IN THE SUPREME COURT
STATE OF NORTH DAKOTA
|Rex Niles, Lloyd Lester and Kyle Dragseth,|
|Supreme Ct. No. 20120294|
|McKenzie Co. No. 27-11-C-33|
BRIEF OF APPELLANT
APPEAL FROM THE MCKENZIE COUNTY DISTRICT COURT JUDGMENT DATED MAY 21, 2012
THE HONORABLE DAVID W. NELSON PRESIDING
|Dean J. Haas|
|Larson Latham Huettl LLP|
|PO Box 2056, Suite 450|
|Bismarck, ND 58502-2056|
|Phone No. (701) 223-5300|
|BAR ID No.: 04032|
|Attorney for Defendant/Appellant|
|TABLE OF CONTENTS|
|Table of Authorities|
|Statement of the Issues|
|Statement of the Case|
|Statement of Facts|
|Law and Argument|
|I.||The Statute of Frauds Bars this Action||15|
|II.||The Court erred, in failing to allow Defendant opportunity to amend|
|The answer to allege the Statute of Limitations as an affirmative|
|Certificate of Compliance|
|Table of Authorities|
|Anderson v. Mooney|
|279 N.W.2d 423, 426-27 (N.D. 1979) 18|
|Estate of Thompson|
|2008 ND 144, ¶ 12-13, 752 N.W.2d 62418, 19|
|EVI Columbus, LLC v. Lamb|
|2012 ND 141, 818 N.W.2d 72433, 34, 35|
|Fladeland v. Gudbranson|
|2004 ND 118, ¶ 8, ¶ 9, ¶ 11, ¶ 14, 681 N.W.2d 431 15, 18, 25, 26, 27, 29|
|Grandbois & Grandbois, Inc. v. City of Watford City|
|2004 ND 162, ¶ 11, 685 N.W.2d 12932|
|Green v. Gustafson|
|482 N.W.2d 842, 848 (N.D. 1992)15, 17|
|Johnson Farms v. McEnroe|
|1997 ND 179, ¶ 19, 568 N.W.2d 92016, 17|
|Parceluk v. Knudston|
|139 N.W.2d 864, 871 (N.D. 1966)16|
|Riverwood Commercial Park, LLC v. Standard Oil Co., Inc.|
|2011 ND 95, 797 N.W.2d 770 21|
|Robar v. Ellingson|
|301 N.W.2d 653, 661 (N.D. 1981) 18|
|Wild Rice River Estates, Inc. v. City of Fargo|
|2005 ND 193, ¶ 13, 705 N.W.2d 850, 854 23|
|N.D.C.C. § 9-06-04(3)|
|N.D.C.C. § 47-10-01|
 Whether the District Court erred in failing to apply the Statute of Frauds to bar a claim seeking declaratory judgment that Plaintiffs had acquired an easement pursuant to an oral agreement, where the oral agreement could be interpreted as grant of an easement or a license.
 Whether the District Court erred in denying Defendant's motion leave to amend her Answer to include the Statute of Limitations as an affirmative defense.
Statement of the Case
 The Plaintiffs, Rex Niles, Lloyd Lester, and Kyle Dragseth, filed a Summons and Complaint on January 26, 2011, seeking declaratory judgment that they had acquired an easement across the Defendant's land to access an artesian well on the Defendant's property. (Appendix 4). After Mr. Eldridge was stricken from the Complaint because he is not an owner of the land, Defendant Joan Eldridge filed an Answer on April 1, 2011, asserting the Statute of Frauds as an affirmative defense, as there is no written conveyance of an easement that runs with the land. (Appendix 14).
 Eldridge sought discovery, and made a motion to compel discovery on October 3, 2011, (Docket Entry at 11), which the Court declined to grant by virtue of its inaction on the motion. On February 10, 2012, Eldridge moved for judgment on the pleadings on the grounds that the alleged easement was barred by the Statute of Frauds. (Docket Entry at 13).
 On February 21, 2012, Eldridge filed a supplemental motion and brief for judgment on the pleadings, asserting that the action was also barred by the Statute of Limitations. (See Defendant's February 21, 2012, Supplemental Brief in Support of Motion for Judgment on the Pleadings, at Docket Entry 15). As grounds to amend late, Eldridge explained that it was only in discovery that she learned that Plaintiff Lester claimed to have entered into an oral agreement creating the easement in March 1981, and Plaintiff Niles alleged the agreement was made in July 1992, while Plaintiff Dragseth was not alleging any oral agreement existed. (See id., at p. 2) In connection with that motion, Eldridge filed the Amended Answer on February 23, 2012, asserting the Statute of Limitations as an affirmative defense. (Appendix 20). The Court did not enter a decision on the motions, but held to the trial date on April 9, 2012.
 The District Court found that the Plaintiff's payments to Defendant's predecessor in interest toward completion of the well and pipeline project removed the transaction from the Statute of Frauds. (Appendix 25-29) In finding that the parties intended to create an easement running with the land, the Court did not address the Defendant's contention that the oral agreement could just as easily have been construed instead as a license. (Appendix 29). Defendant takes an appeal to this Honorable Court. (Appendix 34).
Statement of the Facts
 The Plaintiffs and Defendant are contiguous landowners in McKenzie County. (Appendix 25, Findings of Fact 1-3). The Defendant, Joan Eldridge, acquired the land from her father, Herman Johnson, in approximately 1985. (Appendix 26, Finding of Fact 10). An artesian well is located on Joan Eldridge's property, and a pipeline crosses her land to provide water to the Plaintiffs. (Appendix 25, Finding of Fact 4).
 Herman Johnson and the Plaintiffs Lloyd Lester and Karl Langwald (predecessor in interest to the land owned by plaintiff Kyle Dragseth), entered into an oral agreement to drill a well and provide water to their respective properties. (Appendix 26, Finding of Fact 5). A single common well was drilled in May, 1981, on the land now owned by Eldridge, and paid for by Eldridge's father, Mr. Lester, and Mr. Langwald. (Appendix 26, Finding of Fact 6). A single pipeline was built to take water to the properties owned by Lester and Langwald, while another pipeline served the Eldridge land. (Appendix 26, Finding of Fact 7). These initial three parties shared the cost of the well and the pipelines. (Appendix 26, Finding of Fact 8).
 The parties did not discuss whether the oral agreement was intended to grant an easement or a license to use water. Plaintiff Lloyd Lester testified:
Q. My question was, was there any discussions concerning the ownership of that water well between the four of you?
A. No, there wasn't.
Q. So, if I understand your testimony, Mr. Lester, Herman Johnson never agreed to give you an easement across his property for access to the artesian well on those lands?
A. No, he never.
(Appendix 36, transcript at p. 36-37).
 Plaintiff Rex Niles testified:
Q. When you asked Paul [Eldridge] about putting the underground pipeline in, did you ask about getting an easement from Joan [Eldridge] at that time?
A. No, I didn't.
Q. Did you pay either Joan or Paul anything for damages to their land when you installed that pipeline?
A. No, I didn't.
(Appendix at 38, Transcript at p. 60)
 Plaintiff Kyle Dragseth acknowledged that there was no written agreement showing he had an ownership interest in the well itself, or an easement:
Q. Did the well come with the ownership of the property?
A. I have nothing in writing. I just assumed I could continue to use it.
(Appendix at 39, Transcript p. 66)
 At some point, Eldridge sold a portion of her land to Plaintiff Rex Niles. (Appendix 26, Finding of Fact 11). Mr. Niles subsequently paid about $2,700.00 as contribution toward the initial cost of drilling for the well, which monies were split equally among Eldridge, Lester, and Langwald. (Appendix 26, Finding of Fact 13). Niles paid the cost of extending the pipeline across Eldridge's property to the land he purchased. (Appendix 26, Finding of Fact 14). As before, there is no written agreement granting Niles an easement. (See Appendix 27, Conclusion of Law 2, concluding that the agreement is oral).
 In reply to Eldridge's motion for judgment on the pleadings that the Statute of Frauds bars the claim, Plaintiffs argued that valuable, substantial, and permanent improvements may be considered part performance, removing an oral contract from the Statute of Frauds. (See Plaintiff's February 13, 2012, Trial Brief, Docket Entry 14). Defendant has always contended that the oral agreement is also consistent with a license. (See Defendant's February 10, 2012, Motion for Judgment on the Pleadings, Docket Entry 13, at p. 4; see also Defendant's March 23, 2012, Response to Plaintiff's Motion for Summary Judgment, Docket Entry 21, at p. 4).
 Without discussion of the competing theories whether the oral agreement is a license or an easement, the District Court concluded that, despite the lack of a written agreement, the Plaintiff's monetary contributions toward drilling the well and placing the pipeline must be construed as creation of an ownership interest in the well and an easement across Eldridge's property that runs with the land. (Appendix 27, Conclusions of Law 3-6).
Law and Argument
I. The Statute of Frauds Bars this Action.
 N.D.C.C. § 9-06-04(3) requires that land transactions must generally be evidenced by a writing. In the absence of a written contract or agreement, N.D.C.C. § 47-10-01 allows a "court to compel the specific performance of any agreement for the sale of real property in case of part performance thereof." Fladeland v. Gudbranson, 2004 ND 118, ¶ 8, 681 N.W.2d 431 (citations omitted). Valuable, substantial, and permanent improvements may be considered part performance, removing an oral contract from the statute of frauds. Id., citing Green v. Gustafson, 482 N.W.2d 842, 848 (N.D.1992).
 The Trial Court here ostensibly concluded that the Plaintiffs had purchased an interest in the well and an easement running with the land, merely because they contributed toward the costs of drilling the well and placing the pipeline. This cost-sharing, the District Court ruled, constitutes partial performance of an oral agreement, removing the agreement from the Statute of Frauds. But this Court has noted that "mere payment of money consideration by the buyer generally is not sufficient for enforcing an oral contract to convey land." Parceluk v. Knudston, 139 N.W.2d 864, 871 (N.D. 1966). Generally, the payment must also be accompanied by taking possession of the property, or making valuable improvements, for these are more indicative of transfer of ownership. Johnson Farms v. McEnroe, 1997 ND 179, ¶ 19, 568 N.W.2d 920.
 The Trial Court here thus failed to acknowledge that "[t]he most important question is whether the part performance is consistent only with the existence of the alleged oral contract." Green, 482 N.W.2d at 848, citing Johnson Farms, 1997 ND at ¶ 19. (Emphasis added). In this case, the question is whether this cost-sharing could possibly be consistent with grant of a license, rather than an easement running with the land.
 This Court had held that the evidence must be "clear and unequivocal" to remove an oral agreement from the Statute of Frauds. In re Estate of Thompson, 2008 ND 144, ¶ 12-13, 752 N.W.2d 624; Anderson v. Mooney, 279 N.W.2d 423, 42627 (N.D.1979). "If the improvements indicate some other relationship, such as landlord and tenant, or can be accounted for through the application of some other hypothesis, they are not sufficient" to constitute part performance removing the contract from the statute of frauds. Fladeland, ¶ 8, citing Robar v. Ellingson, 301 N.W.2d 653, 661 (N.D. 1981). The improvements must "unmistakably" point to the existence of the claimed agreement. Id. ¶ 11. Thus, if the oral agreement is consistent with any other relationship or can be accounted through any other hypothesis, part performance cannot be deemed sufficient to remove the agreement from the Statute of Frauds.
 The District Court here did not discuss whether the oral agreement can only be construed as an easement permanently running with the land--and could not possibly be construed as a license. But the evidence is far from clear and unequivocal. The Court appears to have assumed that the preponderance of evidence standard applies in determining whether the Plaintiffs acquired an easement or a license. But this Court has held that a mere preponderance of evidence is not sufficient:
As evidenced by the test required in this state to successfully assert part performance, the court's overriding concern is precisely directed toward and concerned with a quantum of proof certain enough to remove doubts as to the parties' oral agreement:
The first requirement of the doctrine that part performance of an oral contract exempts it from the provisions of the statute of frauds is that the contract be proven by evidence that is clear and unequivocal and which leaves no doubt as to the terms, character, and existence of the contract.
A mere preponderance of the evidence is not sufficient. If the evidence leaves it at all doubtful as to whether or not a contract was entered into, the court will not decree specific performance.
Another requirement of the doctrine is that the acts relied upon as constituting part performance must unmistakably point to the existence of the claimed agreement. If they point to some other relationship, such as that of landlord and tenant, or may be accounted for on some other hypothesis, they are not sufficient.
Estate of Thompson, 2008 ND 144, ¶ 13, 752 N.W.2d 624 (citations and internal punctuation omitted).
 What clearly happened here is that neighbors came together to share the cost of drilling a well; they did not discuss making a legal conveyance of any permanent rights that ran with the land. Plaintiff Lester admitted that no such discussion ever took place. (Appendix 36). Plaintiff Niles did not raise the issue (Appendix 38), and Plaintiff Dragseth simply assumed he could continue to use the water that ran to his home. (Appendix 39). The payment or partial performance here does not "unmistakably point to the existence of the claimed agreement" of an easement. Estate of Thompson, ¶ 13.
 If any evidence whatsoever points to existence of a license rather than an easement, then the payment and oral agreement cannot be used to escape the Statute of Frauds. In Riverwood Commercial Park, LLC v. Standard Oil Co., Inc., 2011 ND 95, 797 N.W.2d 770, the Court cited the restatement of Property for distinguishing licenses from easements:
Comment h to Restatement (Third) of Property § 2.2 (2000), which addresses "Intent to Create a Servitude," explains:
h. Was a servitude or license intended? The principal difference between a servitude and a license is that a license is revocable at will. An easement or profit, by contrast, is normally irrevocable. Easements and profits can be revoked only if the right to revoke is expressly reserved and properly exercised. Several factors may be important in determining whether a license or a servitude was intended.
Payment of consideration and use of formality appropriate to a land transaction usually indicate that the parties intended a servitude. Lack of formality or words of conveyance, and lack of consideration, tend to indicate that a license was intended. The existence of a close personal relationship between the parties may buttress the conclusion that a license was intended.
If an investment by the grantee is contemplated by the parties, at the time the permission to use the grantor's land is sought, the extent to which the value of that investment is related to the permission to use the grantor's land is a significant factor in determining the parties' intent. The greater the extent to which the value of the investment is dependent on permanence of the right to use the grantor's land, the more likely it is that the parties intended to create a servitude. The fact that the permission was given as part of the inducement to the grantee to purchase the benefitted land from the grantor strongly indicates that a servitude was intended. Subsequent acts of the grantee in improving either the claimed easement or the dominant estate may also provide significant evidence of the intent of the parties. The fact that the expenditure of labor or funds on the improvements would have been unreasonable if permission to use the grantor's property could be revoked at will suggests that the parties intended to create a servitude.
Riverwood Commercial Park, LLC v. Standard Oil Co., Inc., 2011 ND 95, ¶ 9.
 Here, the Plaintiffs have not made a significant financial investment as though to purchase an interest on the well on the Defendant's property with an easement running with the land. They have merely defrayed a portion of the Defendant's cost of drilling the well, and have borne their own costs for their own pipeline construction. The value of the water, and avoiding any physical presence of a well on the Plaintiffs land, account for these minimal payments under a license agreement. Only the Defendant's land is burdened by the well, and the minimal benefit the Defendant received was a reduction in the costs through cost-sharing.
 Asked by his own counsel, "So, you have got a fair amount of money invested in the pipeline and well, don't you?," Lloyd Lester said, "We have no money invested other than the cost of putting it in. There was nothing for an easement or anything." (Appendix at 35, Transcript at 31). Similarly, Plaintiff Rex Niles admitted that he had not paid any money for damages to the Eldridge land to install the pipeline. (Appendix at 38, Transcript at 60). If an easement had been granted, surely the value would be greater. In takings litigation, for example, value is certainly attached to physical invasion of the property. See e.g., Wild Rice River Estates, Inc. v. City of Fargo, 2005 ND 193, ¶ 13, 705 N.W.2d 850, 854.
 Moreover, the Plaintiffs themselves testified that no formal words of conveyance of a permanent easement running with the land were used. (See supra, Statement of Facts ¶¶ 9-11). The agreement does not unmistakably prove existence of an easement. The trial Court erred in failing to address the quantum of proof borne by Plaintiffs to establish that the parties could only have intended to transfer an ownership interest, and not a license. The trial Court wholly failed to address that there is indeed an alternative hypothesis that a license was created.
 In Fladeland v. Gudbranson, 2004 ND 118, ¶ 9, 681 N.W.2d 431, the Court reversed the trial court's determination that the Statute of Frauds did not apply due to partial performance because the oral agreement was not only consistent with a sale of property, but might could also be consistent with a lease. The Fladeland trial court had found that several pieces of evidence removed the alleged oral contract from the statute of frauds, including that the Plaintiffs: (1) made regular payments; (2) took physical possession of the property as they resided on it; (3) made substantial improvements to the property; (4) paid for insurance coverage for their activities on the property; and, (5) obliged themselves to reimburse the Defendant for property taxes the Defendant paid. Id. ¶ 9. This Court noted that making payments and taking of possession are consistent with both lease agreements and sales contracts. Id. ¶ 10. Similarly, the Court noted that a payment of insurance (id ¶ 10), and property tax does not prove the existence of a sales agreement rather than a lease. Id. ¶ 13.
 As to improvements, according to the Court, the Fladelands relied on the following improvements to remove the alleged oral contract from the Statute of Frauds:
(a) a tack room and pens, with a cement floor;
(b) a well with a 3/4 HP sump pump and two (2) pressure tanks;
(c) a deck, a new sewer line and a new water line for Troy Fladeland's mobile home;
(d) a new water line, a cement pad and an automatic waterer for the pole barn;
(e) a new water hydrant in the wood-frame barn, a new electric motor in the pump house and a new Ritchie automatic waterer in the corral;
(f) a 250 windbreak constructed out of lumber purchased by Fladelands;
(g) paint purchased by Fladelands and used by them to paint the house, quonset, bunk house and barn;
(h) a coal furnace in the garage;
(i) new shingles purchased by Fladelands and used by them to re-shingle the roof of the house;
(j) a 20 cattle guard, along with several steel gates;
(k) improvements made to the interior of the house, including: a new door in the bathroom; wallpapering; ceiling fans and painting;
( l ) a new sewer stack for the house;
(m) installation of waterways;
(n) 110 acres of land seeded to alfalfa;
( o) a large number of trees planted by Fladelands, and fencing constructed to protect the same;
(p) installation of water tanks (and pumps);
(q) construction of a 150 X 275 roping arena;
(r) posts, wire, planks and any other lumber and fencing supplies used to construct and maintain fences on the property; and,
(s) money expended on blading and re-building roads.
Fladeland v. Gudbranson, 2004 ND 118, ¶ 11.
 Nevertheless, the Fladeland Court held that these many improvements are not consistent only with an oral contract to purchase land, but are also "consistent with a lease without an option to purchase." Id., ¶ 12. The Court further noted that two of the improvements only benefit the Fladelands' rodeo activities. Id.
 In contrast to the long list of improvements made by the Fladelands, the Plaintiffs made less significant improvements. Rather, Plaintiffs have simply contributed toward the actual costs of drilling the well, and installed the pipelines on their own properties. Inexplicably, the trial Court decided that this cost-sharing is only consistent with purchase of an easement permanently running with the land.
 As in Fladeland, bearing one's own costs and making some improvements to property does not clearly, unequivocally, and unmistakably, prove a conveyance of an interest in land was intended to remove the oral agreement from the Statute of Frauds. The Court said:
The alleged oral contract is not removed from the statute of frauds because there was not partial performance consistent only with the existence of the alleged contract. This situation is precisely the type of conflict sought to be avoided by the statute of frauds, and we are left with a definite and firm conviction the trial court erred in determining the alleged oral contract is removed from the statute of frauds.
Fladeland, 2004 ND at ¶ 14 (emphasis added).
 For the same reason the Court reversed the District Court judgment requiring a conveyance of the ranch to the Fladelands, the Court should reverse the order of the Court here requiring Defendant to convey to Plaintiffs a permanent easement running with the land. The very purpose of the Statute of Frauds--to evince clear transfer of an ownership interest in land--is defeated if an oral agreement to share costs is construed as the conveyance of a property right.
II. The Court erred, in failing to allow Defendant opportunity to amend the answer to allege the Statute of Limitations as an affirmative defense.
 The Complaint in this matter did not allege the date of the alleged oral agreement that supposedly created the easement in this case. (Appendix 4). Through discovery, Defendant learned that Plaintiff Lester claimed to have entered into an oral agreement creating the easement in March 1981, and that Plaintiff Niles alleged the oral agreement was made in July 1992, while Plaintiff Dragseth was not alleging any oral agreement existed. (See Docket Entry 15). Eldridge advised the District Court that this late discovery that Plaintiffs had sat on their claims for years before bringing an action, required leave be granted to amend her answer to include the Statute of Limitations as a defense. (See Defendant's March 23, 2012, Response Brief at Docket entry 21, p. 2-3.) Id. The Court declined to issue a ruling, but denied leave to amend the Answer through inaction.
 Under N.D.R.Civ.P. 15(a)(2), a party may amend their pleading "with the opposing party's written consent or the court's leave," and the trial court's "[l]eave shall be freely given when justice so requires." When deciding matters related to "amending pleadings after the time for an amendment as a matter of course has passed[,]" trial courts have "wide discretion." Grandbois & Grandbois, Inc. v. City of Watford City, 2004 ND 162, ¶ 11, 685 N.W.2d 129. The Court "will not reverse a trial court's grant or denial of a motion to amend absent an abuse of discretion." Id.
 For example, in EVI Columbus, LLC v. Lamb, 2012 ND 141, 818 N.W.2d 724, the Court upheld the trial court's refusal to allow amendment of the answer, where the motion to amend the answer was made late in the process. In Lamb, the Plaintiff EVI moved for summary judgment on March 21, 2011, filed an "Amended Pleading: Counterclaim" on April 18, 2011, and moved the court for permission to amend the answer to include a counterclaim on July 1, 2011, less than two weeks before the trial court ruled on the matter, when it granted the Plaintiff's motion for summary judgment on July 13, 2011.
 On September 2, 2011, Defendant Lamb again moved the trial Court for permission to amend their answer and assert a counterclaim, which the Court denied as untimely on October 26, 2011. On appeal, this Court noted the lateness of the filings: the discovery deadline had been set for June 30, 2011, and August 31, 2011, as the date for trial. The Court noted that the record showed that Defendants "were aware of the facts relating to their proposed counterclaims as early as October 2010," thus the "record supports the trial court's finding that the proposed counterclaims were not based on newly discovered evidence." Id., ¶ 11 (Emphasis added). Moreover, "the record also indicates that delay would prejudice [Plaintiff] because the order for summary judgment only provides the equitable relief of cancellation of the contract for deed, and, until the judgment is entered and the redemption period has run, the [Defendants] will continue to live in the property without making payments, and [Plaintiff] cannot recover those payments." (Emphasis added).
 In contrast, Eldridge did not discover the facts to ground her Statute of Limitations defense until discovery was had. She delayed somewhat in moving to amend her Answer, as she first sought an order to compel discovery. But most crucially, unlike in Lamb, the Plaintiffs here would not have been actually prejudiced if Defendant had been granted leave to amend her Answer to include a Statute of Limitations defense. The District Court could have held to the trial date, and considered both defenses as it rendered Judgment. Thus, the Court erred in failing to allow Defendant to assert the Statute of Limitations defense.
 For the reasons above stated, the Court should reverse the judgment of the District Court.
|Respectfully submitted this 15th day of October, 2012.|
|LARSON LATHAM HUETTL LLP|
|Attorneys for Defendant/Appellant|
|521 East Main Ave., Suite 450|
|P.O. Box 2056|
|Bismarck, ND 58502-2056|
|Phone: (701) 223-5300|
|Fax: (701) 223-5366|
|By: Dean J. Haas (ID 04032)|