’ bank accounts,
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and he did not have the authority to sign loan documents, contracts, or other written agreements.
Id. Although, Paystrup states he had access to the “company bank account” to pay credit cards.
See Doc. No. 31-1, p. 2. Paystrup admits he has never been a shareholder or officer of either
Doman Farms or Nomarco. See Doc. No. 25, p. 3. Neither a Form 1065 nor a schedule K-1,
which is a return of partnership income, was ever filed by any of the Defendants during the five-
year working relationship. Id. Nomarco gave Paystrup a Form 1099 for $200,000 in 2017. See
Doc. No. 31-1, p. 7. However, Paystrup contends the 1099 is not representative of the money he
earned nor of the money he put back into Doman Farms. See Doc. No. 31-1, p. 7. Paystrup
maintains the reason his name is not on any of the entities is because he thought Doman did not
pay taxes, and he did not want to be involved with tax fraud. See Doc. No. 31-1, p. 2. Paystrup
admitted he never had any company liability in securing funds for the working relationship in an
email to Doman. See Doc. No. 27-2.
According to Paystrup, Doman held Paystrup out as his partner and Paystrup referred to
himself as “Managing Partner” to other individuals and entities. See Doc. No. 31-1, p. 2. Prior to
2017, Doman never denied being Paystrup’s partner. Id. at p.3. In April of 2017, the Defendants
withdrew their equipment and capital from the working relationship. See Doc. No. 31-1, p. 7.
In their pending motion for summary judgment, the Defendants request the Court declare
that no partnership existed between Paystrup and Doman, and consequently Paystrup’s remaining
claims must be dismissed. The central issue before the Court is whether a partnership exists
between Paystrup and Doman.
II. STANDARD OF REVIEW
Summary judgment is appropriate when the evidence, viewed in a light most favorable to
the non-moving party, indicates no genuine issues of material fact exist and, therefore, the moving
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party is entitled to judgment as a matter of law. Davison v. City of Minneapolis, Minn., 490 F.3d
648, 654 (8th Cir. 2007); See Fed. R. Civ. P. 56(a). Summary judgment is not appropriate if there
are factual disputes that may affect the outcome of the case under the applicable substantive law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is genuine
if the evidence would allow a reasonable jury to return a verdict for the non-moving party. Id.
The Court must inquire whether the evidence presents sufficient disagreement to require
the submission of the case to a jury or whether the evidence is one-sided that one party must prevail
as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir. 2005).
The moving party bears the responsibility of informing the Court of the basis for the motion and
identifying portions of the record which demonstrate the absence of a genuine issue of material
fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011). The non-moving party
may not rely merely on allegations or denials in its own pleading; rather, its response must set out
specific facts showing a genuine issue for trial. Id.; Fed. R. civ. P. 56(c)(1). The court must
consider the substantive standard of proof when ruling on a motion for summary judgment.
Anderson, 477 U.S. at 252.
III. LEGAL DISCUSSION
As previously noted, at the heart of the Defendant’s motion is their contention a partnership
between Doman and Paystrup did not exist. Under North Dakota law, a partnership is “an
association of two or more persons to carry on as co-owners a business for profit.” N.D.C.C. §
45-13-01(19). Two persons carrying on as co-owners of a for-profit business can form a
partnership, whether or not the persons intend to. N.D.C.C. § 45-14-02(1). A partnership has
three crucial elements: “(1) an intention to be partners; (2) co-ownership of the business; and (3)
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a profit motive.” Sandvick v. Lacrosse, 2008 ND 77, ¶7, 747 N.W.2d 519. All three elements
must be present for a partnership to exist and not every business association forms a partnership.
Ziegler v. Dahl, 2005 ND 10, ¶15, 691 N.W.2d 271. Here, the parties do not dispute Paystrup and
Doman were working for a profit; therefore, the Court need not address that element. Therefore,
the Court needs only to consider whether the intent to form a partnership existed and whether there
was co-ownership of the business. “The existence of a partnership is a mixed question of law and
fact, and the ultimate determination of whether a partnership exists is a question of law.” Id., ¶11.
The burden of proving a partnership exists rests with the individual claiming the existence of a
partnership. Schlichenmayer v. Luithle, 221 N.W.2d 77, 82 (N.D. 1974).
A. INTENT
Doman contends a partnership did not exist because Paystrup and Doman lacked the
intention to form a partnership. Paystrup contends even though a formal partnership agreement
did not exist, the parties intended to form a partnership through their actions.
“One of the most important tests of whether a partnership exists between two persons is
the intent of the parties.” Ziegler, ¶14. Intent must be discerned from the evidence and can be
derived from the actions the parties. Tarnavsky v. Tarnavsky, 147 F.3d 674, 677 (8th Cir. 1998);
Gangl v. Gangl, 281 N.W.2d 574, 580 (N.D. 1979). The subjective intent of the parties is
persuasive, but not conclusive, because two individuals may inadvertently create a partnership
despite the express desire not to do so. Ziegler, ¶17. The parties “must intend to be part of a
relationship that includes the other essential elements of a partnership, and to do things that further
their co-ownership of a business of profit.” Id.; Gangl, 281 N.W.2d at 580. Intent may be found
despite the lack of a writing or oral expression evidencing an intent to form a partnership. Gangl,
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281 N.W.2d at 580. Intent can be found by filing partnership tax returns, 50/50 profit/loss
allocation, joint bank accounts and equipment, and borrowing money together. See Tarnavsky v.
Tarnavsky, 147 F.3d 674, 677 (8th Cir. 1998); Cochell, 2010 WL 11627912 at *3-4; Ziegler, ¶19;
Gangl v. Gangl, 281 N.W.2d 574, 581 (N.D. 1979).
The Court finds there are genuine issues of material fact in dispute as to whether Doman
intended to form a partnership with Paystrup. It is undisputed Paystrup did not file a partnership
tax return, co-own any bank accounts, or borrow money together. However, the way in which the
Dispatch Fees were split and how revenue was shared is unclear. Both parties agreed the Dispatch
Fee was split equally between them. However, the parties offer conflicting testimony
characterizing how the Dispatch Fees were between Paystrup and Doman, with Doman asserting
Paystrup did not share in the profits, while Paystrup asserting he did. Moreover, Doman has
asserted Paystrup has not shared in the losses of the company. However, Paystrup stated he
invested his own capital in the company to abate cash flow problems. Paystrup and Doman
purchased multiple pieces of equipment together, splitting the cost equally. The affidavit
submitted by Paystrup (Doc. No. 31-1) outlines in detail the facts which arguably support the
argument that a partnership did exist between the parties. This Court is required to view those
facts in a light most favorable to the party opposing the motion (Paystrup), and give that party all
reasonable inferences to be drawn from those facts. The Court finds that an ambiguity exists
regarding the issue of intent which creates a genuine issue of material fact, requiring denial of the
Defendants’ motion for summary judgment.
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B. CO-OWNERSHIP
The Defendants contend Paystrup did not co-own the business through his admissions of
not having authority to sign checks, lacking co-ownership of bank accounts, and not being an
officer of any of the Defendant businesses. Paystrup contends he did have co-ownership because
he managed day to day activities, shared in profits and some losses, and co-owned equipment with
Doman. See Doc. No. 31-1.
Co-ownership is defined “by the sharing of profits and losses and the power of control over
the management of the business.” Cochell v. Pokorny Chiropractic Clinic, 2010 WL 11627912 at
*3 (D.N.D. 2010) (citing Ziegler, ¶21). Control is an indispensable component of any co-
ownership analysis. Id. The existence of shared control, or the right to share control, combined
with profit sharing, is powerful evidence of the existence of a partnership. Id. (citing Gangl, 281
N.W.2d at 580; Tarnavsky, 147 F.3d at 678.).
The Court finds there are genuine issues of material fact in dispute as to whether there was
co-ownership over the business. Paystrup was running the day-to-day management of the business
by recruiting staff, maintaining company assets, dispatching trucks, and completing daily
administrative tasks. Paystrup maintains he was managing the trucking company, while Doman
was managing his construction company. Doman was often running Nomarco and let Paystrup
handle the ins and outs of the trucking company, which is why most people thought of him as
Doman’s partner. As stated above, it is disputed as to how the money from the company was
characterized; Paystrup contends he was sharing in profits from the Dispatch Fees, while Doman
contends he was not. Paystrup and Doman jointly purchased multiple pieces of equipment for the
business together, which arguably supports the view that Paystrup had some control over the
business. Because Paystrup managed the daily business and there is ambiguity regarding the
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characterization of the Dispatch Fees as a form of profit sharing, the Court finds a genuine issue
of material fact exists which requires denial of the Defendants’ motion for summary judgment at
this stage. Further, the affidavit of Paystrup (Doc. No. 31-1) outlines in detail facts, which if
viewed in a light most favorable to Paystrup, clearly create a multitude of genuine issues of
material fact for a jury to resolve at trial.
IV. CONCLUSION
The Court has carefully reviewed the entire record, the parties’ briefs, and relevant case
law. When the facts before the Court are viewed in a light most favorable to the party opposing
the motion (Paystrup); and he is given the benefit of all favorable inferences to be drawn from
those facts; there are genuine issues of material fact in dispute as to the issues of the intent of the
parties and co-ownership of the business. For the reasons set forth above, the Defendants’ motion
for summary judgment (Doc. No. 24) is DENIED.
IT IS SO ORDERED
Dated this 6th day of March, 2020.
/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court
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