Guide to Doing Business
North Dakota
Prepared by Lex Mundi member firm,
Nilles, Selbo & Harrie, Ltd.
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LEX MUNDI
GUIDES TO DOING BUSINESS
DOING BUSINESS IN NORTH DAKOTA 2016
Prepared by Nilles Law Firm
www.nilleslaw.com
***The information contained in this publication is for general information
purposes only and is not legal advice. You should not rely on any information or
views contained in the publication in evaluating any specific legal issue you may
have. Please consult your Nilles Law Firm attorney for specific legal advice. Any
U.S. federal tax advice contained in this communication (whether distributed by
mail, email or fax) is not intended or written to be used, and it cannot be used by
any person for the purpose of avoiding U.S. federal tax penalties or for the
purpose of promoting, marketing or recommending any entity, investment plan
or other transaction.
Nilles, Selbo & Harrie, Ltd. is a
professional corporation providing legal
services throughout the states of North
Dakota, Minnesota, and South Dakota.
We offer legal representation to
domestic and foreign clients throughout
the United States with attorneys licensed
to practice in state and federal courts in
North Dakota, South Dakota, and
Minnesota.
Our attorneys and legal staff are
committed to providing prompt, quality
and cost-effective legal services to our
clients. Nilles lawyers practice in real
estate, corporate and business law,
estate planning and administration, civil
litigation, products liability defense,
insurance law, and class action defense.
Being efficient and responsive to our
clients’ needs is our most important task.
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support many civic organizations that
make Fargo, Moorhead, West Fargo, and
the surrounding areas quality places to
live and work.
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TABLE OF CONTENTS
I.
INTRODUCTION TO NORTH DAKOTA
A. Geographical Description
B. Cultural Background
C. Investment Climate
II.
A.
B.
C.
D.
E.
F.
G.
III.
BUSINESS ENTITIES
Corporation
Partnership
Limited Liability Company
Sole Proprietorship
Joint Ventures
Nonprofit Corporations and Cooperatives
Alternatives
TRADE REGULATION
A. Federal Antitrust Law
B. Regulation of International Trade and Investment
C. State Considerations
IV.
TAXATION
A. Federal Taxation
B. State Taxation
V.
LABOR AND EMPLOYMENT
A. Federal Considerations
B. State Considerations
VI.
ENVIRONMENTAL LAW
A. Federal Considerations
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B. State Considerations
VII.
INTELLECTUAL PROPERTY
A. Federal Considerations
B. State Considerations
VIII. DISPUTE RESOLUTION
A. Federal Court System
B. State Court System
IX.
FINANCING INVESTMENTS
A. Commercial Banking Opportunities and Out-of -State Financial Institutions in North Dakota
B. North Dakota Securities Issues
X.
REAL ESTATE
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
Ownership
Concurrent Ownership
Spousal Rights
Purchase/Sale of Property
Foreclosure
Land Contracts
Easements
Leases
North Dakota Zoning
Mineral Rights
Eminent Domain
XI.
MISCELLANEOUS
A. Licensing and Regulatory Requirements
B. Applicability of State Usury Laws
C. Restrictions on Specific Professions
I. INTRODUCTION TO NORTH DAKOTA
A.
North Dakota is geographically diverse and centrally located.
North Dakota is situated in the geographical center of North America. North Dakota has a population of
approximately 756, 927 and is the 17th largest state with a total area of 70,704 square miles. The
highest point in the state is at White Butte with an elevation of 3,506 feet and the lowest point is the
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Red River at 750 feet. The capital is Bismarck and the largest city is Fargo with a population of
approximately 115, 863.
Due to its geographical location, the state is subject to the extremes of a continental climate. Semiarid
conditions prevail in the western half of the state whereas the eastern half averages 22 inches of rainfall
annually. January is the coldest month, where the average temperature ranges from 2 degrees
Fahrenheit in the northeast 17 degrees Fahrenheit in the southwest. July is the warmest month and
average temperature ranges from 67 degrees in the northeast to 73 degrees in the southwest. The
hottest recorded temperature in North Dakota was 121 degrees at Steele on July 6, 1936. The coldest
temperature ever recorded in North Dakota was 60 degrees below at Parshall on February 15, 1936. For
more information on North Dakota, see www.nd.gov.
B.
North Dakota is culturally diverse.
North Dakota has a proud and diverse cultural and ethnic background where Native American cultures
have been present in North Dakota for approximately 10,000 years. When the first outsiders arrived in
North Dakota, several distinct Indian groups existed. These included the Dakota or Lakota Nation,
Assiniboine, Cheyenne, Mandan, Hidatsa, and Orrikura. Later, groups of Chippewa or Ojibway, Cree,
Blackfeet, and Crow entered into the area. Today, North Dakota continues to have a rich Native
American tradition.
The American settlement of North Dakota accelerated in the 1860’s with the establishment of railroads.
Much of North Dakota’s early population were homesteaders. Many of the early immigrants were of
Scandinavian or Germanic origin, with Norwegians being the largest single ethic group. North Dakota
also has a strong German Russian as well as a Scottish-Irish-English heritages. For more information on
North Dakota’s history see www.history.nd.gov.
C.
North Dakota has a Positive Business Climate.
North Dakota has a prime investment climate. Because of its central location in North America, North
Dakota has access to the United States, Canada, and Mexico. North Dakota has the fourth largest port
of entry for Canadian goods by truck and rail. The ports of entry along the North Dakota-Canadian
border are open 24-hours. North Dakota offers strategic incentive advantages such as corporate tax
exemptions for new or expanding technology-based businesses, sales tax exemptions for
manufacturing/computer/telecommunication equipment, up to a 5-year property tax exemption,
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financial incentives, job training programs, and some of the lowest workers compensation premium
rates in the nation. Corporate income tax rates range from 1.41& – 4.31%.
North Dakota’s workforce offers some of the best employees available anywhere. The workforce is
highly educated and has a legendary work ethic. The average annual turnover rate for private business
was 6.7% compared to an industry standard of 30-35%. The absenteeism rate is low and union
membership is less than 10%. The state has a strong economy, with unemployment lower than the
national average and strong job and population growth. The unemployment rate was 3.1% in March
2016 according to the Bureau of Labor Statistics. Much growth has been based on development of the
Bakken oil fields in the western part of the state, though the oil economy has slowed down some since
2014 with the decreasing market price of crude oil.
North Dakota has been recognized as great place to do invest and do business. It was ranked first in the
nation in state competitiveness by Beacon Hill Competitiveness Index, 2010. It was ranked first in the
Best Job Markets by Gallup Job Creation Index, 2010. And, North Dakota has also been named the
nation’s top growth performer since 2000 by the U.S. Chamber of Commerce, 2010. Foreclosure rates
are some of the lowest in the nation according to Mortgage Bankers Association, Third Quarter 2010.
North Dakota also boasts a balanced state budget, no deficit, and a $1.2 billion surplus. For more
information see www.business.nd.gov.
D.
North Dakota is a Great Place to Live.
Perhaps most important is North Dakota’s high quality of life. North Dakota consistently has among the
lowest rates of crime. The state consistently ranks high in providing quality public education for
children. The student to teacher ratio is 16 to 1 as of June 2013. . North Dakota has twenty college
and universities, including two major research universities. Not to be forgotten are clean air,
recreational opportunities, and a family-friendly environment.
II.
BUSINESS ENTITIES
A.
Corporations
1.
The Secretary of State supervises corporations.
The Secretary of State has general supervision powers over corporations and receives all filings. The
Secretary of State can be reached in a variety of ways:
Telephone: 701-328-2900 or toll-free: 800-352-0867
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TTY: 800-366-6888
Fax: 701-328-2992
E-mail: [email protected]
Address: 600 E. Boulevard Ave. Dept. 108, Bismarck, ND 58505-0500.
2.
Application process for a corporation.
The official website of the Secretary of State contains many necessary forms for prospective
corporations and partnerships. Access to this site can be achieved through www.nd.gov/sos.
3.
Procedures concerning incorporation.
In order for a corporation to receive a certificate of incorporation to conduct business activities in North
Dakota it must file with the Secretary of State an original of its articles of incorporation.. § 10-19.1-11.
The corporation must also pay the necessary filing fees to have a certificate of authority issued to the
corporation. § 10-19.1-147. See section 5 on laws governing incorporation for further details.
4.
Laws governing corporations.
Tite 10 of the North Dakota Century Code contains laws governing corporations. Chapter 10-19.1 the
North Dakota Business Corporation Act, covers the procedures for incorporation and management of a
corporation in North Dakota.
a. Organization
If the articles do not include a list of members that belong to the first board of directors, the
incorporators may elect the first board or may act as directors with all the powers, rights, duties, and
liabilities of directors. They can exercise this power until the authorized shares are issued, or until a set
of directors is elected, whichever occurs first. § 10-19.1-30. After the issuance of the certificate of
incorporation, the incorporators or directors named in the articles shall hold an initial organizational
meeting called by a majority or take written action for the purpose of transacting business and taking
the necessary or appropriate steps for organization. These steps include: amending the articles; electing
directors; adopting bylaws; electing officers; adopting banking resolutions; authorizing or ratifying the
purchase, lease, or other acquisition of suitable space, furniture, furnishings, supplies, and materials;
approving the corporate seal; approving forms of certificates for shares of the corporation; adopting a
fiscal year; accepting subscriptions for and issuing shares; and making tax elections. § 10-19.1-30(2). If
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an organizational meeting is called, there must be at least three days notice given to each incorporator
or director; and, unless the notice is waived, the notice must state the date, time, and place of the
meeting. § 10-19.1-30(2).
b. Bylaws
There is no requirement that a corporation have bylaws. § 10-19.1-31. Any provision within the
corporation’s bylaws relating to the management or the regulation of the affairs of the corporation
cannot be inconsistent with North Dakota law or the articles of incorporation. § 10-19.1-31(1). The
power to adopt, amend, or repeal the bylaws is vested in the board unless expressly reserved by the
articles to shareholders with voting rights. . Unless the articles or bylaws provide otherwise, a
shareholder or shareholder holding five percent or more of the voting power of the shares entitled to
vote may propse a resolution for action by the shareholders to adopt, amend, or repeal bylaws adopted,
amended, or repealed by the board. § 10-19.1-31(3)
c. Stock, Stock Certificates, Issuance, and Restrictions on Transfer
All stock must be of one class and one series; however the articles can establish, or authorize the board
to establish, more than one class or series. § 10-19.1-61(2)(a). The one class of stock must be common
shares entitled to vote and have equal preferences and rights in matters not provided for by the board,
and the stock must have a par value of one cent per share unless a different par value is specified. § 1019.1-61(2). The president or vice president and the secretary of the corporation must sign stock
certificates. The certificates must state the name of the corporation, that the corporation is organized
under the laws of North Dakota, and the name of the person to whom the stock is issued and the
number and class of shares, and the par value. Other requirements apply if the corporation issues more
than one class of stock. § 10-19.1-66. Stock is only issued when authorized by the board. § 10-19.1-61.
Stock subscriptions must be in writing to be enforceable and the subscriptions are irrevocable for six
months, unless otherwise stated in the agreement. § 10-19.1-62. Consideration for stock may be money,
other property, tangible or intangible; or labor or services that are actually performed. The corporation
can only issue the shares once consideration has been fully paid. § 10-19.1-63. A written restriction on
the transfer of stock is enforceable if it is not manifestly unreasonable under the circumstances and the
restriction is noted conspicuously on the face or the back of the certificate. § 10-19.1-70.
d. Dividends
Dividends may be distributed if the corporation’s board of directors determines that there will be excess
capital after paying its ordinary debts. The distribution excess is subject to the rights, priorities, and
restrictions provided in the articles and bylaws. § 10-19.1-92. Directors and shareholders who know or
should know of an improper distribution will be liable to the corporation. An action for improper
distribution must be commenced within two years of the distribution. §§ 10-19.1-94, 10-19.1-95.
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e. Stockholder Meetings and Actions
Regular meetings of the stockholders need not be held unless required by the corporate bylaws or
articles. If held, the meetings may be on an annual or less frequent basis. If there is no shareholder
meeting for a period of 15 months or during the earlier of six months after the fiscal yearend,
shareholders with five percent of the voting power may demand a meeting by providing notice to the
president or secretary. The board shall call a meeting within thirty days of this notice. § 10-19.1-71. A
special meeting may be called by the president, two or more directors, any person authorized by the
articles or bylaws, or shareholders with ten percent of voting power (except matters requiring 25
percent). Said shareholders may demand a special meeting of shareholders by written notice of demand
given to the president or secretary of the coportation and containing the purposes of the meeting.
§ 10-19.1-72..
A quorum for shareholder actions is a majority of the voting shares, unless otherwise stated in the
articles or bylaws. § 10-19.1-76. An action without a meeting is permitted when all of the shareholders
entitled to vote sign a written action. § 10-19.1-75. This action is effective when signed by all
shareholders, unless a different effective date is provided in the action. The board may fix a date of fifty
days prior to the meeting to determine who the holders of shares are that are entitled to notice and are
entitled to vote at the meeting. A shareholder may cast their vote through the use of a proxy. § 10-19.176.2
f.
Directors, Director Meetings, and their Powers and Duties
The board of directors must consist of one or more directors, who are individuals. The directors serve
for indefinite terms that expire at the next regular meeting of the shareholders unless the articles or
bylaws fix a specific term. Fixed terms of directors cannot exceed five years. There is no requirement
that the directors be shareholders. § 10-19.1-33, 34-35. Directors are elected by cumulative shareholder
voting. § 10-19.1-39.
Directors meetings are held either according to the articles or the bylaws and the meeting can be at any
place within or without the state that the board may select or by any means described in subsection 2. .
Directors may call a meeting on ten-days notice and any form of communication consented to by the
director to whome the notice is given is effective when given. . The notice need not state the purpose of
the meeting. Quorum during a director meeting consists of a majority of the directors unless the articles
or bylaws state otherwise. However, quorum can not be defeated by the withdrawal of a director that
was initially present. § 10-19.1-45. If a director is aware that he/she is not going to be able to be at the
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meeting he/she may give advance written support or opposition on matters that are coming before the
board. § 10-19.1-44. Written action signed by all directors is permitted in place of a meeting, and less
than all the directors’ signatures on the written action can be sufficient if provided for in the articles or
bylaws. §10-19.1-47.
g. Officers and Officer Liability
Corporate officers are elected by the board of directors, unless specified otherwise in the articles and
bylaws, and must consist of a president, secretary, and treasurer, with the option of including one or
more vice presidents. § 10-19.1-52. Any individual may hold more than one position at a time. § 10-19.155. If a document is to be signed by an individual holding multiple offices, that individual may sign in
more than one capacity only if the document indicates each capacity in which the individual is signing.
Any officer may resign at any time by giving written notice. An officer may also be removed by a
corporate resolution at any time. A vacancy in the office of president or treasurer because of death,
resignation, removal, or disqualification must be filled for the unexpired portion of their term, as
provided by the articles or bylaws or as the board determines. § 10-19.1-58. Officer conduct is governed
by a standard that requires each officer to discharge his/her duties in good faith, in a manner they
reasonably believe to be in the corporation’s best interests, using the care an ordinary and prudent
person in a like position would exercise under similar circumstances. § 10-19.1-60.
h. General Powers, Sale or Transfer of Assets, and Corporate Books and Records
Section 10-19.1-26 describes the general powers of a corporation. No act, and no conveyance or
transfer of real or personal property to or by the corporation is invalid based on the assertion that the
corporation was without the power to do or make any of these actions. However, these claims may be
asserted by a shareholder against the corporation or a corporation officer under certain circumstances
or by the attorney general. § 10-19.1-28.
The corporation is permitted to sell or transfer assets upon a majority vote of the directors present
when the sale or transfer is done in the ordinary course of business. If the sale or transfer is occurring
outside the ordinary course of business, approval of a majority of the directors and a majority of the
shareholders through a regular or special meeting will be required. § 10-19.1-104.
A corporation must keep a share register that is not more than one year old at its principal office or
other location determined by the board. The share register must contain the names and addresses of
the shareholders, as well as the number and classes of shares held by each shareholder. The corporation
must also keep the records of proceedings of the shareholders and board for the last three years, its
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articles, amendments currently effective, bylaws, the most recent financial statements, shareholder
reports for the last three years, the names and addresses of directors and officers, and any voting trust
and shareholder control agreements. § 10-19.1-84.
i.
Corporate Farming or Ranching (Ch. 10-06.1)
§ 10-06.1 governs corporate or limitied liability company farming. All corporations and limited liability
companies, except as otherwise provided in this chapter, are prohibited from owning or leasing land
used for farming or ranching and from enaging in the business of farming or ranching. A coporation or a
limited liability company may be a partner in a partnership that is in the business of farming or ranching
only if that corporation or limited liability company complies with this chapter. § 10-06.1-02. There are
special provisions for nonprofit organizations and cooperative corporations whose member make-up is
75% actual farmers. §§ 10-06.1-08, 10-06.1-09.
j.
Foreign Corporations
The North Dakota Business Corporations Act also governs foreign corporations. Section 10-19.1-134
controls admission as a corporation entitled to do business in North Dakota, foreign corporations,
transaction of business, and licenses and permits. Like a North Dakota corporation, a foreign corporation
must obtain a certificate of authority.
k. Dissolution
If a corporation has not issued any authorized shares, a dissolution may occur by a majority vote of the
incorporators and the filing of the articles of dissolution. The articles must contain the corporate name,
date of incorporation, a statement that no shares were issued and that the subscription was refunded,
and debts were paid. § 10-19.1-106. In this case original articles of dissolution must be filed with the
Secretary of State and a filing fee must be paid. § 10-19.1-113.1. If authorized stock has been issued, a
dissolution may occur by majority shareholder vote and filing a notice of intent to dissolve, as well as
articles of dissolution. § 10-19.1-108. Involuntary dissolution or supervised voluntary dissolution by the
court is also available. § § 10-19.1-114 -115.
5.
Laws governing incorporation
a. Incorporators and Articles of Incorporation
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Any person or combination of persons who are 18 years or more can serve as incorporators. § 10-19.109. The articles must contain the corporate name, the address of the principal office, the name and
address of the registered service agent, the aggregate number of shares that the corporation authorized
for issue, the names and addresses of each incorporator, and the effective date of the incorporation if
that date is later than the certificate of incorporation issued by the Secretary of State (this later date
may not be longer than ninety days after the certificate of incorporation is issued). § 10-19.1-10. The
articles may not limit the right of cumulative voting, or contain any provision authorizing stock or bond
issuance in violation of section 9 of article XII of the North Dakota Constitution.
Section 10-19.1-10(3) governs the provisions that are granted to all corporations, unless the articles
specifically modify these rights. It is the right of the incorporators to include any provision they feel
necessary for the management or regulation of the business not inconsistent with North Dakota law;
however, they need not include all powers granted by chapter 10-19.1. § 10-19.1-10(6), (7). The original
Articles of Incorporation must be filed with the Secretary of State, and upon a determination that all
fees have been paid a certificate of incorporation can be issued. § 10-19.1-11. The corporation’s
existence begins upon the issuance of the certificate of incorporation or at a later date specified in the
articles. § 10-19.1-12.
b. Purpose, Name, and Term of Corporation
Incorporation can occur for any general business purpose, unless a specific purpose is provided in the
articles. § 10-19.1-08. The corporate name must be in English letters or characters, containing
“corporation,” “incorporated,” “limited,” or “company,” or an abbreviation of these words. The name
must not be deceptively similar to another business name, and all references to purpose within the
name must be in relation to the corporation’s business purpose. A name can be reserved prior to
incorporation for use following incorporation. § 10-19.1-13. A corporation has perpetual existence
unless the articles modify this length of time. § 10-19.1-10.
6.
Laws affecting corporate mergers
A merger plan must contain the names of corporations involved, name of survivor or acquiring
corporation, terms, manner and basis of converting shares, and any amendments to the articles. § 1019.1-97. This plan must be approved by a majority of the directors present at the meeting of each board.
Shareholders are entitled to written notice 14 days before the meeting, stating the purpose of the
meeting. The holders of a majority of voting power of all shares can approve the merger plan, but there
are provisions within the Code that allow the plan not to be submitted to a vote by the shareholders. §§
10-19.1-97, 10-19.1-98. Articles of merger are to be filed with the Secretary of State and there is a $50
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filing fee. § 10-19.1-99. Domestic corporations may merge with foreign corporations under the same
procedures if the law of the foreign corporation’s home state permits it. § 10-19.1-103.
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B.
Partnerships
1.
North Dakota’s definitions and requirements for General, Limited, and Limited Liability
Partnerships.
a. Definitions
i.
general partnerships
General partnerships are associations of two or more persons that carry on business for profit as coowners, such business being formed under section 45-14-02, predecessor law, or comparable law of
another jurisdiction. § 45-13-01(19)
ii. limited partnerships
Limited partnership is defined as a partnership that is formed by two or more persons under North
Dakota law, and having one or more general partners and one or more limited partners. § 45 10.2(102)(26).
iii. limited liability partnerships
A limited liability partnership is defined as a domestic limited liability partnership. § 45-22-01 (13).
b. Requirements
i.
general partnerships
A written partnership agreement is not required to form a general partnership. The following rules
apply in determining whether a partnership is formed in North Dakota. Certain relationships do not by
themselves establish a partnership, for instance, joint tenancy, tenancy in common, tenancy by the
entireties, joint property, common property, or part ownership does not by itself establish a partnership
even with shared profits. Sharing gross returns does not establish a partnership, even with joint or
common rights or interests in property. Persons receiving shares of profits of businesses are presumed
to be partners in the business, unless the profits were received in payment of: debt by installments,
services as an independent contractor or wages, rent, annuities or other retirement benefits to a
beneficiary, representative, or designee of a deceased or retired partner; interest on a loan, even if
varied by profits received by business; and for the sale of the goodwill of a business or other property by
installments or otherwise.
ii. limited partnerships
The Uniform Limited Partnership Act as adopted by North Dakota governs limited partnerships. In order
to form a limited partnership, a certificate of limited partnership must be executed and filed in the
Secretary of State’s office. § 45-10.2-23. The certificate must include: name, general character of
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business, address of the office and the name and address of the agent for service, name and address of
the principal place of business, and any other matters general partners determine must be included. The
limited partnership is formed at the time of the filing of the certificate of limited partnership or at any
time specified in the certificate. § 45-10.2-23(2).
Foreign limited partnerships must also submit forms prescribed and furnished by the Secretary of State.
The forms must include: name, state and date of formation, the general character of the business the
foreign limited partnership proposes to transact in this state, name and address of any agent for service
of process, , address of the principal office, and name and address of the principal place of business of
each general partner. § 45-10.2-79.
iii. limited liability partnerships
A limited liability partnership or foreign limited liability partnership must file with the Secretary of State
an original registration form that is good for one year. § 45-22-03(4). The registration must contain:
name; nature of business; address of the executive office; address of the registered office and name of
the registered agent at that office; name and address of managing partner;and deferred effective date,
if any. . § 45-22-03(3)(a).
A foreign limited partnership registration must include: name; jurisdiction of original registration;
expiration date in original jurisdiction; nature of the business to be transacted in state; address of the
principal executive office; address of registered office and the name of registered agent at that office;
name and address of each managing partner; acknowledgment of renewal requirement and continuous
registration requirements in original jurisdiction. § 45-22-03(3)(b). All necessary fees must be paid
pursuant to section 45-22-22.
A partner is not personally liable, directly or indirectly, including by
way of indemnification, contribution, or otherwise, for an obligation
under this section solely by reason of being a partner. § 45-22-08.1(2).C.
Limited Liability Company
Limited liability companies can be formed in North Dakota for any business purpose, unless a statute
requires business organization under a different format. The limited liability company may include a
specific purpose in its articles, however, without specification it is considered to have general business
purposes. § 10-32-04. One or more individuals who are at least 18 years of age may form a limited
liability company. § 10-32.1-20. . The articles of organization must contain: name; address of the
principal executive office; address of registered office and name of registered agent at that office; and
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the name and address of organizer.. The powers of a limited liability company are outlined in section 1032.1-08. . Each individual member, governor, manager, or agent is not personally liable except under
conditions and circumstances where the corporate veil may be pierced. §10-32.1-26. .
D.
Sole Proprietorship
There are no specific Code chapters on sole proprietorships. Any individual may decide to conduct
business in his or her own name, and they would be considered a sole proprietor. This individual is
personally liable for business activities and is taxed on the business income directly. If the proprietor
desires to use a fictitious name this name must be registered with the Secretary of State. A sole
proprietor might consider becoming an individual member of a limited liability company, thereby
limiting personal liability for business obligations.
E.
Joint Ventures
A joint venture is considered a proper business organization under the North Dakota Code. §§ 1-0149(5).. A joint venture is considered an enterprise that is started by two or more people or business
organizations, and can be conducted in the form of a partnership between the entities. North Dakota
law does not further regulate the structure or operation of joint ventures.
F.
Nonprofit Corporations and Cooperatives
Chapter 10-33 governs the formation and business activities of nonprofit corporations. A nonprofit is
described as a purpose or activity not involving pecuniary gain to any officer, director, or member. § 1033-01(25)..
Chapter 10-15 governs the formation of a cooperative association. Cooperatives may be organized for
any purpose except banking and insurance, but they are subject to statutes relating to specified kinds of
corporations or associations. § 10-15-02. Cooperatives have similar provisions for incorporation and
transaction of business as those of a corporation. Five or more adults may form a cooperative by filing
articles of association. §§ 10-15-04,-08. Chapter 10-15 also provides provisions for foreign cooperative
associations. § 10-15-51. Like corporations, cooperatives must pay the required filing fees upon the filing
of documents with the Secretary of State. § 10-15-54.
1.
Forming nonprofit corporation/cooperative
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The incorporators of a non-profit corporation must file articles of incorporation with the Secretary of
State. If the articles conform and all necessary fees have been paid under section 10-33-140, the
Secretary of State shall issue a certificate of incorporation. § 10-33-08. The corporate existence begins
on the date of issuance of the certificate of incorporation or at a specified later date. § 10-33-09. The
articles of incorporation must contain: name; address of the registered office and the name of the
registered agent at the address; name and address of the incorporators; effective date of incorporation;
statement that the corporation is incorporated under this chapter. § 10-33-06(1). The articles may not
contain: any limiting provision on the right of cumulative voting; or any provision authorizing the
issuance of stocks or bonds in violation of section 9 of article XII of the Constitution of North Dakota. §
10-33-06(2).
2.
Laws that apply to non-profit corporations/cooperatives
The general powers of a non-profit corporation are set out in section 10-33-21. The general organization
of a non-profit corporation is covered in section 10-33-25, and provides that the first board, if not
named in the articles, may be elected by the incorporators or the incorporators may act as the directors
until the directors are elected. After the issuance of the certificate of incorporation the incorporators or
the directors shall either hold an organizational meeting or take written action for the purpose of
transacting business and taking necessary action for the completion of the organization. Similar to the
laws of general corporations, a non-profit corporation need not adopt bylaws. § 10-33-26.
The business affairs must be managed by or under the direction of a board consisting of three or more
directors. § 10-33-27,-28. Meetings of the board may be held as provided in the articles or bylaws and m
ay be set at any place selected by the board. § 10-33-39. A majority, or provided proportion, of directors
currently holding office is a quorum for the transaction of business. § 10-33-41. The officers of a nonprofit corporation must consist of a president, secretary, and may include a treasurer, and they must
comply with the duties set out in the Code. § 10-33-49, -50. In the same manner as corporations
discussed above, officers may hold multiple positions. § 10-33-51.
Annual meetings are required of non-profit corporations, and unless the articles or bylaws state
otherwise, voting members. At the request of fifty shareholders or ten percent of the shareholders,
whichever is less, a meeting may be required if it has been at least fifteen months from the last meeting.
§ 10-33-65. Notice of meeting must be given to every voting member. § 10-33-68. An action without a
meeting may be taken according to section 10-33-73. Proxy voting in any action is allowed if permitted
by the articles or bylaws. § 10-33-77.
Section 10-33-84 covers the provisions regarding non-profit corporation indemnification. Merger of nonprofit corporations is allowed and must comply with the provisions of sections 10-33-85 through 10-3316
93. The transfer of assets by a non-profit corporation is allowed in certain circumstances. § 10-33-94. A
non-profit corporation may be dissolved by: the incorporators; the board and members with voting
rights pursuant to sections 10-33-98 through 10-33-103; order of a court under sections 10-33-106
through 10-33-113; or by the Secretary of State under section 10-33-139.
G.
Alternatives
1.
Branch Office
Many North Dakota businesses maintain offices within the state that are not their principal place of
business; these offices are considered branch offices. There is no single chapter of the Code that
regulates the conduct of branch offices. For North Dakota corporations and foreign corporations these
offices must be registered with the Secretary of State. § 10-19.1-15. Limited partnerships and foreign
limited partnerships may also maintain registered offices in the state of North Dakota.
§ 45-10.2-1
Collection agency branch offices are allowed by North Dakota Century Code section 13-05-02.1,
provided that the license for the agency was issued in North Dakota. § 13-05-02. In relation to collection
agencies a branch office is considered to be a location other than where the agency license was granted
or office other than where the agency collects or receives payments. § 13-05-02.1.
Bank and trust company branch offices are covered under the provisions of section 6-08-27. This section
prohibits bank and trust companies, that are organized and doing business under the laws of any other
state, from establishing a place of business, branch office, or agency for the conduct of business as a
fiduciary.
2.
Independent Distributors
There are no specific provisions regulating independent distributors in the North Dakota Century Code.
17
3.
Licensing and Franchising
North Dakota has specific franchise regulations for particular types of franchises. Automobile, truck,
farm implements and parts franchises are governed by North Dakota Century Code Chapter 51-07.
Chapter 51-20.1 governs heavy construction equipment franchises, and Chapter 51-20 governs
recreation vehicle franchises. The rights of franchise merchandise return are governed by all franchise
chapters as well as Chapter 51-20.2 which states that, a franchisee upon termination by franchisee or
franchiser is entitled to the net cost of new and unused merchandise and parts. The limitations of a
franchisee’s recovery under a contract cannot exceed the net cost of the merchandise and parts, plus
the freight costs for their return, and legal costs awarded by the court. See the section on North Dakota
Regulation of Franchises under part III, Trade Regulations for extensive coverage of Franchise
Investment Law.
4.
Sales Representatives
There are no general provisions in the North Dakota Century Code regarding the use of sales
representatives, although the use of a sales representative is not prohibited. However, there are two
specific provisions in relation to sales representative licensing for health service corporations, and
prepaid legal services organizations. § 26.1-17-23,-19-10. Both provisions subject sales representatives
to the laws pertaining to insurance agents as they are set out in Chapter 26.1-26. Licensing for sales
representatives in these cases requires payment of the proper fee according to section 26.1-01-07, and
use of the proper form prescribed by the insurance commissioner.
III.
TRADE REGULATIONS
A.
Federal Antitrust Law
The antitrust laws of the United States are primarily reflected in five federal statutes: the Sherman Act,
the Clayton Act, the Robinson-Patman Act, the Federal Trade Commission Act, and the Hart-ScottRodino Act.
1.
The Sherman Antitrust Act of 1890
The Sherman Act is divided into two primary sections. Section 1 prohibits contracts, combinations, and
conspiracies made in restraint of trade. Section 2 prohibits unilateral and combined conduct that
monopolizes or attempts to monopolize trade. Under the Sherman Act, some restraints are “per se”
unreasonable (such as price-fixing agreements between competitors) and others are subject to analysis
18
under a “rule of reason” (such as some restrictions placed on a distributor by a manufacturer).
Restraints subject to the “per se” rule are never permitted, while those governed by the “rule of reason”
test will be evaluated on a case-by-case basis.
2.
The Clayton Act of 1914
The Clayton Act prohibits certain specific anticompetitive activities. For example, the Act prohibits some
corporate mergers, exclusive dealing contracts, and agreements under which one product is sold subject
to the requirement that the purchaser also buy another product from the seller (known as a “tying”
arrangement).
3.
The Robinson-Patman Act of 1936
The Robinson-Patman Act prohibits a seller from discriminating (or inducing others to discriminate)
among competing purchasers in the price charged for commodities “of like grade and quality.” While the
Act focuses on price discrimination, it also addresses other concerns such as discriminatory advertising
allowances.
4.
The Federal Trade Commission Act
The FTC Act declares unlawful “unfair methods of competition” and “unfair or deceptive acts or
practices.”
5.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The Hart-Scott-Rodino Act requires that, under certain circumstances, a company proposing to merge
with, or acquire another company must give prior notice of the proposed acquisition to the Federal
Trade Commission and the Justice Department. Failure to report may result in very substantial fines.
Enforcement: Private individuals and corporations may bring lawsuits under the Sherman Act, the
Clayton Act and the Robinson-Patman Act. Remedies may include injunctive relief, treble damages and
attorney fees. The government may enforce the Sherman Act through criminal prosecutions and civil
suits. In addition, the government may enforce the Clayton Act and the Robinson-Patman Act through
the FTC or the Justice Department. Only the government can enforce the Federal Trade Commission Act
and the Hart-Scott-Rodino Act.
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B.
Regulation of International Trade and Investment
Foreign investment in the U.S. and other international commercial activities involving U.S. entities are
subject to a number of U.S. statutes and related regulations. The following discussion outlines some of
the more important aspects of these laws which might be relevant to someone investing in or trading
with entities located in the U.S.
1.
Restrictions on Foreign Investment
Under a statutory provision commonly referred to as the Exon-Florio Amendment (Section 721 of Title
VII of the Defense Production Act of 1950, as added by Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988), the President has broad authority to investigate and prohibit any merger,
acquisition or takeover by or with foreign persons which could result in foreign control of persons
engaged in interstate commerce if the President determines that such merger, acquisition or takeover
constitutes a threat to the national security of the U.S. Congress has indicated that the term “national
security” is to be interpreted broadly and that the application of the Exon-Florio Amendment should not
be limited to any particular industry. The President must have credible evidence that the foreign
investment will impair national security. The statute sets out a timetable for investigations of
transactions which can take up to 90 days to complete.
The President or his designee has 30 days from the date of receipt of written notification of a proposed
(or completed) transaction to decide whether to undertake a full-scale investigation of the transaction.
The President has delegated the authority to make investigations pursuant to the Exon-Florio
Amendment to the Committee on Foreign Investment in the U.S. (“CFIUS”), an interagency committee
made up of representatives of various executive branch agencies. Notifications of transactions are not
mandatory and may be made by one or more parties to a transaction or by any CFIUS member agency.
If at the end of the initial 30-day period after notification of a transaction, CFIUS decides that a full-scale
investigation is warranted, it then has an additional 45 days to complete an investigation and make a
recommendation to the President with respect to the transaction. The President then has 15 days in
which to decide whether there is credible evidence that leads the President to believe that the foreign
interest exercising control might take action to impair the national security. If the President makes such
a determination, Exon-Florio empowers the President to take any action which the President deems
appropriate to suspend or prohibit the transaction, including requiring divestment by the foreign entity
if the transaction has already been consummated.
U.S. law also places certain restrictions on acquisitions of businesses which require a facility security
clearance in order to perform contracts involving classified information. Under Department of Defense
20
regulations, foreign ownership may cause the Department to revoke a security clearance unless certain
steps are taken to reduce the risk that a foreign owner will obtain access to classified information
(DOD5220.22-R). Assuming that a foreign owner will be in a position to “effectively control or have a
dominant influence over the business management of the U.S. firm,” the Department of Defense may
require, as a condition to continuation of the security clearance, that the foreign owner establish a
voting trust agreement, a proxy agreement or a “special security agreement” approved by the
Department of Defense and designed to preclude the disclosure of classified information to the foreign
owner or other foreign interests.
2.
Reporting Requirements for Foreign Direct Investment
All foreign investments in a U.S. business enterprise which result in a foreign person owning a 10% or
more voting interest (or the equivalent) in that enterprise are required to be reported to the Bureau of
Economic Analysis, a part of the U.S. Department of Commerce. Pursuant to the International
Investment and Trade in Services Survey Act (22 U.S.C. §§ 3101-3108) and the regulations promulgated
thereunder (15 C.F.R. § 806), such reports must be made within 45 days after the investment
transaction. Depending on the site of the entity involved, quarterly, annual and quintennial reports may
be required thereafter.
3.
The International Investment and Trade in Services Survey Act
The International Investment and Trade in Services Act (“IISA” or the “Act”), passed in 1976, authorizes
the President to collect information and conduct surveys concerning the nature and amount of
international investment in the U.S. The IISA’s primary function is to provide the federal government
with the information necessary to formulate an informed national policy on foreign investments in the
U.S. It is not intended to regulate or dissuade foreign investment but is merely a tool used to obtain the
data necessary to analyze the impact of such investments on U.S. interests.
Under the IISA, international investments are divided into two classifications—direct investments and
portfolio investments. Congress has delegated its authority to collect information on both types of
international investments to the President. In mm, the President has delegated the power to collect
data on direct investments to the Bureau of Economic Analysis (“BEA”), a part of the Department of
Commerce, and on portfolio investments to the Department of the Treasury.
A “foreign person” is any person who resides outside of the U.S. or is subject to the jurisdiction of a
country other than the U.S. A “direct investment” is defined as the ownership or control, directly or
indirectly, by one person of 10% or more of the voting interests in any incorporated U.S. business
enterprise or an equivalent interest in an unincorporated business enterprise. Because the IISA further
21
defines “business enterprise” to include any ownership in real estate, any foreign investor’s direct or
indirect ownership of U.S. real estate constitutes a “direct investment” and falls within the requirement
that reports be filed with the BEA.
Unless an exemption applies, a report on Form BE-13 must be filed with the BEA within 45 days of the
date on which a direct investment is made. The form collects certain financial and operating data about
the investment, the identity of the acquiring entity and certain information about the ultimate beneficial
owner. In addition, a Form BE-14 must be filed by any U.S. person assisting in a transaction which is
reportable under Form BE-13. The purpose is, obviously, to ensure that those required to file a Form BE13 do so.
4.
The Agricultural Foreign Investment Disclosure Act of 1978
The Agricultural Foreign Investment Disclosure Act (“AFIDA” or the “Act”) of 1978 requires all foreign
individuals, corporations, and other entities to report holdings, acquisitions and dispositions of U.S.
agricultural land occurring on or after February 1, 1979. The Act contains no restrictions on foreign
investment in U.S. agricultural land and is aimed only at gathering reliable data from reports filed with
the Secretary of Agriculture to determine the nature and magnitude of this foreign investment. Unlike
the reports filed under the International Investment Security Act of 1976, reports filed under AFIDA are
not confidential but are available for public inspection.
For the purposes of the Act, a “foreign person” is (i) any individual who is not a citizen or national of the
U.S. and who is not lawfully admitted to the U.S.; (ii) a corporation or other legal entity organized under
the laws of a foreign country; and (iii) a corporation or other legal entity organized in the U.S. in which a
foreign entity, either directly or indirectly, holds 5% or more of an interest. The definition of
“agricultural land” is any land in the U.S. which is used for agricultural, forestry or timber production.
AFIDA requires a foreign person to submit a report on Form ASCS-153 to the Secretary of Agriculture any
time he holds, acquires or transfers any interest, other than a security interest, in agricultural land. The
report requires rather detailed information concerning such matters as the identity and country of
organization of the owning entity, the nature of the interest held, the details of a purchase or transfer
and the agricultural purposes for which the foreign person intends to use the land. In addition, the
Secretary of Agriculture may require the identification of each foreign person holding more than a 5%
interest in the ownership entity.
5.
Export Controls
In general, U.S. export controls are more stringent and restrict a wider array of items than the export
controls of most other countries. (See the Export Administration Act of 1979, as amended, 50 U.S.C. §§
22
2401-2420 and the regulations promulgated thereunder, 15 C.F.R. §§ 730-799.) Except for exports to
U.S. territories and possessions, and in most cases, Canada, all exports from the U.S. are subject to an
export “license.” An export license is an authorization which allows the export of particular goods or
technical information. Two basic types of licenses exist, general licenses and individual validated
licenses.
There are many types of general licenses. These are authorizations which are generally available and for
which it is not necessary to submit a formal application. They cover all exports which are not subject to a
validated license requirement. Most exports can be made under one of these general classifications.
In contrast, individual validated licenses are required for those items for which the U.S. specifically
controls the export for reasons of national security, foreign policy or short supply. If the export of a
specific product to a specific destination is subject to an individual validated license requirement, it is
necessary to apply for and obtain such a license from the Office of Export Administration, an office
within the U.S. Department of Commerce, prior to the export. Certain commodities cannot be exported
to any country without an individual validated license, while certain other commodities may require a
validated license only for shipment to specified countries.
For purposes of the U.S. export control regulations, an export of technical information occurs when the
information is disclosed to a foreign national even if such disclosure occurs in the U.S. Thus, if disclosure
of information is subject to a validated license requirement, the disclosure may not be made to a foreign
national without first obtaining the necessary validated license, whether or not the disclosure is to occur
outside the U.S.
6.
Foreign Trade Zones
Foreign trade zones are areas in or adjacent to ports of entry which are treated as outside the customs
territory of the U.S. In order to expedite and encourage trade, goods admitted in a foreign trade zone
are generally not subject to the customs laws of the U.S. until the goods are ready to be imported into
the U.S. or exported. These foreign trade zones are isolated, enclosed and policed areas which contain
facilities for the handling, storing, manufacturing, exhibiting and reshipment of merchandise. Foreign
trade zones are created pursuant to the Foreign Trade Zones Act and are operated as public utilities
under the supervision of the Foreign Trade Zones Board. Under the Foreign Trade Zones Act, the Board
is authorized to grant to public or private corporations the privilege of establishing a zone. Regulations
covering the establishment and operation of foreign trade zones are issued by the Foreign Trade Zones
Board, while U.S. Customs Service regulations cover the customs requirements applicable to the entry of
goods into and the removal of goods from these zones.
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7.
Anti-dumping Law
The U.S. anti-dumping law (19 U.S.C. §§ 1671-1677) provides that if a foreign manufacturer sells goods
in the U.S. at less than fair value and such sales cause or threaten material injury to a U.S. industry, or
materially retard the establishment of a U.S. industry, an additional duty in an amount equal to the
“dumping margin” is to be imposed upon the imports of that product from the foreign country where
such goods originated. Under the statute, sales are deemed to be made at less than fair value if they are
sold at a price which is less than their “foreign market value” (which generally is equivalent to the
amount charged for the goods in the home market). The dumping margin is equal to the amount by
which the foreign market value exceeds the U.S. price.
The Secretary of Commerce is charged with determining whether merchandise is being sold at less than
fair value in the U.S. The International Trade Commission makes the determination of whether such
sales cause or threaten material injury to a U.S. industry.
C.
State Considerations
1.
North Dakota Antitrust Laws
The North Dakota Constitution specifically prohibits the combination of individuals, corporations, and
associations for the purpose of controlling the price or cost of exchange or transportation of any product
of the soil or article of manufacture of commerce. This activity is considered unlawful and against North
Dakota public policy. N. D. Const. Art. XII, § 16. A corporate franchise that disobeys this provision may be
annulled. The constitution specifically prohibits the consolidation of stock, property, or franchises of any
railroad that owns a parallel or competing line. Any violation or attempt to evade this section of the
constitution is considered a forfeiture of the railroad’s charter. N.D. Const. Art. XII, § 12.
North Dakota has also adopted the Uniform State Antitrust Act in chapter 51-08.1 of the North Dakota
Century Code, which operates in North Dakota like the Sherman Antitrust Act operates federally. This
act makes it unlawful for two or more persons to restrain or monopolize trade or commerce in any
relevant market by contract, combination, or conspiracy. § 51-08.1-02. Any action brought pursuant to
this chapter must be brought in North Dakota district court. The state can bring an action through either
the attorney general or the state’s attorney with the permission of, or at the request of the attorney
general. The state can seek injunctive relief and civil penalties of not more than fifty thousand dollars for
each violation. § 51-08.1-07.
A person, including a corporation, limited liability company, partnership, or other legal entity, who is
injured or threatened with an injury to its business may bring an action for injunctive or equitable relief,
24
damages, court determined taxable costs, and reasonable attorney fees. If the trier of fact determines
that the violation was flagrant the recovery of the individual can be increased to three times the
damages sustained. § 51-08.1-08. The statute of limitations for an action brought under the Act is four
years. § 51-08.1-10.
Unfair trade practices in North Dakota are covered under chapter 51-10. This chapter makes it unlawful
for retailers or wholesalers to advertise, offer to sell, or sell merchandise at less than cost with the
intent or effect of unfairly diverting trade from a competitor or otherwise injuring a competitor. This
practice becomes unlawful if the result of such advertising, offer or sale is to tend to deceive any
purchaser or prospective purchaser, substantially lessen competition, or unreasonably restrain trade, or
create a monopoly in any line of commerce. § 51-10-03. A violation of this provision is considered a
class A misdemeanor. § 51-10-05. The courts can also provide injunctive relief through an action brought
on behalf of the state by the attorney general or the state’s attorney or through any private individual
that is damaged or has threatened injury or loss due to a violation. § 51-10-06.
Chapter 51-09 governs unfair discrimination in the purchase and sale of commodities in North Dakota.
This chapter makes it unlawful for any person, firm, company, association, corporation, or limited
liability company that is engaged in the production, manufacture or distribution of any commodity to
discriminate between different sections of the state or cities, by differences in selling prices for the
purpose of destroying a competitor’s business. § 51-09-01. A violation of this provision is considered
unfair discrimination and the violator is guilty of a class A misdemeanor. § 51-09-02. All contracts or
agreements that are made in violation of this chapter are void. § 51-09-03.
Chapter 4-14 governs discrimination in the price of farm products. Buyers are prohibited from
purchasing farm products at a higher price in one locality than is paid in another, unless the price is paid
to meet lawful competition. § 4-14-02. This prohibition extends to sellers of farm products as well. § 414-04. The penalties for a violation of this chapter include, annulment of charter, revocation of authority
to do business, and permanent injunctions. § 4-14-05,. A person found violating the provisions of this
chapter is guilty of a Class A misedemeanor. §4-14-07.
2.
North Dakota Regulation of Franchises
The general provisions on the regulation of franchises are found in chapter 51-19. It is unlawful to offer
or sell any franchise in North Dakota unless the franchise has been registered under chapter 51-19 or is
exempt. § 51-19-04. Exempt franchises include a franchisor that: (1) has a consolidated net worth of not
less than ten million dollars, or is owned by at least 80% by a corporation that has has a consolidated net
worth of not less than ten million dollars, and has had at least 25 franchisees conducting business for
25
five years immediately preceding the offer or sale, and provides written disclosures timely made and
notice of exemption timely filed; (2) offer or sale of franchise by franchisee or subfranchisor for their
own account if not effected by or through a franchiser and the franchisee or subfranchisor has obtained
written approval of the commissioner; (3) any other transactions which the commissioner by rule
exempts. § 51-19-04.
Registration applications and Notices of Exemptions must contain specified information and must be
filed with the Securities Commissioner. § 51-19-06. The commissioner administers all of the regulations
and charges all fees in relation to the regulation of franchises.
There are both civil and criminal penalties for the violation of registration requirements or other
fraudulent practices in relation to the regulation of franchises. Civil liability includes actions for
damages, rescission, and any other appropriate relief including attorney’s fees. § 51-19-12. Liability for
violations extends jointly and severally to any person with direct or indirect control and any employee
who aids materially in the violation. The statute of limitations on this type of action is five years from the
date that the injured party knew or reasonably should have known about the alleged violation. Criminal
liability extends to a willful violation and is considered a class B felony. § 51-19-14.
3.
North Dakota Consumer Protection Laws
Consumer protection provisions begin in chapter 51-12 with the regulation of false advertising in North
Dakota. False and misleading advertising by persons and other corporations or organizations is
prohibited and is punishable as a class B misdemeanor. See § 51-12-01 for a detailed list of covered
classes of organizations as well as products and types of advertising that are considered misleading.
Consumers are also protected in chapter 51-14.1, which regulates consumer spending through the use
of credit cards. Liability is limited to $100 for unauthorized use of a credit card, when the issuer notifies
the card holder of the potential liability, and the unauthorized use occurs before the cardholder notifies
the issuer of the loss, theft, or unauthorized use. § 51-14.1-02.
Chapter 51-15 protects consumers against unlawful sales and advertising practices. Relief for a violation
of the provisions of this chapter is available both to the state and any individual damaged by the fraud.
Chapter 51-18 regulates home solicitation sales. This chapter provides a buyer with a right to revoke or
cancel a home solicitation sale. § 51-18-02. A buyer of a product through a home solicitation sale, who is
under the age of 65, has until midnight of the third business day from which they signed the agreement
26
to cancel this agreement. If the buyer is older than 65 and the product involved was more than $50 that
person has fifteen business days from the midnight deadline of the day they signed the agreement to
cancel the agreement. In relation to this, the Seller must upon making the agreement notify the buyer of
their right to cancel the sale.
IV.
TAXATION
A.
Federal Taxation
1.
Federal Income Taxation
Federal income taxes are not affected by where a business chooses to locate in the U.S. There are
various methods of controlling the amount of the Federal income tax to be paid, and many of these
apply to domestic corporations as well as foreign owned corporations and foreign individuals.
2.
Personal Income Tax
Individuals are subject to Federal income tax on their worldwide income if they are U.S. citizens or
resident aliens. Resident alien status is determined under a set of complex rules. Any individual who is
not a U.S. citizen, and who does not wish to be taxed as such, and who plans to spend a substantial
amount of time in the U.S., should pay careful attention to these rules. Currently, the highest marginal
U.S. individual income tax rate is 39.6% for ordinary income and 28.6% for capital gains.
B.
State Taxation
1.
State Personal Income Tax
A tax is imposed upon every individual, to be paid annually with respect to the taxable income of such
individual at the following rates:
A.
Single, other than head of household or surviving spouse.
If taxable income is
then the tax is
not over $37, 450
1.10%
over $37, 450 but not over $90, 750
$411.95 plus 2.04% of amount over $37, 450
over $90, 750 but not over $189, 300
$1, 499.27 plus 2.27% of $90, 750
over $189, 300 but not over $411, 500
$3, 736.36 plus 2.64% of $189, 300
27
over $411, 500
B.
C.
$9, 602.44 plus 2.90% of $411, 500
Married filing jointly and surviving spouse.
If taxable income is
then the tax is
not over $62,600
$1.10%
over $62,600 but not over $151,200
$688 plus 2.05% of amount over $62,000
over $151,200 but not over $230, 450
$2,496 plus 2.27% of amount over $151,200
over $230,450 but not over $411, 500
$4,295.02 plus 2.64% of amount over $230,450
over $411,500
$$9,074.74 plus 2.90% of amount over $411,500
Head of Household.
If taxable income is
then the tax is
Not over $50,200
1.10%
Over $50,200 but not over $129,600
$552.20 plus 2.04% of amount over $50,200
Over $129,600 but not over $209,850
$2,171.96 plus 2.27% of amount over $129,600
Over $209,850 but not over $411,500
$3,993,64 plus 2.64% of amount over $209,850
Over $411,500
$9,317.20 plus 2.90% of amount over $411,500
§ 57-38-30.3. Separate rates are provided by statute for married persons filling separately and estates
and trusts.
Imposition of tax against nonresidents is paid annually with respect to income derived from all property
owned and from every business, profession, trade, or occupation carried on in the state by nonresidents
at the rates for net income of residents. § 57-38-03.
Imposition of tax against nonresidents must be levied, collected, and paid annually upon and with
respect to income derived from all property owned, from all gaming activity carried on in this state, and
from every business, trade, profession, or occupation carried on in this state by natural persons not
residents of the state at the rates specified to net income of a resident of North Dakota. §57-38-05.
28
A taxpayer’s state income tax return must be filed with the Tax Commissioner on or before April 15th
following the close of the calendar year. § 57-38-34.
Every tax that is imposed by chapter 57-38 becomes, from the time it is due and payable, a personal
debt from the person or corporation liable. § 57-38-44. Whenever any taxpayer liable to pay a tax
imposed refuses or neglects to pay the amount due, including any interest together with the costs that
may accrue in addition thereto, is a lien in favor of the state of North Dakota upon all property and
rights to property of the taxpayer. § 57-38-48. In order to preserve the lien provided for in section 5738-48 the tax commissioner shall file with the register of deeds of the county in which the property is
located, a notice of the lien. § 57-38-49.
Every employer making payment of wages to employees shall deduct and withhold from their wages
such percentage or percentages, as determined by the Tax Commissioner, multiplied by the total
amount required to be deducted by an employer from wages of an employee under the provisions of
the Internal Revenue Code as will approximate the income taxes due to the state. § 57-38-59.
An individual, estate, or trust that is subject to section 6654 of the Internal Revenue Code relating to a
failure to pay federal estimated income tax shall, at the time prescribed in this chapter, pay estimated
tax for the current taxable year. § 57-38-62.
Income from personal or professional services performed in this state by individuals must be assigned to
North Dakota regardless of the residence of the recipients of such income, except if an individual returns
to his place of abode in another state at least once a month and his state taxes his income and allows a
similar exclusion for income received for residents of North Dakota. § 57-38-04.
If any taxpayer, without intent to evade any tax imposed by this chapter, shall fail to pay the amount
shown as tax due on any return, there shall be added to the tax a penalty of five percent, or five dollars
whichever is greater. Any person who with intent to evade any requirement of this chapter, shall fail to
pay any tax, or to make, sign, or verify any return, or to supply any information required by law, or
under the provisions of this chapter, or with like intent shall make, render, sign, or verify any false or
fraudulent information, shall be liable to a penalty of not more than one thousand dollars to be
recovered by the Attorney General. Such person shall also be guilty of a class A misdemeanor. § 57-3845.
2.
Corporate Income Tax
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A tax is imposed upon the taxable income of every domestic and foreign corporation, which must be
paid annually at the following rates:
(1) One and forty-one hundredths percent (1.41%) for the first twenty-five thousand dollars
($25,000) of taxable income.
(2) Three and fifty-five hundredths percent (3.55%) on all taxable income above twenty-five
thousand dollars ($25,000) and not in excess of fifty thousand dollars ($50,000).
(3) Fourt and thirty-one hundredths percent on all taxable income above fifty thousand dollars
($50,000). § 57-38-30.
A limited liability company that is not treated as a partnership for federal income tax purposes must be
treated as a corporation for state tax purposes. § 57-38-07.1.
Partnerships are not subject to tax under this chapter. Persons carrying on a business as a partnership
are taxable on their shares of the partnership’s income, gain, loss, and deduction included in the
partner’s federal taxable income. § 57-38-08.
Each corporation that receives income from the sources designated in section 57-38-14, whether or not
required to file an income tax return pursuant to the provisions of the United States Internal Revenue
Code shall, unless exempted by the provisions of section 57-38-09, make a return in such form as the
Tax Commissioner may require for the purpose of making any computation required by this chapter. The
return must be signed by the president, vice president, treasurer, assistant treasurer, chief accounting
officer, or any other officer duly authorized to act on it. § 57-38-32.
The return must be filed with, and paid to, the State Tax Commissioner on or before the fifteenth day of
the April if made on the basis of the calendar year. Returns following the fiscal year must be filed by the
fifteenth day of the fourth month following the close of the fiscal year. Returns for cooperatives,
domestic international sales corporations, and foreign sales corporations made on the basis of the
calendar year must be filed on or before the fifteenth day of September following the close of the
calendar year and returns made on the basis of a fiscal year must be filed on or before the fifteenth day
of the ninth month following the close of the fiscal year. § 57-38-34.
If any taxpayer, without intent to evade any tax imposed by this chapter, shall fail to pay the amount
shown as tax due on any return, there shall be added to the tax a penalty of five percent, or five dollars
whichever is greater. Any person, including any officer or employee of any corporation or member or
employee of any partnership, or any member, employee, governor, or manager of a limited liability
company who, with intent to evade any requirement of this chapter, shall fail to pay any tax, or to make,
sign, or verify any return, or to supply any information required by law, or under the provisions of this
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chapter, or with like intent shall make, render, sign, or verify any false or fraudulent information, shall
be liable to a penalty of not more than one thousand dollars to be recovered by the attorney general.
Such person shall be also be guilty of a class A misdemeanor. § 57-38-45.
3.
Property Tax
All property in North Dakota is subject to taxation unless expressly exempted by law. § 57-02-03.
a. Exemptions
The following property is exempt from taxation:
(1) All property owned exclusively by the United States.
(2) All property owned by the state, but no land contracts to be sold by the state shall be exempt.
(3) All property belonging to any political subdivision.
(4) All inalienable property of Indians.
(5) All lands used exclusively for burial grounds or cemeteries.
(6) All property belonging to schools, colleges, or other institutions of learning.
(7) Repealed by S.L. 2011, ch. 445, § 2.
(8) All buildings belonging to institutions of public charity, including public hospitals and nursing homes
licensed pursuant to section 23-16-01 under the control of religious or charitable institutions, used
wholly or in part for public charity, together with the land actually occupied by such institutions not
leased or otherwise used with a view to profit.
a. The exemption provided by this subsection includes any dormitory, dwelling, or residentialtype structure, together with necessary land on which such structure is located, owned by a
religious or charitable organization recognized as tax exempt under section 501(c)(3) of the
United States Internal Revenue Code which is occupied by members of said organization who
are subject to a religious vow of poverty and devote and donate substantially all of their time to
the religious or charitable activities of the owner.
b. For purposes of this subsection and section 5 of article X of the Constitution of North Dakota,
property is not used wholly or in part for public charity or charitable or other public purposes if
that property is residential rental units leased to tenants based on income levels that enable the
owner to receive a federal low - income housing income tax credit.
(9) All buildings owned by any religious corporation or organization and used for the religious services
of the organization, and if on the same parcel, dwellings with usual outbuildings, intended and
ordinarily used for the residence of the bishop, priest, rector, or other minister in charge of services,
land directly under and within the perimeter of those buildings, improved off-street parking or
reasonable landscaping or sidewalk area adjoining the main church building, and up to a maximum
of five additional acres [ 2.02 hectare] must be deemed to be property used exclusively for religious
services, and exempt from taxation, whether the real property consists of one tract or more. If the
residence of the bishop, priest, rector, or other minister in charge of services is located on property
not adjacent to the church, that residence with usual outbuildings and land on which it is located, up
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to two acres [.81 hectare], is exempt from taxation. The exemption for a building used for the
religious services of the owner continues to be in effect if the building in whole, or in part, is rented
to another otherwise tax-exempt corporation or organization, provided no profit is realized from the
rent.
(10) Property of an agricultural fair association duly incorporated for the exclusive purpose of holding
agricultural fairs
(11) Property owned by lodges, chapters, commanderies, consistories, farmers’ clubs, commercial clubs
and like organizations, not used for profit, and used by them for places of meeting and for
conducting their business. All property owned by a fraternity, or sorority, or organization of college
students. If any such organization is licensed for the sale of alcoholic beverages, that portion of the
premises shall be deemed not to be used exclusively for conduct of its business and meeting if
alcoholic beverages are sold for a profit. If food sold or consumed in any fraternity or sorority house,
is sold at a profit on the premises, that portion of the premises shall be deemed not to be used
exclusively for places of meeting or conducting the business.
(12) Repealed by S.L. 1983, ch. 595 § 3.
(13) All land used as a public park or monument ground belonging to any military organization, and not
used for gain.
(14)The armory and lands or lots upon which it is situated, owned by a regiment, battalion, or company
of the North Dakota national guard, and used for military purposes by such organizations.
(15)All farm structures and improvements located on agricultural lands.
(16)Property owned by a corporation organized for the purpose of promoting athletic and educational
needs and uses at any state educational institution in this state, and not organized for profit.
(17)Money and credits, including shares of corporate stock and membership interests in limited liability
companies, except moneyed capital which is so invested or used as to come into direct competition
with money invested in bank stock.
(18) Repealed by S.L. 1983, ch. 595 § 3
(19) Repealed by S.L. 1983, ch. 595 § 3
(20)Fixtures, buildings, and improvements up to the amount of valuation specified, when owed and
occupied as a homestead, as defined by the following persons:
(a) A paraplegic veteran of the United States armed forces or any veteran who has been awarded
specially adapted housing by the Veterans’ Administration, or unremarried surviving spouse of
the deceased veteran.
(b) A disabled veteran of the United States armed forces who was discharged under honorable
conditions or who has been retired from the armed forces with a disability of fifty percent or
more, or unremarried surviving spouse if the veteran is deceased.
(c) Any permanently and totally disabled person who is permanently confined to use of a
wheelchair, or, if deceased, the unremarried surviving spouse of the disabled person.
(21) Repealed by S.L. 1983, ch. 595 § 3
(22) All fixtures, buildings, and improvements upon any non-farmland up to a taxable valuation of seven
thousand two hundred dollars, owned and occupied as a home by a blind person.
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(23)All structural improvements to land used exclusively for the business of operating an automobile
parking lot within a city for general public patronage.
(24)Repealed by S.L. 1983, ch. 595 § 3
(25) All personal property is exempt.
(26) All fixtures, buildings, and improvements owned by a paraplegic disabled person or their
unremarried spouse.
(27) Installations, machinery, and equipment of systems designed to provide heating or cooling or to
produce power by utilizing solar, wind, or geothermal energy.
(28) All fixtures, buildings, and improvements owned by any cooperative or nonprofit corporation and
used by it to furnish potable water for uses other than the agricultural irrigation.
(29) Property to which title is held by a city pursuant to chapter 40-57 which is leased to an entity
described in subsection 8 and used by the entity as provided in subsection 8 or subleased to a public
school district for educational purposes.
(30) Property, but not including property used for residential purposes, owned by an organization
described in subsection 9 and leased to a public school district for educational purposes; provided,
that the property had previously been owned and occupied by the organization for an exempt
purpose described in subsection 9 for a period of at least five years.
(31) All group homes operated by nonprofit corporations.
(32)Minerals in place in the earth which at the time of removal from the earth are then subject to taxes
imposed under chapter 57-51. 57-61, or 57-65.
(33)Property used for athletic or recreational activities when owned by a political subdivision.
(34) Any building located on land owned by the state if the building is used at least in part for academic
or research purposes by students and faculty of a state institution of higher education.
(35)Up to one hundred and fifty thousand dollars of the full value of all new single-family residence,
condominium, or townhouse property, exclusive of the land on which it is situated, for two years
after commencement of construction provided the governing body of either the city or county has
approved exemption, taxes and exemptions are not delinquent, and builder or first owner still owns
property.
(36) The governing city may grant a property tax exemption for buildings and improvements by licensed
provider of childhood services.
(37) A pollution abatement improvement. As used in this subsection, "pollution abatement
improvement" means property, exclusive of land and improvements to the land such as ditching,
surfacing, and leveling.
(38) The leasehold interest in property owned by the state which has been leased for pasture or grazing
purposes or upon which payments in lieu of property taxes are made by the state.
(39) All property relating to any waterworks, mains, and water distribution system.
(40) All property relating to any sewage system and facilities used for the collection, treatment,
purification, and disposal of sewage.
(41) Notwithstanding any other law, all property, including any possessory interest therein, leased to a
private entity pursuant to section 54-01-27, which property is operated by, or providing services to,
the state or its citizens.
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(42) New single-family residential property, exclusive of the land on which it is situated, is exempt from
assessment for the taxable year in which construction began and the next two taxable years, if the
property remains owned by the builder and remains unoccupied.
(43) All residential rental property, inclusive of land and administrative and auxiliary
buildings, used as affordable housing shall be exempt from taxation for the property's
period of affordability.
§ 57-02-08.
Any person sixty-five years of age or older or, any person who is permanently totally disabled with a
limited income shall receive a reduction in the assessment on the taxable valuation on the homestead. §
57-02-08.1.
Wetlands qualifying under section 57-02-08.4 are exempt from taxation. § 57-02-08.4.
b. Assessment
All real property subject to taxation must be listed and assessed every year with reference to its value,
on February first of that year. § 57-02-11. All items of taxable property are assessed at their true and full
value. § 57-02-27.1. True and full value of agricultural land is defined as “capitalized average annual
gross return”. The “average annual gross return” is determined by formula. § 57-02-27.2.
All property subject to taxation at a percentage of assessed value is as follows:
(1) All residential property is valued at nine percent (9%) of assessed value.
(2) All agricultural property is valued at ten percent (10%) of assessed value.
(3) All commercial property air carrier transportation, and railroad property is valued at ten percent
(10%) of assessed value.
(4) All centrally assessed property to be valued at ten percent of assessed value except as provided in
section 57-06-14.1.
The resulting amounts must be known as the taxable valuation. § 57-02-27.
All taxable tangible personal property shall be assessed in the county, city, township or district in which
it is situated. Moneyed capital shall be listed and assessed against the owner at his place of business. §
57-02-15. Railroad property is assessed by the state Board of Equalization, at its annual meeting in
August of each year. § 57-05-01. A tax of five percent of the gross value at the well is levied upon all oil
produced within North Dakota. § 57-51-02.
c. Review of Assessment
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The board of equalization of a city consists of the members of the governing body, and shall meet at the
usual place of meeting of the governing body of the city, on the second Tuesday in April in each year. §
57-11-01. At its meeting, the board shall proceed to equalize and correct the assessment roll. § 57-1103. The board of county commissioners shall meet within the first ten days of June of each year and shall
constitute a board of equalization of the assessments made within the county. The order of business
includes the equalizations of assessments of property assessed by city boards of equalization and
township boards of equalization. § 57-12-01. The state board of equalization meets annually on the
second Tuesday in August at the office of the state Tax Commissioner. The state board examines and
compares the returns of the assessments of taxable property as returned by the counties in the state. §
57-13-03.
d. Payment and Penalties
All real and personal property taxes and yearly installments of special assessment taxes are due on the
first day of January following the year for which the taxes were levied. The first installment of real estate
taxes, all personal property taxes, and yearly installments of special taxes are delinquent after the first
day of March following and if not paid on or before that date are subject to a penalty of three percent,
and on May first following an additional penalty of three percent, an additional three percent on July
first, and an additional three percent on October fifteenth following. The second installment of real
estate taxes becomes delinquent after October fifteenth, and, if not paid on or before that date
becomes subject to a penalty of six percent. § 57-20-01. All taxes are payable to the county treasurer of
each county. § 57-20-07. A five percent discount to all taxpayers is available to all who pay their real
estate taxes in full on or before February fifteenth prior to the date of delinquency. § 57-20-09.
e. Collection
The county treasurer is the collector of property taxes. § 57-20-07. At any time after any taxes or special
assessments or any installments are levied and assessed upon any real property within this state, have
been delinquent for more than twelve months, the county treasurer, if the property produces rent, may
petition the district court, for an order directed to the tenant or subtenant, if any, and to the owner of
the property, directing that the rents be paid to the county treasurer. § 57-21-01. The county treasurer
must deliver the list of unpaid delinquent personal property taxes to the sheriff of the county on the
fifteenth day of October and the sheriff shall proceed to collect all such taxes. If such taxes are not paid
upon demand, the sheriff shall distrain sufficient goods and chattels belonging to the person charged
with the taxes. § 57-22-03.
Collection of personal property taxes entered and extended as a lien on real estate may be enforced by
foreclosure tax lien. § 57-22-22. The lien of personal property taxes charged against real estate has
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priority over any judgment, mortgage, or other lien or claim, placed of record after the date when such
taxes are entered. § 57-22-23. The board of county commissioners may institute an action in the name
of the county to collect delinquent personal property taxes. § 57-22-24.
f.
Liens
Personal property taxes are a lien upon all the personal property in possession of the person assessed
from and after the date when the assessment is made. § 57-22-13. Taxes upon real property are a
perpetual paramount lien against all persons, except the United States and North Dakota. Taxes upon
personal property are not affected by any general statute of limitations. § 57-02-40. All taxes, as
between vendor and purchaser, become a lien on real estate on and after the first day of January
following the year for which the taxes were levied. § 57-02-41. Personal property taxes are not a lien on
real estate unless entered and extended against the real estate and do not have priority over liens
existing before extension. § 57-22-23.
g. Sale
Whenever personal property taxes are collected by distraint, the sheriff shall take the specific property
into his possession, and immediately must proceed to advertise the property by posting notices in three
public places in the district or municipality where such property is taken, stating the time when and the
place where the property will be sold. § 57-22-04.
4.
Sales Tax
There is imposed a five percent tax upon the gross receipts of retailers from all sales at retail including
the leasing or renting of tangible personal property,, the following to consumers or users:
(1) Tangible personal property.
(2) The furnishing or service of communication services including one-way and two-way
telecommunication services or steam other than steam used for processing agricultural products.
(3) Tickets or admissions to places of amusement or entertainment or athletic events.
(4) Magazines and other periodicals
(5) The leasing or renting of a hotel or motel room or tourist court accommodations.
(6) The leasing or renting of tangible property the transfer of title to which has not been subjected to
retail sales tax under this chapter or a use tax under chapter 57-40.2.
(7) The sale, lease or rental of a computer and prewritten computer software including a mandatory
computer software maintenance contract for prewritten computer software and optional computer
software maintenance contract for prewritten computer software that provides only software
upgrades or data updates.
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§ 57-39.2-02.1.
.
The sale of food and food products for consumption off the premises where purchased are exempt from
sales tax. § 57-39.2-04.1. Alcoholic beverages, candy, chewing gum, dietary supplements, prepared
food, soft drinks and tobacco are subject to sales tax. Other exemptions from the sales tax are set out in
section § 57-39.2-04.1.
Sales taxes are due in quarterly installments on or before the last day of the month following the close
of each calendar quarter. If the total sales for the preceding calendar year exceeds $330,000 or more
the sales tax is payable monthly on or before the last day of each month. § 57-39.2-12.
Any person failing to file a return or corrected return or to pay sales tax imposed under this chapter, is
subject to interest of one percent of the tax for each month or fraction of a month of delay except the
first month after the return or the tax became due. Any person failing to comply with any of the
provisions of this chapter or failing to remit payment within the time allowed shall be guilty of a class A
misdemeanor. § 57-39.2-18.
V.
LABOR AND EMPLOYMENT
1.
Immigration
A.
Federal Considerations
With the globalization of world markets, employers located in the United States often seek to employ
foreign personnel. A variety of permanent and temporary visas are available depending on various
factors such as the job proposed for the alien, the alien's qualifications, and the relationship between
the United States employer and the foreign employer. Permanent residents are authorized to work
where and for whom they wish. Temporary visa holders have authorization to remain in the United
States for a temporary time and often the employment authorization is limited to specific employers,
jobs, and even specific work sites.
a.
Permanent Residency (the "green card")
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Permanent residency is most commonly based on family relationships, such as marriage to a United
States citizen, or offer of employment. Permanent residence gained through employment often involves
a time-consuming process that can take several years to obtain. Therefore, employers considering the
permanent residence avenue for an alien employee should ascertain the requirements for that
immigration filing prior to bringing the employee to the United States.
b.
Temporary Visas
The following are the most commonly used temporary visas:
1.
E-1 Treaty Trader and E-2 Treaty Investor Visas:
These are temporary visas for persons in managerial, executive or essential skills capacities who
individually qualify for or are employed by companies that engage in substantial trade with or
investment in the United States. E visas are commonly used to transfer managers, executives or
technicians with specialized knowledge about the proprietary processes or practices of a foreign
company to assist the company at its United States location. Generally, E visa holders receive a five-year
visa stamp but only one-year entries at any time.
2.
H-1A and H-1B Specialty Occupation Visas:
H-1B visas are for persons in specialty occupations that require at least a bachelor's degree. Examples of
such professionals are engineers, architects, accountants, and, on occasion, business persons. Initially,
H-1B temporary workers are given three-year temporary stays with possible extensions of up to an
aggregate of six years. H-1B visas are employer-and job-specific. H-1A visas are for registered nurses
only.
3.
L-1 Intracompany Transferee Visas:
Most often utilized in the transfer of executives, managers or persons with specialized knowledge from
international companies to United States-related companies, L-1 visas provide employer-specific work
authorization for an initial three-year period with possible extensions of up to seven years in certain
categories. As in the case of certain E visa capacities, some L managers or executives may qualify for a
shortcut in any permanent residence filings.
4.
B-1 Business Visitors and B-2 Visitors for Pleasure:
These visas are commonly utilized for brief visits to the United States of six months or less. Neither visa
authorizes employment in the United States. B-1 business visitors are often sent by their overseas
employers to negotiate contracts, to attend business conferences or board meetings, or to fill
contractual obligations such as repairing equipment for brief periods in the United States. B-1 or B-2
visitors cannot be on the United States payroll or receive United States-source remuneration.
5.
TN Professionals:
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Under the North American Free Trade Agreement, certain Canadians and Mexicans who qualify and fill
specific defined professional positions can qualify for TN status. Such professions include some
medical/allied health professionals, engineers, computer systems analysts, and management
consultants. TN holders are granted one-year stays for specific employers and other employment is not
allowed without prior INS approval. Particularly with regard to Canadians, paperwork required for filing
these requests is minimal.
6.
F-1 Academic Student Visas Including Practical Training:
Often foreign students come to the United States in F-1 status for academic training or M-1 status for
vocational training. Students in F-1 status can often engage, within certain constraints, in on-campus
employment and/or off-campus curricular or optional practical training for limited periods of time.
Vocational students cannot obtain curricular work authorization but may receive some post-completion
practical training in limited instances.
7.
J Exchange Visitor Visas:
These visas are for academic students, scholars, researchers, and teachers traveling to the United States
to participate in an approved exchange program. Training, not employment, is authorized. Potential
employers should note that some J exchange visitors and their dependents are subject to a two-year
foreign residence requirement abroad before being allowed to change status and remain or return to
the United States.
8.
O-1 and O-2 Visas for Extraordinary Ability Persons:
O-1 and O-2 visas are for persons who have extraordinary abilities in the sciences, arts, education,
business or athletics and sustained national or international acclaim. Also included in this category are
those persons who assist in such O-1 artistic or athletic performances.
9.
P-1 Athletes/Group Entertainers and P-2 Reciprocal Exchange Visitor Visas:
These temporary visas allow certain athletes who compete at internationally recognized levels or
entertainment groups who have been internationally recognized as outstanding for a substantial period
of time, to come to the United States and work. Essential support personnel can also be included in this
category.
10.
There are a number of other non-immigrant visas categories that may apply to
specific desired entries.
When planning to bring foreign personnel to the United States, United States employers should allow
several months for processing by the Immigration and Naturalization Service, as well as the Department
of State and Department of Labor. Furthermore, employers should be aware that certain corporate
39
changes, including stock or asset sales, job position restructuring, and changes in job duties, may
dramatically affect (if not invalidate) the employment authorization of foreign employees.
2.
Labor and Employment Statutes
a.
Age Discrimination in Employment Act ("ADEA")
The ADEA forbids discrimination based on age in employment decisions. The ADEA applies to employers
engaged in interstate commerce who have twenty or more employees for each working day in each of
twenty or more calendar weeks in the current or preceding calendar year.
b.
Americans with Disabilities Act ("ADA")
The ADA proscribes discrimination in employment based on the existence of a disability. Furthermore,
the Act requires that employers take reasonable steps to accommodate disabled individuals in the
workplace. This Act applies to employers engaged in interstate commerce who have fifteen or more
employees for each working day in each of twenty or more calendar weeks in the current or preceding
calendar year.
c.
Employee Polygraph Protection Act ("EPPA")
The EPPA greatly restricts polygraph testing of employees. The Act applies to all employers engaged in
interstate commerce. Exempted are employers whose primary business purpose is running a security
service or manufacturing, distributing or dispensing a controlled substance.
d.
Equal Pay Act ("EPA")
The EPA was an amendment to the Fair Labor Standards Act and is designed to promote equal pay for
men and women who do the same jobs. Therefore, if the minimum wage provision of the FLSA is
applicable to one's business, then the EPA is applicable as well.
e.
Fair Labor Standards Act ("FLSA")
The FLSA establishes the minimum wage, overtime and child labor laws for employers engaged in
industries affecting interstate commerce, regardless of the number of employees.
f.
Family and Medical Leave Act ("FMLA")
40
The FMLA requires that eligible employees be allowed to take up to twelve weeks of unpaid leave per
year for the birth or adoption of a child or the serious health condition of the employee or the spouse,
parent or child of the employee. This Act applies to all employers engaged in commerce where the
employer employs fifty or more employees for each working day during each of twenty or more
calendar weeks in the current or preceding calendar year.
g.
Federal Contractors
Employers that are federal contractors or subcontractors, depending on the type and size of their
contracts, may have affirmative action obligations under Executive Order 11246 and the Vocational
Rehabilitation Act. Certain federal contractors are also covered by the Drug-Free Workplace Act.
h.
Other Federal Regulations
Many employers operate in industries that are regulated by federal agencies. For example, the
Department of Transportation requires employers to drug test employees who drive motor vehicles of
over 26,000 pounds. Employers in regulated industries must be aware of any requirements imposed by
federal or state regulations.
i.
National Labor Relations Act and Labor Management Reporting and Disclosure Act
These statutes set forth the guidelines governing labor-management relations. They apply to all
employers who are engaged in any industry in or affecting interstate commerce, regardless of the
number of employees. Employers who operate under the Railway Labor Act are not subject to these
Acts.
j.
Occupational Safety and Health Act ("OSHA")
OSHA is the act that established the mechanism for establishing and enforcing safety regulations in the
workplace. It applies to all employers who are engaged in an industry affecting commerce, regardless of
the number of employees.
k.
Title VII
Title VII is the broad civil rights statute that forbids discrimination in hiring based on race, religion,
gender, and national origin. It applies to employers engaged in interstate commerce who have fifteen or
41
more employees for each working day in each of twenty or more calendar weeks in the current or
preceding calendar year.
l.
Worker Adjustment Retraining and Notification Act ("WARN")
WARN requires employers to give sixty days notice to their employees of plant closings or mass layoffs.
This Act applies to all businesses that employ 100 or more employees, excluding part-time employees,
and to businesses that employ 100 or more employees who in the aggregate work at least 4,000 hours
per week (exclusive of hours of overtime).
m.
Immigration Reform and Control Act ("IRCA")
IRCA requires that employers verify employment authorization for all employees hired on or after
November 6, 1991. Employers are subject to significant fines and penalties for failure to comply with
documentation requirements under IRCA, as well as for hiring unauthorized workers or discriminating
against persons who appear or sound foreign.
3.
Employee Benefits
a.
Employee Retirement Income Security Act of 1974 ("ERISA")
ERISA governs implementation and maintenance of most types of employee benefit plans, including
most retirement programs, life and disability insurance programs, medical reimbursement plans, health
care plans, and severance policies. ERISA sets out a detailed regulatory scheme mandating certain
reporting and disclosure requirements, setting forth fiduciary obligations and, in most types of
retirement plans, coverage, vesting and funding requirements. ERISA generally preempts state laws
governing employee plans and arrangements.
b.
Consolidated Omnibus Budget Reconciliation Act ("COBRA")
COBRA requires employers to make continuing coverage under medical reimbursement and health care
plans available to certain terminated employees, at the cost of the employees. The usual period for
which this coverage must be continued is eighteen months. COBRA contains very specific procedures for
notifying terminated employees of their COBRA rights.
42
B.
State Considerations
All matters pertaining to labor laws, rules and regulations are under the direction of the Commissioner
of Labor. Ch. 34-05. All public officers and all employers shall furnish to the Commissioner such
information as the Commissioner may request relating to their respective offices or businesses. Any
officer, employer, and any operator or manager of any establishment, who fails or refuses to furnish the
commissioner with such information is guilty of a class B misdemeanor. § 34-05-03.
In North Dakota employment is generally “at-will” unless there is a contract to the contrary. Section 3403-01 provides that an employment having no specified term may be terminated at the will of either
party on notice to the other. Employment can automatically be terminated under a certain
circumstances, including: (1) the expiration of its appointed term; (2) the extinction of its subject; (3) the
death of the employee; (4) the employee’s legal incapacity to act. § 34-03-02. Employment is also
generally terminated when the employee receives notice of the death of the employer or the
employer’s legal incapacity to contract. § 34-03-03.
1.
Wages
The Commissioner of Labor has the power to investigate and ascertain the wages and the hours and
conditions of employees in the different occupations in which they are employed within North Dakota. §
34-06-02. The Commissioner may prescribe standards of minimum wages for employees in any
occupation in this state. § 34-06-03. An employee who quits employment for good cause and an
employee who is dismissed by his employer for good cause are entitled to a proportionate share of the
compensation that had been earned at the time of termination. § 34-03-09.
If at the time of the employee’s death, the employer is indebted to him for work, labor, or services
performed, and no executor or administrator of his estate has been appointed, the employer shall pay
the indebtedness to the surviving spouse, or heirs of the employee. § 34-01-12.
Any suit or action to recover overtime, damages, fees, or penalties regarding the payment of wages and
specifically under the Fair Labor Standards Act of 1938 must be brought within two years of the date the
claim for relief accrues. § 34-01-13.
2.
Equal Pay
No employer may discriminate between employees in the same establishment on the basis of sex, by
paying wages to any employee in any occupation in this state at a rate less than the rate at which the
43
employer pays any employee of the opposite sex for comparable work on jobs which have comparable
requirements relating to skill, effort, and responsibility, but not to physical strength. § 34-06.1-03. Pay
differences that are based on established seniority systems, job descriptive systems, merit increase
systems or executive training programs are not prohibited as long as those systems do not discriminate
on the basis of gender.
3.
Hours of Labor
It is unlawful to employ employees for unreasonably long hours in any occupation within North Dakota.
§ 34-06-05. Specific laws are applicable to employers in the business of selling merchandise at retail.
Retail employers may not require an employee to work seven consecutive days and must allow an
employee at least one period of twenty-four consecutive hours of time off for rest or worship in each
seven-day period. § 34-06-05.1. A violation of this section is a class B misdemeanor.
4.
Child Labor
The Commissioner of Labor has authority to prescribe standards of minimum wages for minors. § 34-0603. It is unlawful to employ minors for unreasonably low wages in any occupation in North Dakota. §
34-06-05. There is a complete bar to employing any minor under the age of fourteen years, except that
such a minor may be employed in farm labor, domestic service, or in the employment of and under the
direct supervision of that minor’s parent, guardian, or grandparent. § 34-07-01. No minor under
fourteen years of age may be employed whatever during any part of the hours when the public schools
of the district in which the minor resides are in session.
Minors aged fourteen or fifteen has some limited ability to work. No minor fourteen or fifteen years of
age may be employed or permitted to work in any occupation except farm labor, domestic service, or in
the employment of, and under the direct supervision of, the minor’s parent or guardian unless the
minor has graduated from high school or is exempt from compulsory school attendance or, unless the
minor has an employment certificate. § 34-07-02. A minor under the age of sixteen years may be
employed to act or perform in a theater or place of amusement if a permit is obtained from the minor’s
parents or guardian and the Commissioner of Labor. § 34-07-17. These restrictions also do not apply to
newspaper carriers. § 34-07-17.1.
However, certain types of employment are prohibited. No minor fourteen or fifteen years of age may
be employed or permitted to work in:
(1)
Any employment involving the use of power driven machinery except office machines, machines
used in retail stores, machines used in food service operations, machines used in service
44
stations, such as those in connection with car cleaning or in the dispensing of gasoline, or
lawnmowers.
(2)
Construction work other than cleaning, errand running, moving, stacking, loading, or unloading
materials by hand.
(3)
Lumbering or logging operations.
(4)
Sawmills or planing mills.
(5)
The manufacture, disposition, or use of explosives.
(6)
The operation of any steam boiler, steam machinery, or other steam generating apparatus.
(7)
The operation of laundry machines.
(8)
Preparing any composition in which dangerous or poisonous acids are used.
(9)
The manufacture of paints, colors, or white lead.
(10)
Operating passenger or freight elevators.
(11)
Any mine or quarry.
(12)
The manufacture of goods for immoral purposes.
(13)
Any employment that may be considered dangerous to life and limb.
(14)
Occupations which involve working on an elevated surface.
(15)
Security positions that require use of a firearm.
(16)
Door-to-door sales of any kind.
(17)
Occupations involving the working around any chemicals, toxins, or heavy metals.
(18)
Occupations in or in connection with medical or other dangerous wastes.
(19)
Occupations which involve the handling of blood, body fluids, and body tissue.
(20)
Cooking, baking, grilling, or frying.
(21)
Warehouse or storage work of any kind in which the objective is distributive.
(22)
Trucking or commercial driving of any kind.
§ 34-07-16.
Limits are further placed on the number of hours a minor under the age of sixteen can work. Minors
under the age of sixteen years may not be employed or permitted to work at any occupation before
7:00 a.m. or after 7:00 p.m., except in domestic services and farm labor. From June first through Labor
Day, a minor’s working hours are extended from 7:00 a.m. to 9:00 p.m. During the school week, a minor
under the age of sixteen may not be employed more than eighteen hours a week or more than three
hours on a school day. During nonschool weeks, minors under the age of sixteen may not work more
than forty hours a week or more than eight hours a day. § 34-07-15.
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46
5.
Safety Regulations
North Dakota Workforce Safety and Insurance (“WSI”) has full power and jurisdiction over, and the
supervision of, every employment and place of employment subject to the provisions of title 65.
Whenever necessary to adequately enforce and administer title 65, WSI shall issue and enforce all
necessary and proper rules and safety regulations. § 65-03-01. An employer who fails to comply with
any reasonable safety rule or regulation made by WSI, within twenty days after notice from WSI, shall be
guilty of an infraction, and WSI may penalize the premium rating of the employer guilty of such violation
in an amount not exceeding ten percent during the year or years in which the violation continues. § 6503-02.
An employer may not discharge, discipline, threaten, discriminate, or penalize an employee because the
employee reports a violation or suspected violation of federal or state law or rule to an employer or to a
governmental body or law enforcement official. § 34-01-20.
6.
Labor Unions
Employees have the right to self-organization, to form, join, or assist labor organizations, to bargain
collectively through representatives and to engage in other lawful concerted activities for the purpose of
collective bargaining. § 34-12-02. It is unfair labor practice for any employer to interfere with the rights
guaranteed in section 34-12-02. § 34-12-03. The right of persons to work may not be denied on account
of membership or nonmembership in any labor union. § 34-01-14. It is a discriminatory practice for a
labor organization to deny membership rights to an individual with respect to the person’s hiring,
apprenticeship, training, tenure, compensation, upgrading, layoff, or a term of condition of employment
because of race, color, religion, sex, national origin, age, physical or mental disability, marital status, or
receipt of public assistance. § 14-02.4-05.
7.
Public Employees
“Public employee” means any person providing services for the state, county, city or other political
subdivision, for which compensation is paid. § 34-11.1-01. No public employee may be prohibited from
engaging in political activity, except when on duty or acting in an official capacity. § 34-11.1-02. Each
state employee is, if otherwise qualified, entitled to work with that state employee’s spouse. § 34-11.104.1. No agency, appointing authority, organization, or employee may directly or indirectly require or
coerce any agency employee to participate in any activity unless the activity is related to the
performance of official duties. § 34-11.1-05. A violation of the provisions of chapter 34-11.1 is a class B
misdemeanor. § 34-11.1-08.
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8.
Discrimination
It is the policy of the state of North Dakota to prohibit discrimination on the basis of race, color, religion,
sex, national origin, age, the presence of any mental or physical disability, marital status, receipt of
public assistance, or participation in lawful activity off the employer’s premises during nonworking hours
which is not in direct conflict with the essential business-related interests of the employer. It is also the
policy of the state to prevent and eliminate discrimination in employment relations, public
accommodations, housing, state, and local government services, and credit transactions; and to deter
those who aid, abet, or induce discrimination or coerce others to discriminate. § 14-02.4-01.
Any person claiming to be aggrieved by a discriminatory practice with regard to public services or public
accommodations may file a complaint with the Department of Labor or may bring an action in district
court within 180 days of the alleged wrongdoing. Any person claiming to be aggrieved by any other type
of discriminatory practice may file a complaint with the Department of Labor or may bring an action in
district court within 300 days of the alleged wrongdoing. § 14-02.4-19. If it is determined that the
respondent has engaged in an unlawful practice, relief may include, but is not limited to, injunctions,
equitable relief, and back pay limited to no more than two years from the date of the filing of the
complaint. § 14-02.4-20. Neither compensatory nor punitive damages are allowed. The prevailing party
may be granted reasonable attorney’s fee as part of the costs.
9.
Workers Compensation Act
Worker’s compensation coverage in North Dakota is a monopolistic system administered by the state
agency, North Dakota Workforce Safety and Insurance (“WSI”). WSI is empowered to administer the
policies, powers, and duties provided by Title 65 of the North Dakota Century Code. § 65-01-02.
a. General
It is unlawful for any employer in the state to employ anyone in hazardous employment without first
making application for workers’ compensation insurance coverage for the protection of the employee.
The employer must notify WSI of the intended employment, the nature of the intended employment,
and the estimated payroll for the following twelve months. § 65-04-33(1). An employer who willfully
fails to secure workers compensation coverage for its employees is liable to the state in the amount of
$2,000 plus three times the amount of premiums the employer should have paid. § 65-04-33(2).
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WSI classifies employments by their degrees of hazard and fixes the premium rate for each
classification. § 65-04-01. Each employer must pay the amount of premiums determined by WSI
annually. An employer must display a certificate of premium payment in the workplace. Failure to timely
pay premiums or display the notice of compliance subjects an employer to monetary penalties. § 65-0433, §65-04-04. The information contained in an employer’s report is only for the use of the organization
and is not open to the public. § 65-04-15.
b. “Employees”
Each individual who performs services for another for remuneration is presumed to be an employee of
the person for whom the services are performed. § 65-01-03.
Employees required to be covered by worker’s compensation insurance include all private employment
and all elective and appointed officials of North Dakota and its political subdivisions; aliens; county
general assistance workers except those who are engaged in repaying to counties moneys that the
counties have been compelled by statute to expend for county general assistance; and minors, whether
lawfully or unlawfully employed.
The Workers Compensation Act does not apply to workers in agricultural or domestic service; any
employment of a common carrier by railroad; any employment for the transportation of property or
persons by nonresident, where, in such transportation, the highways are not traveled more than seven
miles and return over the same route within the state of North Dakota; all members of the clergy and
employees of religious organizations. § 65-01-02.
Independent contractors are not “employees.” However, the independent contractor status must be
determined under the “common law test” and as set forth in WSI’s regulations. § 65-01-03. The party
asserting “independent contractor” status has the burden of proving it.
c. Employer’s Immunity
Employers who have contributed premiums to the fund are relieved from liability for injury and death to
its employees. Individuals entitled to worker’s compensation benefits must look solely to the fund for
such compensation. § 65-01-08.
The payment of compensation or other benefits by WSI to an injured employee or in the case of death
to the injured employee’s dependents are in lieu of any and all claims for relief whatsoever against the
employer of the injured or deceased employee. § 65-05-06.
49
When an injury or death is due to the negligence of a third party, the employee may claim worker’s
compensation benefits and proceed at law to recover damages against such other person. The
organization is subrogated to rights of the employee to the extent of fifty percent of the damages
recovered up to a maximum of the total amount it has paid. If the injured employee does not institute
suit, WSI may bring an action in its own name to recover damages. § 65-01-09.
An employer who fails to comply with chapter 65-04 is liable to that employer’s employees for damages
suffered by reason of injuries sustained in the course of employment and is liable to the dependents of a
deceased employee. § 65-09-01. An employee or the employee’s dependents, in the case of death, may
also file an application with WSI for an award of compensation under title 65 and in addition may
maintain a civil action against the employer for damages resulting from the injury or death. In the
action, the employer may not assert the common-law defenses of the fellow servant rule, assumption of
risk, or contributory negligence. § 65-09-02. The employer is also liable for premiums, reimbursements,
penalties, and interest. § 65-09-01.
d. Claims
All claims for worker’s compensation injuries must be filed by the injured employee, or someone on the
injured employee’s behalf, within one year after the injury or within two years after the death. § 65-0501. When the actual date of the injury cannot be determined, the date of injury is the first date that a
reasonable person knew or should have known that the employee suffered an injury related to the
employee’s work activities. § 65-05-01. Every claim must be made on forms furnished by WSI and must
contain all the information required by it. § 65-05-02. WSI has full power and authority to hear and
determine all questions within its jurisdiction. § 65-05-03. If the final action of the organization denies a
claim, the claimant may appeal to district court. § 65-10-01.
When an employee is involved in an accident while on the job the employee shall immediately notify the
employer that the accident occurred and the general nature of the injury. Notice may be either oral or
written. § 65-05-01.2. If an employee fails to notify the employer of the accident, the organization may
consider that failure in determining whether the employee’s injury is compensable. § 65-05-01.3. The
employer shall file a first report of notice of injury with the organization within seven days from the date
the employer receives the notice of the injury from the employee. Failure of the employer to file such a
report is an admission by the employer that the alleged injury may be compensable. § 65-05-01.4
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e. Benefits
WSI must make disbursements from the fund for the payment of compensation and other benefits to
employees, or to their dependents in the case of death, who are subject to the provisions of Title 65, are
employed by employers who are subject to Title 65, and have been injured in the course of their
employment. § 65-05-05. The employer must reimburse the organization for all medical expenses
related to a compensable injury to an employee if the expenses are not more than two hundred fifty
dollars or for the first two hundred fifty dollars of medical expenses if the expenses are more than two
hundred fifty dollars. § 65-05-07.2.
Benefits to the injured employee include reasonable and appropriate medical, surgical, and hospital
service and supplies necessary to treat the injury, including artificial limbs, and appliances for
rehabilitation. § 65-05-07.
If an injury causes temporary or permanent total disability, the fund will pay the claimant during the
disability a weekly compensation equal to sixty-six and two-thirds percent (66 2/3%) of the average
weekly wage of the claimant, subject to a minimum of sixty percent and a maximum of one hundred
twenty-five percent of the average weekly wage in the state. § 65-05-09. The claimant will receive an
additional dependency allowance of fifteen dollars per week for each child. § 65-05-08(10). No
compensation may be paid for a disability which is less than five consecutive days. § 65-05-08.
When an injured employee is receiving permanent or temporary total disability benefits and is also
receiving benefits under Title III of the Social Security Act, the aggregate benefits payable under section
65-05-09 must be reduced by an amount equal as nearly as practical to one-half of such federal benefit.
The amount of the offset remains the same throughout the period of eligibility and is not affected by
any increase or decrease in federal benefits. § 65-05-09.1.
An injured employee may receive services to assist the employee in the adjustments required by the
injury to the end that the employee receives comprehensive rehabilitation services. § 65-05.1-01.
Supplementary benefits are provided by statute. § 65-05.2-02. Burial expenses not exceeding ten
thousand dollars may be paid on behalf of certain deceased employees. § 65-05-26.
f.
Compensable Injury
Compensable injury means an injury by accident arising out of and in the course of employment which
must be established by medical evidence supported by objective medical findings. It includes any
disease caused by a hazard that the employee is subjected to in the course of employment; an injury to
51
artificial members; injuries due to heart attacks or stroke under specified conditions; injuries arising out
of employer-required or supplied travel to and from a remote jobsite or activities performed at the
direction or under the control of the employer; an injury caused by the willful act of a third person
directed against the employee because of the employee’s employment; and a mental or psychological
condition caused by a physical injury under specified circumstances. § 65-01-02. Compensable injury
does not include ordinary diseases of life which the general public is exposed to; a willfully self-inflicted
injury; injuries arising out of illegal acts committed by the injured employee; injuries arising out of
voluntary nonpaid participation in any recreational activity; injuries attributable to a preexisting injury,
disease or condition unless the employment substantially accelerates its progression or substantially
worsens its severity; or mental injury arising from mental stimulus. § 65-01-02.
When a compensable injury combines with a non-compensable injury, disease or other condition, WSI
awards benefits on an “aggravation basis.” § 65-05-15. Benefits payable on an aggravation basis are
presumed to be payable on a fifty percent basis. Benefits are paid in full for the period of acute care,
which is presumed to be sixty days immediately following the compensable injury.
g. Death Claims
If death results from an injury, the fund shall pay a weekly compensation to the decedent’s spouse or to
the guardian of the children of the decedent, an amount equal to sixty-six and two-thirds percent (66
2/3 %) of the average weekly wage of the deceased. § 65-05-17. These benefits continue until the
death of the decedent’s spouse or, if the surviving children no longer meet the definition of “child.”
Total death benefits paid on any one claim may not exceed three hundred thousand dollars. The fund
shall pay to each child of the deceased employee, fifteen dollars per week for each child, regardless of
the date of death. In addition, the decedent’s spouse or the guardian of the decedent’s children is
entitled to a payment of two thousand five hundred dollars, and each dependent child is entitled to
eight hundred dollars.
h. Prohibitions
An employee cannot waive his or her rights to worker’s compensation benefits. No agreement by an
employee to pay any portion of the premium paid or payable by the employer into the fund is valid. Any
employer who deducts any portion of the premium from the wages or salary of any employee entitled
to benefits of this title is guilty of a class A misdemeanor. § 65-01-10.
Any assignment of a claim for compensation is void. All compensation and claims are exempt from
claims and creditors, except for a child support obligation, a claim by job service of North Dakota for
reimbursement of unemployment benefits, and a claim by the organization made due to clerical error,
52
mistake of identity, innocent misrepresentations, an adjudication by the organization, fraud, or
overpayment due to application of section 65-05-09.1. § 65-05-29.
VI.
ENVIRONMENTAL LAW
A.
Federal Considerations
1.
Resource Conservation and Recovery Act (“RCRA”): 42 U.S.C. § 6901, et seq.
RCRA’s primary goal is to control the generation, transportation, storage, treatment, and disposal of
hazardous waste. The administration of RCRA has been delegated to a number of states by statute and,
therefore, the states regulate most aspects of hazardous waste management within their borders.
By statute, the disposal of hazardous waste is prohibited except in accordance with a permit. Section
7003 of RCRA authorizes the Federal Environmental Protection Agency (the “EPA”) to bring suit against
any person or entity contributing to the handling, storage, treatment or disposal of hazardous waste in a
manner presenting an imminent and substantial endangerment to health or the environment.
RCRA was amended in 1984 by the Hazardous and Solid Waste Amendments of 1984, which added new
requirements pertaining to groundwater contamination. Currently, a permit for a treatment, storage or
disposal facility must detail required corrective action for any release of hazardous waste from any solid
waste management unit, regardless of when the waste was placed on the site.
2.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”): 42
U.S.C. § 9601, et seq.
CERCLA, or Superfund as it is commonly called, was enacted in 1980 to provide for the clean-up of
abandoned disposal sites. It also provides a vehicle for the EPA to recover for damage to natural
resources caused by hazardous substance releases. This statute has possibly generated more litigation
and controversy in the past decade than any other federal legislation.
CERCLA allows the government and private parties to sue “potentially responsible parties,” or “PRPs” for
reimbursement of clean-up costs caused by releases, actual or threatened, of hazardous substances.
Liability is strict, joint and several; and with little or no regard for causation. By statute, there are several
categories of persons liable for clean-up costs:
53
•
“Owners or operators” of the contaminated facility. A “facility” is virtually any place in which a
hazardous substance is found. The current owner or operator is liable, regardless of when the
hazardous substance was disposed of at the facility and whether the present owner or operator
did anything to contribute to the release.
•
“Owners or operators” of the facility at the time of release of the hazardous substances. Any
person who contracted or arranged to have hazardous substances taken to, disposed of, or
treated at a facility. This category generally applies to generators and manufacturers.
•
Transporters of hazardous substances.
There are limited defenses under Superfund that are narrowly construed. A PRP can escape liability if it
can establish that the hazardous substance release was caused solely by an act of War, an act of God, or
an act of unrelated third parties. This latter “third party” defense does not apply if the damage from
hazardous substances was caused by an employee or agent of the PRP, or a third party acting in
connection with a contract with the PRP.
3.
The Clean Air Act (“CAA”): 42 U.S.C. § 7401, et seq.
The CAA regulates air pollutants under federal standards implemented and enforced by the states. The
Act was amended in 1990 to add several new programs, including acid rain control and stratospheric
ozone protection programs, coupled with modification of existing programs for attaining the national
ambient air quality standards (“NAAQS”) and reducing emissions of hazardous air pollutants. Because of
the nature of air pollution and its sources, this program is generally considered to be the most complex
of the federal environmental programs.
Under the Act, air emissions are regulated through various controls. EPA is expected to issue standards
for 150 to 200 industrial source categories of air pollutants by the year 2000. The sources that will be
affected range in size from large petrochemical complexes to neighborhood dry cleaners. The CAA, as
amended, requires a new operating permit for all “major” air sources, with state administration and
enforcement. A significant new feature is a permit fee based on tons of pollutants emitted on an annual
basis; the permit fees are to fund and support the state operating permit programs.
4.
The Clean Water Act (“CWA”): 33 U.S.C. § 1251, et seq.
The CWA regulates the discharge of pollutants into all navigable waters. The CWA prohibits the
discharge of any pollutant into the water of the U.S. unless a permit has been issued. Permits are issued
by either the state under an approved state program or by the EPA if the state program has not been
54
approved. The permit limits are based upon EPA’s effluent limitation regulations and are incorporated
into a National Pollutant Discharge Elimination System CNPDES”) permit.
The CWA effluent limitations for industrial dischargers will also specify standards for pretreatment for
those who discharge to a publicly owned treatment work. In 1990, EPA promulgated new rules
regarding permits for storm water discharges under the NPDES permit program.
B.
State Considerations
1.
North Dakota’s environmental organizations
North Dakota Sportfishing Congress
, Rich Brueckner, President
PO Box 2472
Bismarck, ND 58502
North Dakota Chapter of the Wildlife Society
, Bill Jensen, President
PO Box 1442
Bismarck, ND 58502-1442
Phone: 701-220-5031
Dakota Chapter of the American Fisheries Society
, Kurt EversmanPresident
SDSU Department of Wildlife and Fisheries Sciences
Northern Plains Biostress Laboratory (SNP) 138
Box: 2140B
Brookings, SD 57007
Phone: 701-777-4284
National Audubon Society-North Dakota
Genevieve Thompson
502 Black Building
118 Broadway
Fargo, ND 58102
Phone: 701-298-3373
55
2.
North Dakota’s environmental laws
a.
Control, Prevention, and Abatement of Pollution of Surface Waters (Ch. 61-28)
North Dakota policy is to aid in the protection, maintenance, and improvement of the quality of the
waters in the state for continued use as public and private water supplies, propagation of wildlife, fish
and aquatic life, and for domestic, agricultural, industrial, recreational, and other legitimate beneficial
uses, to require necessary and reasonable treatment of sewage, industrial, or other wastes and to
cooperate with other agencies in the state, agencies of other states, and the federal government in
carrying out these objectives. § 61-28-01.
The State Water Pollution Control Board is under the supervision of the State Department of Health. For
all purposes of the Federal Water Pollution Control Act, the Department is designated as the state water
pollution control agency. The Department and the Board may adopt rules and regulations and hold
public hearings to consider the adoption of such rules and regulations. Any proceedings for issuance or
modification of rules and regulations or determining compliance or violation with rules and regulations
shall be conducted in accordance with the Administrative Agencies Practice Act (Ch. 28-32) and an
appeal to the district court shall be available. § 61-28-07.
The willful violation of any rules and regulations shall be punished by a fine of not more than ten
thousand dollars per day per violation, or by imprisonment for not more than one year, or both. Any
person who knowingly makes any false statement, representation, or certification in any application,
record, report, plan, or other document filed or required to be maintained under this chapter, shall
upon conviction, be punished by a fine of not more than five thousand dollars or by imprisonment for
not more than six months, or both. Any person who violates this chapter, or any limitation
implementing this chapter, shall be subject to a civil penalty not more than five thousand dollars per day
per violation. The Department may maintain an action in the name of the state against any person
violating any provision of this chapter or any rule, regulation, or order issued there under. § 61-28-08.
b.
Safe Drinking Water Act (Ch. 61-28.1)
The policies fulfilled by the state shall be accordance with the terms of this chapter and consistent with
the provisions of the Federal Safe Drinking Water Act of 1974. The Department of Health may
administer and enforce a safe drinking water program pursuant to the provisions of this chapter. The
Department of Health may adopt rules and regulations relating to maximum contaminant levels,
monitoring, and analytical requirements and reporting, public notification, and record keeping which are
necessary to protect public health and welfare. The Department may adopt rules and regulations
56
relating to the siting, construction, operation, and modification of public water systems which are
determined necessary to prevent violation of maximum contaminant levels.
Any proceeding for issuance or modification of rules and regulations or the determination of compliance
with rules and regulations shall be conducted in accordance with the provisions of the Administrative
Agencies Practice Act (Ch. 28-32) and appeals may follow as provided. A violation of any provision of this
chapter, or any rule or regulation is declared a nuisance inimical the public health, welfare, and safety.
Any person who willfully violates any regulation or order of the Department shall be punished by a civil
penalty of not more than ten thousand dollars per day of violation. Any person who violates any rule
implementing this chapter, and any person who violates any order issued by the Department under this
chapter is subject to a civil penalty not to exceed five thousand dollars per day of violation.
d.
Water Pollution Control Revolving Loan Fund (Ch. 61-28.2)
A revolving loan fund is established in order to continue to provide funds to political subdivisions for the
planning, design, construction, and rehabilitation of wastewater treatment facilities, public water,
supply systems, and other lawful activities connected with this program. The fund shall be administered
by the Department of Health. The Health Department may enter into contracts and other such
agreements in connection with operation of the revolving loan fund.
e.
Little Missouri State Scenic River Act (Ch. 61-29)
It is the purpose of the Little Missouri State Scenic River Act to preserve the Little Missouri River as
nearly as possible in its present state. This chapter is administered by a Little Missouri River Commission.
The Commission is authorized to advise local or other units of government to provide adequate
protection to maintain the scenic, historic, and recreational qualities of the Little Missouri River and its
tributary streams. Channelization, reservoir construction, or diversion other than for agricultural or
recreational purposes and the dredging of waters within the confines of the Little Missouri River are
expressly prohibited.
f.
Lake Protection and Rehabilitation (Ch. 61-30)
The State Department of Health shall promulgate rules for determining the eligibility and priority rating
of lakes for protection and rehabilitation projects. Criteria to be considered includes, but is not limited
to: (1) the severity of the problem; (2) impact on area recreation and fisheries; (3) the likely
effectiveness of the plan; and (4) ability of the applicant unit of government to implement the plan.
57
g.
Waterbank Program (Ch. 61-31)
The Agricultural Commissioner shall have authority to enter into agreements with landowners for the
conservation of wetlands. Such agreements shall be entered into for a period of five to ten years, with a
provision for renewal for an additional five to ten period.
h.
Wetlands (Ch. 61-32)
An individual must first secure a permit before he or she drains water from a pond, slough, lake, or any
series thereof, which has a watershed area comprising eighty acres or more. The permit application
must be submitted to the state engineer.
i.
Ionizing Radiation Development (Ch. 23-20.1)
For the protection of the public health and safety, the Department of Health is empowered to: (1)
Evaluate hazards associated with the use of sources of ionizing radiation by inspection and other means;
(2) Conduct programs with due regard for compatibility with federal programs for licensing and
regulation of byproduct, source, special nuclear materials, and other radioactive materials; (3) Advise,
consult, and cooperate with other public agencies and with affected groups and industries; (4)
Administer the statewide licensing and regulatory radiation program. The Department must provide by
rule or regulation for general or specific licensing of persons to process, generate, or transfer byproduct,
source, special nuclear material and other radioactive materials.
.
Any person who violates this chapter or any permit condition, rule, limitation, or applicable requirement
implementing this chapter is subject to civil penalty not to exceed twelve thousand five hundred dollars
per day per violation. Any person who willfully violates any provision of this chapter is guilty of a class C
felony. §23-20.1-10.
j.
Disposal of Nuclear and Other Waste Material (Ch. 23-20.2)
It is in public interest to encourage and promote the proper emplacement of material into subsurface
strata for the purpose of storage and retrieval of material; and to promote terminal disposal of
municipal, industrial, and domestic waste in such a manner as to prevent the contamination or pollution
of surface and ground water sources or any other segment of environment and to avoid creation of
secondary hazards of geologic nature.
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The industrial commission of North Dakota has jurisdiction and authority and is charged with the
responsibility to enforce the provisions of this chapter. One must first secure a permit from the
industrial commission before any operations for the excavating, drilling, boring, or construction of an
underground storage and retrieval facility; an underground waste disposal facility; or the conversion of
any existing facility for use in any activity regulated by this chapter is commenced. § 23-20.2-04.
Any person who violates any provision of this chapter, or any rule, regulation, or order of the
commission promulgated under this chapter, is subject to a civil penalty of not more than one thousand
dollars for each act of violation and for each day that the violation continues. It is a class B misdemeanor
for any person, for the purpose of evading this chapter, or any other rule or regulation to make or cause
to be made any false entry or statement in a report required by this chapter. §23-20.2-06The provisions
of this chapter do not apply to any natural person residing on unplatted land in unincorporated areas of
this state disposing of his normal household wastes on his property. § 23-20.2-07
k.
Hazardous Waste Management (Ch. 23-20.3)
It is the purpose of this chapter to protect human health and the environment from the effects of the
improper, inadequate, or unsafe past or present management of hazardous waste and underground
storage tanks. The Department of Health is authorized to administrator and enforce this chapter.
Pursuant to the Administrative Agencies Practice Act (Ch. 28-32), the Department must after notice and
opportunity for public hearing and comment, adopt regulations for maintaining a leak detection system,
an inventory control system together with tank testing, or a comparable system or method designed to
identify releases in a manner consistent with the protection of human health and the environment. §
23-20.3-04.1. A county, city, or township may not enact and enforce an underground storage tank
ordinance if the ordinance is more stringent than this chapter and any rules authorized to be adopted
pursuant to this chapter. §23-20.3-04.2.
No person may construct, substantially alter, or operate any hazardous waste treatment, storage, or
disposal facility, nor may any person treat, store, or dispose of any hazardous waste without first
obtaining a permit from the Department for such facility or activity. No hazardous waste treatment,
storage, or disposal facility may be issued a permit unless the applicant demonstrates to the satisfaction
of the Department that a need for the facility exists and that the facility can comply with all applicable
requirements under this chapter. Permits must contain terms and conditions as the Department deems
necessary.§ 23-20.3-05
The Department has the right to enter onto any place, facility, or site where wastes or substances which
the Department has reason to believe may be hazardous or regulated are, may be, or may have been
59
generated, stored, transported, treated, disposed of, or otherwise handled. §23-20.3-06. Following a
violation of this chapter or any permit, rule, regulation, standard, or requirement of this chapter, the
Department may issue an order requiring compliance with such permit, rule, regulation, standard, or
requirement, and the Department may bring an action for a civil or criminal penalty, including an action
for injunctive relief. Any action must be brought in the North Dakota district court for the county in
which the violation occurred or in which the party in violation has his residence or principal office in the
state. §23-20.3-09
Any person who violates any provision of this chapter or any regulation, standard, or permit condition
adopted pursuant to this chapter, is subject to a civil penalty not to exceed twenty-five thousand dollars
per day of violation. Any person who knowingly violates any provision of this chapter or any regulation
or rule as stated above or knowingly makes a false statement required by this chapter, is subject to a
fine not to exceed twenty-five thousand dollars per day of violation, imprisonment for a period not to
exceed one year, or both. Any person who knowingly violates any provision of this chapter in such a
manner so as to manifest extreme indifference to human life, and whose conduct thereby places
another person in imminent danger of death or serious bodily injury is subject to a fine not to exceed
fifty thousand dollars per day of violation, imprisonment for a period not to exceed two years, or both.
l.
Solid Waste Management and Land Protection Act (Ch. 23-29)
The people of North Dakota have a right to a clean environment, and the costs of maintaining a clean
environment through the efficient environmentally acceptable management of solid wastes should be
borne by those who use such services. The Department of Health shall have the responsibility for the
administration and enforcement of this chapter. Any person who operates or proposes to operate any
type of solid waste management system, unit or facility and any person who transports solid waste is
subject to this chapter and the Department’s regulations.
No person may discard or abandon any litter, furniture, or major appliances upon public property or
upon private property not owned by that person, unless the property is designated for the disposal of
litter, furniture, or major appliances and that person is authorized to use the property for that purpose.
No person may engage in the burning of solid waste, unless the burning is conducted in accordance with
the rules adopted by the Department. A person violating this section is guilty of an infraction, except if
the litter discarded and abandoned amounts to more than one cubic foot in volume or if the litter
consisted of furniture or a major appliance, the offense is a class B misdemeanor. §23-29-05.1.
Any political subdivision of the state may enact and enforce a solid waste management ordinance if such
ordinance is equal to or more stringent that this chapter and the rules adopted pursuant to the chapter.
§23-29-05.
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Any proceeding under this chapter for the issuance or modification of rules and regulations must be
conducted in accordance with the provisions of the Administrative Agencies Practice Act (Ch. 28-32),
and appeals may be taken as provided. § 23-29-10. Unless another penalty is provided, a person
violating this chapter, or any rule, order, or condition in a permit issued under this chapter, is subject to
a civil penalty not to exceed one thousand dollars per day of such violation. § 23-29-12.
m.
Ground Water Protection (Ch. 23-33)
The purpose of this Chapter is to establish a degradation prevention program in order to protect ground
water resources, encourage the wise use of agricultural chemicals, provide for ground water protection,
provide for public education regarding preservation of ground water resources, and to provide for safe
disposal of wastes in a manner that will not endanger the state’s ground water resource. This chapter
shall be administered by the State Department of Health.
The Department of Health shall establish standards for compounds in ground water and conduct ground
water quality monitoring activities in cooperation with the state engineer and other state agencies. §§
23-33-05, 23-03-06. To prevent future contamination of ground water, the Department shall implement
or require appropriate mitigation activities or remedial action based on monitoring results. Any person
with verifiable information on the presence of contamination of ground water within the state must
notify the Department regarding such contamination. §23-33-07. The Department of Health may
request landowners or operators to allow access for monitoring of ground water and of soils at a depth
where pesticides may threaten ground water. §23-33-08. If the landowner denies access to the
Department, the Department may apply to any court for authorization to obtain access.
n.
Air Pollution Control (Ch. 23-25)
It is the public policy of the state of North Dakota to achieve and maintain the best air quality possible,
consistent with the best available control technology, to protect human health, welfare, and property,
to prevent injury to plant and animal life, to promote the economic and social development of this state,
to foster the comfort and convenience of the people, and to facilitate the enjoyment of the natural
attraction of this state.
The State Department of Health is designated as the agency to administer and coordinate a statewide
program of air pollution control consistent with the provisions of this chapter. Any proceeding under
this chapter for the issuance or modification of rules and regulations or determining compliance with
rules and regulations must be conducted in accordance with the provisions of the Administrative
Agencies Practice Act (Ch. 28-32), and appeals may be taken as provided.
61
o.
Environmental Emergency Costs (Ch. 23-31)
The State Department of Health may recover from the parties responsible for an environmental
emergency the reasonable and necessary state costs incurred in assessment, removal, corrective action,
or monitoring as a result of an environmental emergency in violation of chapters 23-20.1, 23-20.3, 2325, 23-29, 61-28, or 61-28.1. An environmental emergency in this chapter is defined as a release into the
environment of a substance requiring an immediate response to protect public health or welfare or the
environment from an imminent and substantial endangerment.
There is an environmental quality restoration fund into which the funds recovered in this chapter may
be deposited. The fund is administered by the State Department of Health and may be used for costs of
environmental assessment, removal, corrective action, or monitoring as determined case by case. The
Department may adopt rules to implement this chapter.
o.
Environment and Rangeland Protection Fund (Ch. 19-18)
The environment and rangeland protection fund is a fund in the state treasury. The money in this fund
may be used for rangeland improvement projects and to address issues relating to harmonization of
crop protect product standards. The rangeland improvement projects may include noxious weed
control; ground water testing, analysis, protection, and improvement; analysis of food products for
residues of pesticides and other materials; and analysis and disposal of unusable pesticides and
pesticide containers. §19-18-02.1. p. Environmental Law Enforcement (Ch. 32-40)
Any state agency, with the approval of the attorney general; any person; or any county, city, township,
or other political subdivision, aggrieved by the violation of any environmental statute, rule, or regulation
of this state may bring an action in the appropriate district court, either to enforce such statute, rule, or
regulation, or to recover any damages that have occurred as a result of the violation, or both
enforcement and damages. §32-40-06. VII.
INTELLECTUAL PROPERTY
A.
Federal Considerations
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1.
Copyright Law: This area is governed exclusively by federal law. Title 17, U.S.C.
a. Generally
Copyright law provides the author of a copyrightable work (or such person’s employer in the case of a
“work made for hire”) with certain specific exclusive rights to use, distribute, modify and display the
work. Generally, works are entitled to copyright protection for the life of the author plus 70 years. 17
U.S.C. § 302(a). However, as to works made for hire, copyright protection is for the shorter of 95 years
after publication or 120 years after creation. 17 U.S.C. § 302(c). Anyone who without authority
exercises the rights reserved exclusively to the copyright owner is considered to infringe the copyright
and may be liable for actual or statutory damages and may be subject to injunctive relief. 17 U.S.C. §§
502, 503.
b. Copyrightable Works
Works of authorship that qualify for copyright protection include literary works, musical works
(including lyrics), dramatic works, choreographic works, audiovisual works, pictorial, graphic and
sculptural works, sound recordings and architectural works. . 17 U.S.C. § 102(a)(1)-(8).The Computer
Software Copyright Act of 1980 expressly made computer software eligible for copyright protection, a
point previously in doubt. The precise scope of copyright protection for computer software has not yet
been fully defined. Constantly developing technology is likely to present many new issues, presently
unforeseen. All works eligible for copyright protection must meet two specific requirements. First, the
work must be fixed in some tangible form; there must be a physical embodiment of the work so that the
work can be reproduced or otherwise communicated. Second, the work must be the result of original
and independent authorship. The concept of originality does not require that the work entail novelty or
ingenuity, concepts of importance to patentability.
c. Advantages of Copyright Registration
Copyright protection automatically attaches to a work the moment that the work is created. 17 U.S.C. §
102(a). However, “registration” of the work with the U.S. Copyright Office provides advantages. A
certificate of registration is prima facie evidence of the validity of the copyright, provided registration
occurs not later than five years after first publication. 17 U.S.C. § 410. With respect to works whose
country of origin is the U.S., registration is a prerequisite to an action for infringement. 17 U.S.C. §
411(a). With respect to all works, regardless of the country of origin, certain damages and attorneys’
fees relating to the period prior to registration cannot be recovered in an infringement action.
Registration also is a useful means of providing actual notice of copyright to those who search the
copyright records.
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d. Copyright Registration Application Process
In order to obtain registration of copyright, an application for registration must be filed with the U.S.
Copyright Office. The application must be made on the specific form prescribed by the Register of
Copyrights and must include the name and address of the copyright claimant, the name and nationality
of the author, the title of the work, the year in which creation of the work was completed, and the date
and location of the first publication. In the case of a work made for hire, a statement to that effect must
be included. If the copyright claimant is not the author, a brief statement regarding how the claimant
obtained ownership of the copyright must be included. An application must be accompanied by the
requisite fee, and a copy of the work must be submitted. 17 U.S.C. § 409.
e. Copyright Notice
Until 1989, all publicly distributed copies of works protected by copyright and published by the authority
of the copyright owner were required to bear a notice of copyright. A copyright notice is no longer
mandatory, but a copyright notice is still advantageous. For example, the defense of “innocent
infringement” is generally unavailable to an alleged infringer if a copyright notice is used.
If a copyright notice is used, the notice should be located in such a manner and location to sufficiently
demonstrate the copyright claim. The notice should consist of three elements. First should be the
symbol of an encircled “C,” or the word “copyright,” or the abbreviation “copr.” Second should be the
year of first publication. Third should be the name of the copyright owner.
f.
Works Made for Hire
In a “work made for hire” the employer is presumed to be the author. Authorship is significant because
a copyright initially vests in the author. The parties can rebut the presumption of employer authorship
by an express written agreement to the contrary. The term “work made for hire” applies to any work
created by an employee in the course and scope of employment. On occasion there is dispute as to
whether a work created by an employee arose from the employment. Employers often require
execution of a formal employment agreement under which the employee expressly agrees that all
copyright rights will belong to the employer. A similar agreement is also advisable in connection with the
engagement of an independent contractor to perform copyrightable services for a business, but the
employer should be aware that only certain types of works may be considered a “work made for hire”
when created by an independent contractor. If the particular matter cannot be a “work made for hire”,
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the employer should negotiate an agreement for the assignment of the copyright by the independent
contractor.
g. Copyright Protection for Foreign Authors
Copyright protection is available under U.S. law for foreign authors until the copyrightable work is
published. If the work has been published, the availability of continued U.S. copyright protection is
dependent upon the location of the publication and the nationality or domicile of the author. Copyright
protection continues in the U.S. subsequent to publication if publication by the foreign author occurs in
the U.S., or occurs in a country that is a party to the Universal Copyright Convention or to the Berne
Convention, or occurs in a country named in a Presidential copyright proclamation. If the work is first
published by a foreign author outside the U.S., continued copyright protection in the U.S. is only
available if the foreign author is either a domiciliary of the U.S. or a national or domiciliary of a country
that is party to a copyright treaty to which the U.S. is also a party. A person is generally a domiciliary of
the country in which the person resides with the intention to remain permanently.
2.
Patents: This area is governed exclusively by federal law. Title 35, U.S.C.
a. Generally
. One who invents or discovers any new and useful process, machine, manufacture, or composition of
matter, or any new useful improvement thersof may be abe to obtain a U.S. Patent. 35 U.S.C. § 101. A
U.S. patent provides the inventor with the exclusive right for a specified time to make, use, import, offer
to sell, or sell in the U.S. the patented invention. A patent provides the holder with a limited monopoly
on the use of the patented invention. A valid patent forecloses use of the patented invention by any
other party, even if another party independently conceives the identical invention.
A utility patent, which generally governs the functional aspects of a machine, manufacturing process, or
composition of matter is enforceable beginning at the grant of the patent and ending 20 years (plus up
to 5 more years for certain delays) after the filing date of the regular patent application. A design patent,
which covers the design or appearance of an article of manufacture, is enforceable for 15 years from
the granting date of the patent. 35 U.S.C. § 173. A provisional patent, which is filed before a regular
patent application, establishes a priority filing date and provides up to 12 months to further develop the
invention without filing a regular patent application. Anyone without authority from the patent holder
who makes, uses, imports, or sells in the U.S. the patented invention during the life of the patent is
considered to “infringe” the patent and may be liable for damages.
65
b. Effect of Foreign Patents
A foreign patent is generally not enforceable in the U.S. Furthermore, an invention that is the subject of
a foreign patent cannot be the subject of a U.S. patent, unless an application for a U.S. patent is filed
within one year following issuance of the foreign patent. Accordingly, an inventor who holds a foreign
patent and who fails to apply for a U.S. patent within one year from the date of issuance of a foreign
patent will usually have no recourse against others who use the invention in the U.S.
c. Patentability Under Federal Patent Statutes
To be eligible for a federal utility patent, an invention must fall into one of the classes of patentable
subject matter set forth in the United States patent statutes. These classes are machines (e.g., a
mechanism with moving parts), articles of manufacture (e.g., a hand tool), compositions of matter (e.g.,
a plastic), and processes (e.g., a method of refining). An improvement falling within any of these classes
may also be patentable. Discoveries falling outside these categories are not patentable, unless some
other statutory provision applies.
In addition to being within one of the four classes and being fully disclosed, a utility invention must also
be:
(a) “novel,” in that it was not previously known to or used by others in the United States or printed or
described in a printed publication anywhere;
(b) “non-obvious” to a person having ordinary skill in the relevant art; and
(c) “useful,” in that it has utility, actually works, and is not frivolous or immoral.
A design patent may be obtained for the ornamental design of an article of manufacture. A design
patent offers less protection than a utility patent, because the patent protects only the appearance of
an article, and not its construction or function.
A plant patent may be obtained by anyone developing a new variety of asexually reproduced plant, such
as a tree or flower. Some plants may also be protectable with a utility patent or under the Plant Variety
Protection Act, administered by the United States Department of Agriculture.
66
In order to determine novelty and, hence, patentability of an invention, it is often useful to search the
records of the U.S. Patent and Trademark Office. There one may examine all U.S. patents, many foreign
patents, and a large number of technical publications. A patent search is customarily performed by a
patent attorney or by an individual with similar technical training, sometimes referred to as a patent
agent. A patent attorney or patent agent may be asked to render an opinion regarding the patentability
of a particular invention. An inventor can then make an informed decision as to whether to proceed
with the cost of an actual patent application.
d. Patent Application Process
A U.S. patent application must be filed with the U.S. Patent and Trademark Office. A complete patent
application includes four elements. First, the application must include the “specification.” The
specification is a description of what the invention is and what it does. The specification can be filed in a
foreign language, provided that an English translation, verified by a certified translator, is filed within a
prescribed period. Second, the application must include an oath or declaration. The oath or declaration
certifies that the inventor believes himself or herself to be the first and original inventor. If the inventor
does not understand English, the oath or declaration must be in a language that the inventor
understands. Third, the application must include drawings, if essential to an understanding of the
invention. Fourth, the appropriate fee must be included.
After a proper application is filed, the application is assigned to an examiner with knowledge of the
particular subject matter. The examiner makes a thorough review of the application and the status of
existing concepts in the relevant area to determine whether the invention meets the requirements of
patentability. The patent review process takes from 18 months to three years.
Rejection of a patent application by the examiner may be appealed to the Board of Patent Appeals.
Decisions of the Board of Patent Appeals may be appealed to the federal courts.
Provisional patent application requirements are less stringent than a regular patent application. The
oath or declaration of the inventor and claims are not required and the application is held for the 12month period without examination.
e. Markings
After a patent application has been filed, the product made in accordance with the invention may be
marked with the legend “patent pending” or “patent applied for.” After a patent is issued, products may
be marked “patented” or “pat.,” together with the U.S. patent number. Marking is not required, but it
may be necessary to prove marking in order to recover damages in an infringement action.
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f.
Rights to Patented Inventions
Disputes sometimes arise between employers and employees over the rights to inventions made by
employees during the course of employment. Because of this, employers often require employees to
execute formal agreements under which each signing employee agrees that all rights to any invention
made by the employee during the term of employment will belong to the employer.
3.
Trademarks
This area is governed by both state and federal law.
a. Generally
A trademark is often used by a manufacturer to identify its merchandise and to distinguish its
merchandise from items manufactured by others. A trademark can be a word, a name, a number, a
slogan, a symbol, a device, or a combination. A trademark should not be confused with a tradename.
Although the same designation may function as both a trademark and a tradename, a tradename refers
to a business title or the name of a business; a trademark is used to identify the goods manufactured by
the business. A business that sells services rather than goods may also use a service mark to distinguish
its services. Generally, service marks and trademarks receive the same legal treatment.
b. Selection of Trademark
A manufacturer should carefully consider the trademark selected for its merchandise. The level of
protection against infringement of a trademark varies with the “strength” or “uniqueness” of the
trademark. “Descriptive” marks are the weakest and least defensible. A descriptive trademark is a name
that describes some characteristic, function, or quality of the goods. A “fanciful” mark, the strongest
type of mark, is a coined name that has no dictionary definition.
Evaluation should also include consideration of the likelihood of success in obtaining federal and state
registrations of the trademark.
Selection of a trademark should be accompanied by a trademark search to determine whether another
manufacturer has already adopted or used a mark that is the same or similar to the one desired.
Publications provide lists of existing trademarks, registered and unregistered, and there are businesses
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that specialize in trademark searches. Actual and potential trademark conflicts should be avoided, lest
the manufacturer become involved in an expensive infringement lawsuit. Of even greater concern is the
potential loss of the right to use a mark after considerable expenditure in advertising merchandise
bearing the mark.
c. Advantages of Trademark Registration
Under the trademark laws of the United States, the principal method of establishing rights in a
trademark is actual use of the trademark. “Registration” of a trademark is not legally required but can
provide certain advantages.
Federal registration of a trademark is presumptive evidence of the ownership of the trademark and of
the registrant’s exclusive right to use of the mark in interstate commerce, strengthening the registrant’s
ability to prevail in any infringement action. Federal registration is also a prerequisite for bringing a
lawsuit under the federal trademark laws.
After five years of continued use of the mark following federal registration the registrant’s exclusive
right to use of the trademark becomes virtually conclusive. Federal registration may assist in preventing
the importation into the U.S. of foreign goods that bear an infringing trademark. There are also other
less tangible advantages of registration, such as the goodwill arising out of the implication of
government approval of the trademark.
State registration provides some advantages, not as extensive as federal registration. State registration
is usually advisable, particularly in situations in which a manufacturer’s sales will occur only in the state
of registration.
d. Federal Registration Application Process. 15 U.S.C. § 1051, et seq.
Federal trademark registration requires that a trademark application be filed with the U.S. Patent and
Trademark Office. The application must identify the mark and the goods with which the mark is used or
is proposed to be used, the date of first use, and the manner in which it is used. The application must be
accompanied by payment of the requisite fee, a drawing page depicting the mark, and three specimens
of the mark as it is actually used. After the application is filed, it is reviewed by an examiner who
evaluates, among other matters, the substantive ability of the mark to serve as a valid mark and the
possibility of confusion with existing marks. If the examiner rejects the application, the examiner’s
decision can be appealed to the Trademark Trial and Appeals Board. An adverse decision by that body
can be appealed to federal court.
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If the application is approved, the mark is published in an official publication of the Patent and
Trademark Office. Opponents of the registration have thirty days after publication, or such additional
time as may be granted, to challenge the registration. If no opposition is raised, or if the opponent’s
claims are rejected, an applicant whose mark is already in use receives a “certificate of registration.”
An applicant whose trademark is proposed for registration before actual use receives, upon approval of
the application, a “notice of allowance.” An application who receives a notice of allowance must within
six months of the receipt of the notice furnish evidence of the actual use of the trademark. The applicant
then is entitled to a certificate of registration. Failure to furnish evidence of the actual use of the mark
within the time allowed results in rejection of the application.
e. Post-Certificate Federal Procedures
A certificate of trademark registration issued by the Patent and Trademark Office remains in effect for
ten years. However, registration expires at the end of six years, unless the registrant furnishes evidence
of continued use of the trademark. The initial ten-year term of a certificate of registration can be
renewed within the term’s last six months for an additional ten-year term by furnishing evidence of
continued use of the mark and paying a fee. 15 U.S.C. § 1058(a).
After at least five years of continuous use of a trademark following the receipt of a certificate of
registration, a registrant can seek to have the status of the trademark elevated from “presumptive”
evidence of the registrant’s exclusive right to use of the trademark to virtually conclusive evidence of an
exclusive right. To do so, the registrant must furnish the Patent and Trademark Office with evidence of
continuous use of the trademark for at least five years. Additionally, there must not be any outstanding
lawsuit or claim that challenges the registrant’s rights to use the mark. 15 U.S.C. § 1065.
B.
State Considerations
1.
Trade Secrets
North Dakota has adopted the Uniform Trade Secrets Act, which provides statutory protection for trade
secrets. Ch. 47-25.1. The Act provides for injunctive relief if a trade secret is misappropriated or if there
is a threat that a trade secret will be misappropriated. § 47-25.1-02. The Act also provides for awards of
money damages, including both actual loss and the unjust enrichment caused by the misappropriation.
70
If the misappropriation is willful and malicious, the court may also award exemplary damages in an
amount that does not exceed twice any award of actual damages. § 47-25.1-03. An action for
misappropriation must be brought within three years after the misappropriation is discovered or
reasonably should have been discovered. § 47-25.1-06.
2.
Employee Invention
Pursuant to North Dakota statute, everything that an employee acquires by virtue of his employment,
whether acquired lawfully or unlawfully or during or after the expiration of the term of his employment,
except any compensation which is due him from his employer, belongs to the employer. § 34-02-11.
Courts have construed this statute to mean that an employer is the exclusive owner of patents covering
an employee’s inventions. The employer and employee may avoid such construction by entering into an
agreement contrary to the provision of this statute.
3.
Trademarks, Tradenames and Service Marks
North Dakota statutes protect trademarks and tradenames, but do not protect service marks. Both
trademarks and tradenames are registered with the State of North Dakota.
a. Trademarks (Ch. 47-22)
To register a trademark, an applicant must submit an application for registration of the mark with the
Secretary of State on a form supplied by that office. § 47-22-03. . There are some limitations imposed on
the type of trademark that can be registered. For example, a mark will not be registered if it consists of
or comprises immoral, deceptive or scandalous matter or matter which may disparage or falsely suggest
a connection with persons or entities or bring them into contempt or disrepute. §42-22-02. Likewise,
marks will not be registered if they consist of or comprise the name, signature or portrait of a living
individual without that person’s written consent. §42-22-02. Also, marks that are merely descriptive or
deceptively misdescriptive will not be registered, nor will marks that are so similar to other registered
marks that they are likely to deceive or to cause confusion or mistake. Id.
The Secretary of State issues a certificate of registration once the applicant has complied with the
registration requirements. § 47-22-04. A trademark registration is effective for ten years, and the filing
fee for the initial registration is $30 for one class of goods and $20 for each additional class. The
registration can be renewed for additional ten-year periods, and the renewal fee is also $30 for one class
of goods and $20 for each additional class. The Secretary of State will notify registrants of trademarks of
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the necessity of renewal within 90 days preceding the expiration of the ten years of their registration. §
47-22-05.
A certificate of registration is admissible in evidence as competent and sufficient proof of the
registration of such trademark in any action or judicial proceedings in any court of the State of North
Dakota. § 47-22-04. Anyone who procures a trademark registration by knowingly making false or
fraudulent representations is liable for all damages sustained as a consequence of such filing or
registration. § 47-22-10.
Any person who uses a trademark without the consent of the registrant or reproduces and uses the
reproduction on advertisements in connection with the sale or distribution of goods may be liable for
damages in a civil action by the owner of the registered trademark. Furthermore, the owner of the
trademark is entitled to enjoin the manufacture, use, display or sale of any counterfeit or imitation
trademark. § 47-22-12. The North Dakota statutes also do not adversely affect the rights or the
enforcement of rights in trademarks acquired in good faith at any time under common law. § 47-22-13.
A properly registered trademark and the registration of that trademark are assignable with the goodwill
of the business in which the trademark is used. The assignment must be made by the assignor on forms
provided by the Secretary of State, and accompanied by the required fee. Assignments are void against
any subsequent purchasers for valuable consideration without notice, unless the assignment is recorded
with the Secretary of State within three months after the date of the assignment or prior to the
subsequent purchase. § 47-22-06.
The Secretary of State will cancel a trademark registration for a variety of reasons. For example, the
Secretary of State will cancel the registration upon the written request of the registrant or assignee of
the trademark. The Secretary of State will also cancel the trademark if it is not renewed in a timely
manner or the registered owner is a corporation or limited partnership that has ceased to exist for six
months. Moreover, the Secretary of State may cancel a registration if a state district court finds the
mark has been abandoned; was granted improperly; was obtained fraudulently; or is so similar to a
previously registered mark so as to deceive or to cause confusion or mistake. § 47-22-08.
b. Trade names (Ch. 47-25)
A person or organization may not engage in business in this state under a trade name until the trade
name is registered with the Secretary of State. § 47-25-02. Every name under which a person does or
transacts business, other than the true name of the person, is a “trade name” under North Dakota law.
Anyone who has registered a trade name with the Secretary of State may bring a civil action prohibiting
any other person from using the name. § 47-25-01. No trade name may be registered if it is the same as
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or deceptively similar to any other trade name, unless a written consent to the use of the proposed
name is also filed with the Secretary of State. § 47-25-03.
To register a trade name, an applicant must submit an application for registration of the name along
with the required fee with the Secretary of State on a form supplied by that office. The Secretary also
accepts electronic filing of trade name registration. §47-25-02.1. A trade name registration is effective
for five years. § 47-25-04. The registration can be renewed for additional five-year periods, and the
renewal fee is also $25. The Secretary of State will notify registrants of trade names of the necessity of
renewal at least 90 days before the expiration of the registration.
Trade names can also be assigned by submitting an assignment to the Secretary of State on a form
provided by that office along with the required fee. § 47-25-06.
The Secretary of State will cancel a trade name registration for a variety of reasons. For example, the
Secretary of State will cancel a registration upon written and signed request for cancellation from the
registrant. The Secretary of State will also cancel the registration if a state district court finds that the
registered name has been abandoned; the registrant is not the owner of the trade name; the
registration was granted improperly or fraudulently; or the trade name registered is so similar to
another registered trade name that it is likely to be confusing or deceptive. § 47-25-07
4.
Employee Confidentiality
There are no North Dakota statutes specifically addressing employee confidentiality, other than the
Uniform Trade Secrets Act.
5.
Noncompetition Clauses
Under North Dakota statutes and case law, noncompetition clauses are generally void and
unenforceable as an unlawful restraint on business to the extent they prohibit someone from exercising
a lawful profession, trade or business of any kind. § 9-08-06. There are two exceptions to this general
rule. § 9-08-06. First, one who sells the goodwill of a business may agree with the buyer to refrain from
carrying on a similar business within a specified county, city, or a part of either, so long as the buyer or
any person deriving title to the goodwill from him carries on a like business therein. § 9-08-06. Second,
partners upon or in anticipation of dissolution of their partnership, may agree that all or any number of
them will not carry on a similar business within the same city where the partnership business has been
transacted, or within a specified part thereof.
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6.
Franchises and Business Opportunities (Ch. 51-19)
North Dakota has a separate franchise registration and disclosure statute. Under the statute, a
“franchise” is defined as an agreement by which the franchisee has the right to offer, sell or distribute
goods or services under a plan prescribed in substantial part by the franchiser; the operation of the
franchisee’s business is substantially associated with the franchiser’s marks, name, advertising or
commercial symbols; and the franchisee is required to pay a franchise fee. A “franchise fee” is broadly
defined so as to include any fee or charge that a franchisee is required to pay or agrees to pay for the
right to enter into a business under a franchise agreement, including, but not limited to, any such
payment for such goods and services. § 51-19-02.
It is unlawful for any person to offer or sell any franchise in the State of North Dakota unless the offer of
the franchise has been registered with the North Dakota Securities Commissioner or exempted. § 51-1903.
The application for registration of an offer must be filed with the North Dakota Securities Commissioner,
and the application must contain substantial detailed information, including, but not limited to,
information about the franchiser, the business experience of the franchiser, a recent financial statement
of the franchiser, a copy of the typical franchise contract proposed for use, and a statement of the
franchise fee charged. § 51-19-06.
VIII.
A.
DISPUTE RESOLUTION
Federal Court System
The trial courts of the federal court system are the U.S. District Courts. Each district has four federal
district court judges who are appointed by the President for life terms upon approval by the United
States Senate. In North Dakota, appeals from federal district court are to the Eighth Circuit Court of
Appeals.
The federal district courts are courts of limited jurisdiction. The types of cases they may hear are limited
by both the U.S. Constitution and federal statutes. They have exclusive jurisdiction over bankruptcy,
patent and copyright, antitrust, postal matters, internal revenue, admiralty, and federal crimes, federal
torts, and customs. All other jurisdiction is concurrent with that of the state courts. There are generally
two ways to gain access to the federal district courts when there is such concurrent jurisdiction. First is
diversity jurisdiction, which involves disputes between citizens of different states with an amount in
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controversy exceeding $75,000. To be brought in federal court, there must be complete diversity, i.e.,
none of the plaintiffs may be a citizen of the same state as any of the defendants. The second primary
basis involves a federal question, i.e., presenting an issue arising under the Constitution, statutes, or
treaties of the United States. If a party’s case does not fit within one of the statutorily mandated
jurisdictions, there is no recourse in the federal courts.
The workings of the federal district courts are governed by the Federal Rules of Civil and Criminal
Procedure, promulgated by the U.S. Supreme Court and approved by the U.S. Congress. These are a
uniform body of procedural rules applicable to every federal district court in the U.S. Each federal
district court also establishes its own local rules applicable only to the procedure in that district court.
These rules often set forth very specific guidelines for the handling of an action, and close attention
must be paid to them. Thus, one participating in a suit in federal district court must be aware of that
court’s local rules as well as the Federal Rules of Civil Procedure.
B.
State Court System
1.
The state trial court system
The judicial powers in the State of North Dakota are generally broken down into two levels. The
supreme court, which exercises appellate jurisdiction and original jurisdiction in some matters, and the
district court, which exercises general jurisdiction and appellate jurisdiction where it is authorized by
law. When case load requires, the Supreme Court may refer cases to a temporary court of appeals.
The district court level is comprised of eight districts with varying numbers of district judges in each
district. These district courts have original jurisdiction on most claims, with the jurisdictional powers of:
(a)
Common law jurisdiction and authority for claims of wrongs against persons and
property.
(b)
The power to hear civil actions and proceedings.
(c)
All the powers of courts of law and equity for complete adjudication of claims.
(d)
Jurisdiction for appeals from municipal judges and determinations made by inferior
offices, boards, or tribunals.
(e)
Jurisdiction to hear disputed property line proceedings.
In matters where the value of the claim does not exceed fifteen thousand dollars ($15,000) an action
can be brought in small claims court, where district judges or other designees act as small claims
referees. Small claims court proceedings are confined to cases for money, cancellation of any agreement
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which involves material fraud, deception, misrepresentation, or false promise, and the claim value does
not exceed $15,000. In small claims the defendant may also make an election to remove the claim to
district court within twenty days after the filing of the claim affidavit.
2.
The state appellate courts
The North Dakota Supreme Court is the highest court and the appellate court for North Dakota. The
members of this court, sitting as a five person panel, exercise appellate jurisdiction only, except if
otherwise provided by law or by the constitution of North Dakota. The court may exercise limited
original jurisdiction in habeas corpus cases and in cases of strictly public concern that affect the
sovereign rights of the state of North Dakota. Pursuant to statute, the Supreme Court of North Dakota in
exercising its appellate jurisdiction may delegate cases to the temporary court of appeals. The Supreme
Court can delegate these cases and form the temporary court of appeals. § 27-02.1-01.
3.
Arbitration
There is no mandatory arbitration in North Dakota; however, a written agreement to submit an existing
or subsequent controversy to arbitration is valid. These written agreements are enforceable in North
Dakota under the North Dakota Uniform Arbitration Act. Ch. 32-29.3.
A person initiates an arbitration proceeding by giving written notice to arbitrate to the other parties to
the agreement. § 32-29.3-09. An arbitrator may conduct an arbitration in a manner the arbitrator
considers appropriate for a fair and expeditious disposition. § 32-29.3-15. Subpoenas, depositions, and
other discovery devices may be allowed in the discretion of the arbitrator. § 32-29.3-17. A party may be
represented by an attorney.
The arbitrator must make a record of the award, which shall be signed by any arbitrator who concurs
with the award. §32-29.3-19. If there is more than one arbitrator, the arbitration award must be
determined by a majority. § 32-29.3-13. An arbitrator may award such remedies as are considered just
and appropriate under the circumstances. §32-29.3-21
A party to the arbitration may make a motion to the court for an order confirming the award. § 32-29.322. A motion to vacate the award may also be made under circumstances provided by statute. § 3229.3-23. An appeal may be taken from an order denying a motion to compel arbitration; an order
granting a motion to stay arbitration; an order confirming or denying confirmation of an award; an order
modifying or correcting an award; an order vacating an award without directing a rehearing; or a final
judgment entered pursuant to this chapter. § 32-29.3-28.
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IX.
Financing Investments
A.
Commercial banking opportunities and out-of-state financial institutions
There are opportunities in North Dakota for commercial banking services that are provided by many
banks. Commercial loans and checking accounts as well as other services can be obtained from many of
the locations. There is one state owned institution, the Bank of North Dakota, which was established by
the 1919 state legislature to promote the development of agriculture, commerce, and industry in North
Dakota. This institution works in partnership with over 100 other North Dakota financial institutions to
meet this goal. Other in-state and out-of-state institutions are, to name a few: U.S. Bank, Bank of the
West, Bank Forward, Wells-Fargo Bank, Cornerstone Bank, Ramsey National Bank, American Federal
Bank, First International Bank & Trust, Bremer, State Bank and Trust, Western State Bank, and Gate City
Bank.
B.
North Dakota securities issues
1.
Registration of securities
The North Dakota Securities Act of 1951 generally requires that securities be registered. The sale, or
offering for sale of any security in North Dakota, unless exempted, is prohibited if the securities are not
registered. § 10-04-04. Registration of securities may be accomplished through announcement or
qualification. §§ 10-04-07.1, 10-04-08. The State Securities Department under the supervision of the
Securities Commissioner administers the provisions of chapter 10-04.
a. Registration by Announcement
Securities that have been outstanding and in the hands of the public for not less than one year as a
result of prior original registration in North Dakota or through securities and exchange commission
registration are entitled to registration by announcement. § 10-04-07.1(1). In addition, stock of life
insurance companies may also qualify for registration provided the company has been in continuous
operation for twenty years and meets the necessary statutory requirements. These securities may be
registered only by a broker-dealer who is registered by the State Securities Department. The filing
registration must include: the name of issuer and location of the principal office; a description of the
security that includes price and current earnings; a statement to the effect that the securities have been
outstanding and in the hands of the public not less than one year; a balance sheet not more than twelve
months old; and a statement that the security has been registered. § 10-04-07.1(2). Unless notified
otherwise within 48 hours this filing constitutes registration of the security. The filing fee for this type of
registration is $25. After registration the securities may be sold for a period of one year. § 10-04-07.1(3).
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b. Registration by Qualification
There are numerous securities that may be registered by qualification in the state of North Dakota, and
are covered in section 10-04-08. An application for registration by qualification must be made by the
issuer of the securities or by a registered broker-dealer. The application requirements are prescribed by
statute. § 10-04-08. Payment of registration fees is required for registration by qualification and is set
out as follows: For an initial filing, one-tenth of one percent of the aggregate amount of each security or
class of security to be registered but not more than two thousand five hundred dollars. In no event may
an initial filing fee be less han one hundred fifty dollars . an applicant may increase the aggregate
amount of each security or class of security to be registered and payment of a filing fee of one-tenth of
one percent of the additional aggregate dollar amount but not more than five hundred dollars. §10-0408(2).
2.
Registration exemptions
The North Dakota Securities Act provides that the registration requirements set out above do not apply
to certain exempt securities and exempt transactions. §§ 10-04-05, 10-04-06. Certain securities are
exempt from the registration requirements of sections 10-04-04, 10-04-07.1, and 10-04-08. For a
complete treatment of exemptions see North Dakota Century Code section 10-04-05 listing the broad
categories of exempt securities. The exemptions of securities in North Dakota are similar to the Uniform
Act. Certain transactions in securities are exempt, as well, from the registration requirements. § 10-0406. For a complete listing of the exempt transactions see section 10-04-06.
3.
Broker-Dealer, Agent, and Advisor Registration
Any broker-dealer, agent, investment advisor, federal covered adviser, or investment advisor
representative is prohibited from transacting business within the state of North Dakota, except those
transactions exempted under section 10-04-06, unless they are registered as a broker-dealer, agent, or
investment advisor, federal covered adviser, or investment advisor representative. § 10-04-10(1)-(5).
a. Broker-Dealers
A person applying to be a broker-dealer must submit a prescribed form to the commissioner containing
the following information the commissioner determines to be necessary concerning the applicant. The
Commissioner may also require such additional information relating to the applicant and as to the
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previous history, record, or assocaiton of the applictant, its officers, directors, employees, members,
partners, managers, or trustees as the commissioner deems necessary to establish whether or not the
applicant should be registered as a broker-dealer. § 10-04-10(1)(b). include with the application must be
the proper registration fee. § 10-04-10(8)(1).The commissioner may also require applicants to post an
indemnity bond. § 10-04-10(1)(b).
b. Agent
A person applying to be an agent must complete and submit the prescribed form to the commissioner,
signed by the registered dealer which must contain the information the commission determines to be
necessary concerning the applicant. The commissioner shall require as a condition of registration that
the applicant pass a written examination as evidence of knowledge of the securities business. The
commissioner may also require such additional information as to the applicant's previous business
experience as the commissioner deems necessary to determine whether or not the applicant should be
registered as an agent under the provisions of this law. § 10 -04 -10(2). Included with the notice filing
must be the proper registration fee. § 10-04-10(8)(b).
c. Investment Advisor
A person applying to be an investment advisor must submit a prescribed form to the commissioner must
contain the information the commission determines to be necessary concerning the applicant. The
commissioner may also require such additional information relating to the applicant and as to the
previous history, record, or association of the applicant, its officers, directors, employees, members,
partners, managers, or trustees, as the commissioner deems necessary to establish whether or not the
applicant should be registered as an investment adviser under the provisions of this chapter. The
commissioner may require applicants to complete an examination and post an indemnity bond. The
commissioner may by rule or order provide for an examination to be taken by any class of or all
applicants, as well as persons who represent or will represent an investment adviser in doing any of the
acts which make the person an investment adviser. § 10-04-10(3). Included with the notice filing must
be the proper registration fee. § 10-04-10(8)(c).
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d. Federal Covered Advisor
A federal covered investment advisor must make a notice filing with the commissioner to transact
business in North Dakota consisting of the documents the federal covered advisor filed with the
Securities and Exchange Commission. § 10-04-10(4)(a). Included with the notice filing must be the
proper registration fee. § 10-04-10(8)(c).
e. Investment Advisor Representative
A person applying to be an investment advisor must submit a prescribed form to the commissioner must
contain the information the commission determines to be necessary concerning the applicant. The
commissioner shall require as a condition of registration that the applicant pass a written examination
as evidence of knowledge of the securities business. § 10-04-10(5). The required fee must also be paid. §
10-04-10(8)(d).
4.
Antifraud Provisions
a. Fraudulent Practices
Fraudulent practices in relation to the issue and sale of securities are governed by section 10-04-15. The
following categories are descriptions of fraudulent practices:
1. Knowingly subscribing to, making, or causing a material false statement or representation in
any application, financial statement, or other document or omitting to state any material
statement or fact in any of these documents which would be necessary to make the
statements made not misleading;
2. For any person in connection with an offer, sale, or purchase of securities to directly or
indirectly employ any device, scheme, or artifice to defraud; make any untrue statement of
a material fact or to omit to state a material fact necessary to make the statement true;
engage in any act, practice, or course of business which operates or would operate as a
fraud or deception upon purchasers of securities; and for any person to effect a series of
transactions creating actual or apparent active trading, or to raise or lower the price of a
security, for the purpose of inducing the purchase of a security;
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3. For any person that for compensation advises others as to the value of securities, provides
guidance on investing in securities, or promulgates analyses or reports relating to securities
to employ a device, scheme, artifice, act, practice, or course of business that operates or
would operate as a fraud or deceit upon another person or the public.
4. For any person to effect a series of transactions creating actual or apparent active trading,
or to raise or lower the price of a security, for the purpose of inducing the purchase of a
security.
The Securities Act also protects purchasers from fraud by regulating advertising used in the sale of
securities by requiring that five days before distribution it is filed with the commissioner. § 10-0408.2(1). The commissioner has the power in to disapprove of any advertising matter that the
commissioner believes to be in conflict with the Securities Act provisions. § 10-04-08.2(3). The Securities
Act also has provisions regulating fraudulent advisory activities. § 10-04-10.1.
b. Commissioner Action
If there appears to the Commissioner to have been a violation of any provision of the Securities Act the
Commissioner has the power to issue any number of orders including: cease and desist, stop, and
suspension orders. The Commissioner has the right to impose civil penalties for violations in an amount
not exceeding ten thousand dollars for each violation, as well as the right to bring actions in district
court to recover penalties. Any person having a penalty assessed under this section has the right to a
hearing if a written request is made within fifteen days after receipt of the order. If the commissioner
sustains the order, then the party whom it is against has the right to appeal the order to the district
court of Burleigh County. § 10-04-16(1). The commissioner may also apply to any district court for an
injunction restraining the action, or refer any evidence concerning the act to the appropriate criminal
prosecutor who then may institute criminal proceedings. §10-04-16(2)-(3). The Commissioner may
make any investigations or issue subpoenas as necessary to deal with violations. § 10-04-16.1.
c. Remedies
Any sale or contract made in violation of the Securities Act is voidable at the election of the purchaser.
Any person making the sale and every director, officer, salesman, or agent who participated in the sale
shall be jointly and severally liable to the purchaser. The purchaser may sue to recover the amount
paid, taxable court costs, interest, and reasonable attorney’s fees, minus the amount of income received
on the securities upon tender to the seller. If the securities have already been disposed of, the person
may bring an action for damages for the amount recoverable upon tender less the value of the securities
when the purchaser disposed of them and interest as provided by statute. § 10-04-17 (1).
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X.
REAL ESTATE
A.
Ownership
1.
Who can hold title in North Dakota.
Any person whether citizen or alien or any validly created entity can hold title to real estate in North
Dakota (except as provided in ch. 47-10.1 and as limited by ch. 10-06.1). Conveyances to non-existent or
fictitious persons or entities are void.
2.
When can an individual own property in North Dakota.
There is generally no restriction on an individual owning property in the State of North Dakota.
However, certain non-resident aliens are restricted from acquiring an interest in agricultural land except
under specified circumstances. § 47-10.1-02.
3.
When can a domestic/foreign entity own property in North Dakota.
There are generally no limitations or restrictions on a domestic or foreign entity owning property except
for the restrictions on ownership of agricultural land, which are set forth in § 47-10.1-02, and as limited
by ch. 10-06.1 governing corporate or limited liability company farming.
4.
When can domestic/foreign partnerships own property in North Dakota.
No special provision. However, if the partnership is engaged in farming and/or ranching and a partner in
the partnership is a corporation or a limited liability company, it must comply with ch. 10-06.1.
5.
When can limited liability corporations own property in North Dakota.
Limited liability corporations are treated the same as corporations.
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B.
Concurrent Ownership
North Dakota recognizes tenancies in common and joint tenancies. Tenancies by the entirety are not
recognized in North Dakota. § 47-02-05. Conveyances in the entireties are treated as joint tenancies.
C.
Spousal Rights
1.
What rights does a spouse have to real property in the event of death or separation?
If spouses own property as joint tenants, upon the death of the first spouse the property is transferred to
the surviving spouse by operation of law. There are minimal documentation requirements to reflect the
status of the title of record. In the event the property is not owned as joint tenants, the deceased spouse’s
interest in the real estate will be transferred according to the terms of any premarital agreement, the
decedent’s will, or, if no will, pursuant to the laws of intestacy. However, if the real estate is the
homestead of the decedent, a surviving spouse has the right to the possession, use, control, income, and
rents of the homestead until the surviving spouse’s death or remarriage.
The homestead consists of the land, dwelling house and its appurtenances, and all other improvements
on the land, up to $100,000 in value, over and above liens or encumbrances. The surviving spouse may
also be entitled to certain elective share rights in the event the surviving spouse does not otherwise
receive the statutorily allowed share of the decedent’s estate, regardless of whether the decedent died
testate or intestate. A surviving spouse’s rights to a homestead allowance and/or to an elective share can
be waived by the surviving spouse.
In the event of separation (not including formal legal separation or divorce), the parties’ interest in real
property will remain unchanged. However, if a legal separation or divorce proceeding is commenced and
completed, the real property will be distributed in an equitable manner as determined by a court. In the
event one of the parties retains ownership of the real property, that party is typically required to refinance
any debt on the property into his or her own name in exchange for a deed from the other party.
2.
What responsibilities does a spouse have in the execution of mortgages?
With respect to homestead property, both spouses must sign a mortgage. For mortgages on nonhomestead property, all owners of the property should sign the mortgage to grant the lender a mortgage
on the entire parcel (rather than an undivided portion). If only one spouse owns non-homestead property,
the other spouse does not have to sign the mortgage on the non-homestead property.
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D.
Purchase/Sale of Property
1.
Purchase
a.
North Dakota’s procedures for drafting a purchase agreement
Generally, the buyer and Seller discuss the general terms of sale, with the proposed offer from buyer
being put in writing, any counter offers by seller being added, and signed by both. In addition, after the
purchase agreement is signed by both parties, the parties can agree to modifications via a separately
executed amendment to the purchase agreement, which should also be signed by both parties.
b.
A purchase agreement should, at a minimum, include the following:
Purchase price, closing date, legal description, included or excluded personal property and fixtures, any
contingencies, certain seller warranties, allocation of fees, and disclosure of any information about the
condition of the property, including lead based paint warning statement for residential properties build
before 1978.
c.
Statute of Frauds
North Dakota protects the parties to the sale via its statute of frauds. Pursuant to the statute of frauds,
all contracts for the sale of real property shall be in writing and signed by the party to be charged, or by
that party’s agent. § 9-06-04.
d.
North Dakota has no conveyance tax
There is no conveyance tax in North Dakota. The buyer and seller decide upon the allocation of real estate
taxes and include appropriate language regarding the allocation of real estate taxes in the purchase
agreement. Typically, real estate taxes are prorated to the date of closing.
e.
Taxes are prorated generally between buyer & seller
The allocation of real estate taxes between buyer and seller is set forth in the purchase agreement, which
typically calls for the taxes to be prorated between buyer and seller as of the date of closing. In North
Dakota, real estate taxes are due in the year following assessment. For example, real estate taxes for
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2015 are not due until 2016. As a general rule, real estate taxes for the year in which the sale occurs are
typically prorated to the date of closing using the most recent information available.
2.
Closing
a.
Deeds
North Dakota Century Code chapter 47-10 governs real property transfers. An estate in real property
(other than an estate at will or for less than one year) can be transferred only by operation of law or an
instrument in writing signed by the party transferring the property or by the party's agent (so long is the
agent has written authority). The written instrument transferring property is commonly referred to as a
deed. § 47-10-01. No seal is required for the proper execution of a deed. § 47-10-05. Rather, the deed
must be either notarized or signed by a witness, although notarization is almost exclusively the preferred
method. A deed must also contain the post-office address of each grantee or it will not be recorded. §
47-10-07. Before a deed will be recorded, all delinquent taxes and assessments on the property must be
paid.
The deed must either include the name and address of the drafter of the legal description or state the
legal description was obtained from a previously recorded instrument. § 47-19-03.1. It must also (a)
confirm a report of full consideration paid for the property conveyed has been filed with the State Board
of Equalization or the County Recorder; (b) provide a statement of full consideration paid for the property;
or (c) certify that a statement of full consideration is not required because the deed transferred property
or involved a transaction exempt from the requirement.
Exempt property/transactions include: property used or owned by public utilities; personal property; a
transaction involving a grantor and grantee in the same family or a corporate affiliate; a sale which results
from settlement of an estate; sales from or to government or governmental agencies; forced sales;
mortgage foreclosures; tax sales; sales to or from religious, charitable, or nonprofit organizations; a sale
involving a change of use by the new owners; property transferred by quitclaim deed; property that is not
assessable by law; agricultural land of less than 80 acres; transfers pursuant to judgment.
An unrecorded deed is valid between the parties; however, recording is necessary to protect the grantee
against subsequent purchasers and certain creditors of the grantor, including judgment creditors. § 4719-41.
b.
Bill of sale
A bill of sale is generally not used in residential transactions. However, it is appropriate, although not
required, if personal property is included in the sale.
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c.
Mortgage
A transfer of an interest in real property, other than in trust, without requiring a change in possession and
that is made to secure performance of an act is considered a mortgage. § 35-03-01.1. A mortgage is a
lien upon everything that would pass by a grant of the property, and is a lien against everyone with a
subsequent interest except good faith purchasers without notice and for value. § 35-03-01.2. Any
transferrable interest in real property may be mortgaged. § 35-03-01.2
A mortgage of real property can be created, renewed or extended only by a writing that has the same
formality as that of a grant of real property, i.e., a mortgage requires a witness or notarization, must
include the address of each mortgagee and must be signed by the individual(s) granting the mortgage. §
35-03-01. Mortgages should include a reference to the amount secured and provide a maturity date. If
no maturity date is provided, the mortgage expires 10 years after it is recorded. If a maturity date is
provided and the mortgage is not otherwise extended, it expires 10 years from the maturity date. § 3503-14.
Assignments of a mortgage are valid but must contain the address of the assignee or they will not be
recorded. § 35-03-04. If the mortgage secures a note, bond or other instrument, the mortgagor must be
given actual notice of the assignment. § 35-03-05.1.
d.
Financing
Financing typically requires compliance with federal disclosure requirements. There is no particularly
regulatory scheme except with regard to mortgage brokers.
e.
Closing statement
A HUD 1 Settlement Statement is generally used for all transactions.
E.
Foreclosure
Foreclosure must be by civil action; foreclosure by advertisement is not allowed unless the mortgage is
held by the state, any of its agencies, departments or instrumentalities. At least 30 days prior to the
commencement of a foreclosure lawsuit, a written notice before foreclosure must be personally served,
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like a summons, upon the title owner of the property. It must include the description of the real estate,
date and amount of the mortgage, the principal amount due, all interest and taxes owed and it must state
that if the amount owed is not paid within thirty days, foreclosure proceedings will be commenced. §§
32-19-20, 32-19-21.
If the default is cured during the thirty-day period, the mortgage is deemed reinstated. § 32-19-28. If the
default is not cured, the foreclosure lawsuit can proceed. If the property is abandoned, a mortgagee can
petition the court for an order giving them immediate possession of the property. § 32-19-19. The period
of redemption is 60 days from the date of the sheriff’s sale except for agricultural land, for which the
period of redemption is 365 days after the filling of the summons and complaint (but which cannot be
sooner than 60 days after the sheriff’s sale). § 32-19-18.
F.
Land Contracts
Conveyances of real property may be by a contract for deed. A contract for deed transfers equitable title
to property, and is an agreement between parties for an extended payment period on the property,
with the deed delivered upon final payment. Equitable conversion is recognized and the parties are
deemed in the relationship of mortgagor- mortgagee. The vendor’s interest is considered personal
property.
G.
Easements
Chapter 47-05 governs easements. Section 47-05-01 states a list of servitudes, that when attached to
other lands as incidents, are called easements. These incidents are: the right of pasturage; fishing; right
of way; taking water, wood, and minerals; transaction of business; conducting lawful sports; receiving or
discharging air, light or heat from or over land; flooding; having water flow without dimunition or
disturbance; having or using wall as a party wall; receiving more than natural support from adjacent land
or things affixed thereto; having the whole or a division of a fence maintained by a coterminous owner;
having public conveyances stopped; a seat in church; and burial rights. The creation of a solar easement
must be in writing and is subject to the same conveyance and recording requirements of other
easements. §§ 47-05-01.1, 47-05-01.2. Servitudes not attached to land are granted statutorily and
include: right of pasture and fishing; a seat in church; burial; taking rents and tolls; right of way; right of
taking water, wood, and minerals; and historic easements. § 47-05-02.
The area of land covered by the easement, servitude, or nonappurtenant restriction on the use of real
property must be described properly and describe the land covered by the interest. § 47-05-02.1(1).
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Besides coverage, the duration of the easement must be specifically set out and cannot exceed ninetynine years, excluding specific duration requirements for waterfowl production areas and wetland
reserve programs. § 47-05-02.1(2). Any increase in the easement area can only be made through
negotiation between the easement owner and the owner of the servient tenement. § 47-05-02.1(3).
An easement can be extinguished by: vesting the right to the servitude and the right to the servient
tenement in the same person; destruction of the servient tenement; performance of an act that is
incompatible with the nature or exercise of the easement; and when servitude was acquired by
enjoyment, or by disuse of owner for the period prescribed for acquiring title by prescription. § 47-0512(1)-(4). A transfer of real property passes all easements attached to that property. § 47-10-11.
H.
Leases
North Dakota Century Code chapter 47-16 governs the leasing of real property in North Dakota. Leasing
is a contract where one party gives another temporary possession and use of real property, and the
latter agrees to return possession at a future time. § 47-16-01. Lease agreements or grants of
agricultural land are valid for no longer than ten years. Leases and grants of city lots are valid for no
longer than ninety-nine years. § 47-16-02. Any products received during the term of the lease belong to
the lessee in the absence of an agreement otherwise. § 47-16-04. Leases on realty are presumed to exist
for one year, and if a lessee remains in possession and rents are accepted by the lessor the lease is
presumed to have been renewed. When a lease of real property for residential purposes expires and
there is no renewal clause, and if the lessee remains in possession and the lessor accepts rent, then the
parties are presumed to have renewed the lease as a month-to-month tenancy. § 47-16-06. However,
on leases of real property for residential purposes that are for a term of two months or more, the lessor
may not enforce an automatic renewal clause without giving the lessee notice thirty days prior to
expiration of lease. If no notice is given the lease expires, and the term converts to a month-to-month
tenancy. § 47-16-06.1.
When real property is leased for a particular purpose, the property must be used only for that purpose,
and a lessee in violation may be responsible and the lessor may treat the contract as rescinded. § 47-1611. Any damage done to the property through the lessee’s ordinary negligence is the responsibility of
the lessee to repair. § 47-16-10. If a lessee intends to vacate the premises or repair them due to damage
they are required to give the lessor notice. § 47-16-13. If a lessee is evicted they are liable for rent for
the remainder of the lease, but the landlord maintains a duty to mitigate damages. § 47-16-13.7. A lease
is terminated: at the end of the agreed upon term; by mutual consent; the lessee’s acquisition of title to
the leased property; or by destruction of the property. § 47-16-14.
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I.
North Dakota Zoning
Unless relinquished to the County, each city has exclusive power over land use regulation within its
boundaries and the statutory extra-territorial area around it. Chapter 40-47 and 40-48. North Dakota
also has provisions for both a regional zoning commission and county zoning. The regional zoning
commission allows the governing boards of counties, cities, and organized townships to cooperate in the
planning and administration of zoning laws. § 11-35-01. These regional commissions are made up of
members of the county commission, the rural region affected, and the city affected, and which bear the
cost proportionately. The regional commission, when requested by the governing board of the
subdivision, may exercise the powers that are granted to counties, cities, or organized townships in
relation to planning and zoning.
Chapter 11-33 regulates county zoning. The county has the power to regulate property zoning within its
jurisdiction for the purpose of promoting health; safety; morals; public convenience; prosperity; and
public welfare. § 11-33-01.
J.
Mineral Rights
Mineral Rights are governed by North Dakota Century Code title 38. Reservations or transfers of
minerals include all minerals except those that are specifically excepted. §§ 47-10-24, 47-10-25. The
Industrial Commission, pursuant to chapter 38-08, has the authority to enforce statutes regarding
mining, gas and oil production. Chapter 47-16 governs the termination or forfeiture of a mineral lease. A
holder must record a terminated or forfeited lease within 15 days; in default, a lessor may serve a notice
of election to void the lease. Unless the lessee files an affidavit showing that the lease is still effective
within 20 days, the Register of Deeds must cancel the lease. § 47-16-36.
Chapter 38-18 protects owners of surface minerals. Dormant minerals may be deemed abandoned to
the surface owner after 20 years unless used or protected by filing. The surface owner may record a
statement of succession in interest indicating the owner succeeded to ownership of the minerals. § 3818.1-02.
K.
Eminent Domain
Eminent domain is covered in the Constitution at Art. I, § 16 and in the Code at chapter 32-15. Eminent
domain is defined as the right to damage or take private property for public use. § 32-15-01(1).
However, this may not be accomplished without just compensation to the owner of the property, and
property may not be taken unless necessary for conducting a common carrier or utility business. § 3289
15-01(2). Section 32-15-02 sets out all the relevant public uses for which eminent domain may be
exercised.
The Code sets out a threefold classification of estates that are subject to taking for public use. Fee
simple may be taken for public buildings or grounds, permanent buildings, reservoirs, dams, and
permanent flooding, outlet for flow or deposit of debris from tailings of a mine, and the construction of
parking lots and facilities for motor vehicles. Easements may be taken for highway purposes or for any
other use, except when the court determines that a proper allegation has been made for the need to
keep the property. Land may also be taken through the right of entry upon and occupation of lands, and
the right to take earth, gravel, stones, trees, and timber for public use as it becomes necessary.
However, the state or any other political subdivision is prohibited from obtaining rights or interest in oil,
gas, or minerals. § 32-15-03.
The private property that may be subject to a right of eminent domain is: real property; nonappropriated lands belonging to the state or any county, city, or park district; property appropriated to
public use, except that it shall not be taken for a use that is less necessary than that to which it had been
appropriated; franchises for toll roads, toll bridges, ferries, and all other franchises taken only for use as
free highways, railroads, or other necessary public uses; waterworks systems, and electric light and
power plants systems, wells, reservoirs, pipelines, machinery, and franchises; all rights of way; and any
other property taken for public use when authorized by law. § 32-15-04.
When a taking occurs the condemnor must make reasonable and diligent efforts to acquire the property
through negotiation. Before the negotiations begin the condemnor should establish an amount believed
to be just compensation, disregarding the effects the project would have on the fair market value. The
condemnor should then furnish a copy of the appraisal or basis upon which the determination of just
compensation was established for the property. § 32-15-06.1. The condemnor is also under a duty to
make certain disclosures on offers to other property owners pursuant to § 32-15-06.2.
In an action against a taking, the complaint must contain: the name of the taking person or organization;
the names of all owners and claimants, or a statement that they are unknown, who are then named as
defendants; a statement of the right of the plaintiff; if a right of way is sought, the location of the right
of way accompanied by a map showing the disputed location; and a description of each piece of land
sought to be taken. § 32-15-18. The jury or court has the right to hear all claims, determine the
respective rights, regulate and determine connections and crossings, and assess damages for the taking.
§§ 32-15-21, 32-15-22. Damages accrue on the date of the taking and the actual value at that date is the
measure of compensation. § 32-15-23. The court may, in assessing damages, also award costs pursuant
to § 32-15-32. Once a final judgment is entered against the plaintiff, the payment to the defendant must
be made within thirty days subject only to limited exceptions. § 32-15-25. When the plaintiff has paid
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the defendant for the taking, they may upon notice to the court of not less than three days, be
authorized to enter the property. § 32-15-29.
XI.
Miscellaneous
A.
Licensing and regulatory requirements
Licenses are required for a large number of occupations, as well as for transient merchants pursuant to
chapter 51-04, but are not required for commercial travelers. Collection agencies are required to be
licensed by the Department of Financial Institutions. § 13-05-01. The Department furnishes application
forms for the licensure of a collection agency. § 13-05-03. An applicant for a license must pay a
nonrefundable $400 fee for investigating the application, a $400 annual license fee. § 13-05-04. and An
applicant must also provide a surety bond in the sum of twenty thousand dollars. §13-05.04.1 The
collection agency provisions do not apply to attorneys, licensed real estate brokers, banks, trust
companies, building and loan associations, abstract companies doing escrow business, purchasing or
taking accounts receivable for collateral purposes, creditors for collecting their own debts, individuals or
firms who purchase or take accounts receivable for collateral purposes, individuals employed in the
capacity of creditmen upon the staff of an employer not engaged in the collection agency business, or a
public officer under court order, or persons who are licensed and bonded in another state. § 13-05-02.3.
A violation of the collection agency provisions is considered a class C felony. § 13-05-10.
B.
Applicability of state usury laws
North Dakota usury law is found in Chapter 47-14. Taking or agreeing to take an illegal rate of interest,
or compounding interest or charging interest on interest overdue is considered usury. § 47-14-09. The
penalty for usury is to forfeit all interest and 25% of the principal. § 47-14-10. Where the borrower paid
usury, they may recover double the interest paid and 25% of the principal if they commence an action
within four years after the transaction date. § 47-14-10. Usury is considered a class B misdemeanor. §
47-14-11.
C.
Restrictions on specific professions
The North Dakota provisions on specific professions are numerous and many professions have sections
of the code dedicated to the regulation of their profession. A listing of these professions can be found in
the General Index to the Century Code at the heading “PROFESSIONS AND OCCUPATIONS”. More
specifically chapter 43 of the Century Code covers most occupations and professions within the state of
North Dakota. Regulations relating to certain professions can also be found in the North Dakota
Administration Code.
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