Sandvick v. LaCrosse

Supreme Court of North Dakota · 2008 · Corporations

CorporationsJoint venturePartnershipFiduciary dutyOil and gas leasesjoint venturepartnershipfiduciary duty

Facts

In 1996, Sandvick, Bragg, LaCrosse, and Haughton acquired three oil and gas leases known as the Horn leases using equal shares from an Empire Oil Company JV checking account, with title held in Empire Oil Company's name. The parties' intent in acquiring the leases was to try to sell them, and testimony showed profits would have been shared if the leases were sold. About six months before the Horn leases expired, LaCrosse and Haughton alone acquired substantially identical top leases on the same acreage, also in Empire Oil Company's name, to begin when the original leases expired. They did not inform Sandvick and Bragg of that acquisition.

Issue

Whether the parties' acquisition of the Horn leases created a joint venture, and if so, whether LaCrosse and Haughton breached fiduciary duties by purchasing the top leases without informing Sandvick and Bragg. A related issue was whether the arrangement also constituted a partnership.

Rule

A joint venture exists when there is (1) contribution by the parties of money, property, time, or skill in a common undertaking, (2) a proprietary interest and right of mutual control over the engaged property, (3) an express or implied agreement to share profits, and usually losses, and (4) an express or implied contract showing a joint venture was formed. Principles of partnership law apply to joint ventures, and joint venturers owe one another a duty of loyalty, including a duty to account for benefits derived from use of venture property or appropriation of a venture opportunity and to refrain from acting adversely to the venture while it continues.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Tulsa, four geologists—Nina Patel, Owen Kerr, Luis Romero, and Dana Pike—each contributed $25,000 to buy a single three-year mineral option through Red Mesa Exploration, a company name used to hold title for the group. They planned to market the option to a larger operator and split any resale profit, but they had no ongoing enterprise beyond this transaction.

If a dispute arises over whether their arrangement is a partnership or a joint venture, which is the best answer?

Explanation. The majority distinguished a partnership from a joint venture. A partnership requires co-ownership of a business for profit, and the court treated a single, limited undertaking as not enough because it was not a series of acts constituting a business. A joint venture, however, may exist for a narrower undertaking when the parties contribute to a common project, have a proprietary interest and mutual control, agree to share profits, and form an express or implied contract. These facts fit the joint-venture model better than partnership.