## Facts

- In May 1996, Monte Sandvick, Joedy Bragg, William R. LaCrosse, and Frank B. Haughton, Jr. jointly acquired three oil-and-gas leases in Golden Valley County, North Dakota (“Horn leases”).
- The Horn leases were paid-up, had five-year terms, and contained no extension or renewal provisions.
- Title to the Horn leases was held in the name of Empire Oil Company, owned by LaCrosse, and the purchase was funded through credits in an Empire Oil joint-venture checking account used by the parties for leasing activity.
- The parties intended to profit by selling the Horn leases during the five-year term and had jointly participated in other oil-and-gas leases using a similar arrangement.
- In November 2000, about six months before the Horn leases would expire, LaCrosse and Haughton obtained three “top leases” on the same acreage (“Horn Top Leases”) to become effective upon expiration of the Horn leases.
- The Horn Top Leases had five-year terms, were again titled in Empire Oil’s name, and were not recorded until December 2001.
- LaCrosse and Haughton did not include Sandvick or Bragg as lessees and did not disclose the Horn Top Leases to them.
- Before obtaining the top leases, LaCrosse and Haughton twice offered to buy Sandvick’s and Bragg’s interests in the Horn leases; Sandvick and Bragg refused.
- Sandvick and Bragg sued in 2004 alleging LaCrosse and Haughton breached fiduciary duties by taking the Horn Top Leases for themselves.
- After a bench trial, the district court found no partnership or joint venture and dismissed the claims; Sandvick and Bragg appealed.

## Issues

1. Whether the parties’ relationship concerning the Horn leases constituted a joint venture despite the district court’s contrary finding.
2. If a joint venture existed, whether LaCrosse and Haughton breached fiduciary duties of loyalty by secretly acquiring the Horn Top Leases on the same property without offering Sandvick and Bragg an opportunity to participate.

## Decision

- The Supreme Court of North Dakota reversed the judgment and remanded.
- The court held a joint venture existed regarding the Horn leases based on the parties’ conduct, shared funding mechanism, and profit-seeking purpose.
- The court held LaCrosse and Haughton breached fiduciary duties of loyalty by acquiring the Horn Top Leases without disclosure and without allowing Sandvick and Bragg to participate.
- The case was remanded for determination of an appropriate remedy and damages.

## Legal Principles

- A joint venture may be found from the substance of the parties’ arrangement, including shared contributions to a particular enterprise, a profit objective, and some degree of shared control, even if the parties did not label their relationship a partnership.
- Joint venturers owe one another fiduciary duties of loyalty comparable to partners, requiring the finest loyalty and prohibiting secret self-dealing in opportunities connected to the venture.
- A co-venturer may not appropriate for personal benefit a business opportunity that is a continuation, renewal, or functional extension of venture property without full disclosure and a fair chance for the other venturers to participate.
- A top lease obtained during the term of an existing lease on the same acreage, intended to take effect upon expiration of the existing lease, may be treated as a venture-related opportunity subject to joint-venture fiduciary duties.

## Conclusion

The court concluded the parties’ oil-and-gas leasing arrangement constituted a joint venture and that secret acquisition of top leases on the same acreage by two venturers violated the duty of loyalty, requiring reversal and a remand for remedies and damages.


Sandvick v. LaCrosse, 747 N.W.2d 519 (N.D. 2008)