Narum v. Faxx Foods Inc.3/18/1999
Appeal from the District Court for Ward County, Northwest Judicial District, the Honorable Glenn Dill III, Judge.
AFFIRMED.
[ ] Terry Narum, Bill Mackinnon, Jerry Hove, Ken Kraft, Orren Anderson, Timothy Wood, James Hatlelid, Roger Spelhaug, Charles Sprenger, and Ted Scherr appealed from a summary judgment dismissing their action against Robert D. King, Earl A. King, Terry King, James F. Ramsay, Terry DeRoche, and Jerome Schmidt for violations of the Securities Act of 1951, N.D.C.C. ch. 10-04 (Securities Act). We conclude the trial court did not err in ruling the plaintiffs' action was time barred under N.D.C.C. § 10-04-17(1), and the defendants were not equitably estopped from claiming the benefit of the one-year statute of limitations. We also conclude the court did not abuse its discretion in denying the plaintiffs' motion to amend their complaint. We therefore affirm.
I.
[ ] Faxx Foods, Inc. (Faxx), was incorporated in Minnesota by Richard A. Olsen and Roger W. Sweet in April 1991 to act as a holding company and distributor for various food preparation and distribution businesses. Olsen, Faxx's president, was looking for investors and was interested in investment opportunities in rural areas. Sweet was also president of Lochmor Investment Services, Inc. (Lochmor), a company engaged in arranging corporate acquisitions. In November 1991, Faxx hired Lochmor to assist in acquiring control of a food services corporation.
[ ] Richard Saunders of Minot was the principal owner of several food distribution companies, including Dakco Distributors, Inc. (Dakco), and its subsidiary, NoDak Distributing, Inc. (NoDak). In late 1991, Saunders contacted Sweet about Lochmor assisting him in selling NoDak. Sweet introduced Olsen to Saunders and to Terry King, Earl King, Robert King, and Terry DeRoche, who were directors of Faxx. Faxx was interested in purchasing NoDak, and in early 1992 issued a statement of intent to purchase the company for $1,083,413.
[ ] Olsen began spending time at NoDak's offices to familiarize himself with the business and learn how to increase its sales. Many officers, directors, and employees of NoDak and Dakco became interested in investing in Faxx, which needed to attract investors and lenders to finance the acquisition. On May 8, 1992, Faxx submitted to the North Dakota Securities Commissioner an application for exemption from the registration provisions of the Securities Act. The Commissioner, on May 27, 1992, approved "the use of the limited offeree exemption provided under [N.D.C.C. § 10-04-06(9)(a)] for an offering of Common Stock issued by the subject issuer to not more than 25 offerees in this State" that was effective for 12 months. Faxx was authorized to offer in North Dakota 300,000 shares of its 500,000 total shares for $1 per share. The minimum amount to be offered any one investor was 5,000 shares. All proceeds from the $300,000 offering would be used as "working capital and for acquisitions," with an estimated cost of the North Dakota offering of $1,000.
[ ] Faxx violated the terms of the limited offeree exemption. Faxx sold 505,000 shares to 24 North Dakota investors for $1 per share. Several persons purchased fewer than 5,000 shares, shares were offered and sold before the Commissioner approved the exemption, and not all of the money was used to purchase NoDak's assets or working capital. In July 1993, Saunders' attorney told several of the plaintiffs about the security law violations during a meeting. Eventually, in August 1995, the Commissioner entered into a consent agreement with Faxx and its officers and directors, agreeing that no charges would be filed and its investigation would be clo
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