IN COURT OF APPEALS
Arizant Inc., et al.,
Filed July 24, 2007
Toussaint, Chief Judge
David B. Potter, Bret A. Puls, Adam C. Trampe, Oppenheimer Wolff & Donnelly LLP, 3300 Plaza VII Building, 45 South Seventh Street, Minneapolis, MN 55402 (for appellants)
Lori Swanson, Attorney General, Michael J. Vanselow, Deputy Attorney General, 1100 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2128 (for amicus curiae State of Minnesota)
Alberto R. Gonzales, United States Attorney General, Peter D. Keisler, Assistant Attorney General, Randy G. Massey, Acting United States Attorney for the Southern District of Illinois, Douglas N. Letter, Michael E. Robinson, Appellate Staff Attorneys, Civil Division, Room 7539, Department of Justice, 950 Pennsylvania Avenue Northwest, Washington, D.C. 20530-0001; and
Rachel K. Paulose, United States Attorney for the District of Minnesota, James E. Lackner, First Assistant United States Attorney, United States Attorney’s Office, 300 South Fourth Street, Suite 600, Minneapolis, MN 55415 (for amicus curiae United States Department of Justice)
S Y L L A B U S
1. Undisputed evidence that a person seeking indemnification for fines and attorney fees related to a criminal conviction acted with fraudulent intent in committing the crime conclusively establishes that the individual did not act in good faith and therefore is not entitled to indemnification under Minn. Stat. § 302A.521, subd. 2(a) (2006).
2. Unless a corporation has violated a provision
3. When a contract provides that an appraisal be made independently by a non-party to the contract, but does not stipulate that the appraisal is binding and conclusive, a factual determination as to whether the contract’s language supports a fair inference that the parties intended to be bound by the appraisal is required to determine whether the appraisal is binding and conclusive.
4. When a contract provides that an appraisal be made independently by a non-party to the contract, but does not stipulate that the appraisal is binding and conclusive, a jury deciding whether the contract was breached must be instructed to determine first whether the parties intended to be bound by the appraisal.
O P I N I O N
TOUSSAINT, Chief Judge
Appellant corporations were sued by respondent former chief executive officer of one of the corporations, who alleged that he was entitled both to indemnification for his criminal fine and attorney fees and to damages caused by appellants’ breach of the bonus provision in the parties’ separation agreement. The district court denied appellants’ motions for summary judgment, and the matter proceeded to trial. The district court adopted the jury’s findings, entered judgment for respondent, and awarded respondent attorney fees. The district court denied appellants’ motion for judgment notwithstanding the verdict or, in the alternative, a new trial. We reverse and remand.
Appellants Augustine Medical, Inc. and Arizant Healthcare, Inc. were subsidiaries of appellant Arizant, Inc. Respondent Scott D. Augustine, M.D., was the chief executive officer of Augustine Medical, Inc. Appellants manufactured and sold Warm-Up Active Wound Therapy.
TriSpan Health Services, a fiscal intermediary of the federal Medicare program, initially approved coverage for Warm-Up but later assigned it investigational, rather than approval, status in a letter to respondent. In 2003, appellants, respondent, and several others were charged by federal indictment with crimes related to having concealed that letter from Southern Medical Distributors, an entity operating as a medical-device distributor that was, in fact, an undercover business front created by the federal government to investigate Medicare fraud. In May 2004, appellants pleaded guilty to the charge of conspiring to defraud the United States by impairing, impeding, and obstructing the administration of the Medicare program in violation of 18 U.S.C. §§ 2, 371 (2000). Thereafter, respondent pleaded guilty to “knowingly and intentionally aid[ing] and abett[ing] the offense . . . by causing to be withheld from Southern Medical Distributors a material fact for use in determining rights to benefits and payments under . . . the Medicare program” in violation of 42 U.S.C. § 1320a-7b(a)(2) (2000) and 18 U.S.C. § 2. The federal district court sentenced respondent to a three-year probationary term and ordered him to pay a $2,000,025 fine.
Respondent brought suit against appellants, seeking indemnification for his criminal fine and attorney fees and damages caused by appellants’ breach of the stock-bonus provision in the parties’ separation agreement.
1. Did the district court err by failing to rule, as a matter of law, that respondent is not entitled to indemnification because he did not act in good faith and denying appellants’ motion for summary judgment?
2. Did the district court err as a matter of law by awarding respondent attorney fees for his indemnification claim?
3. When the contract provided that an appraisal be made independently by a non-party to the contract, but did not stipulate that the appraisal was binding and conclusive, did the district court err in submitting to the jury the question of whether a party breached the contract by challenging the appraisal?
4. Did the district court err by failing to instruct the jury that it must determine whether the parties intended the independent appraisal of the value of stock prescribed by their agreement to be binding and conclusive?
The jury found, and the district
court held, that appellants must indemnify respondent for his criminal fine and
attorney fees. Appellants argue that the
district court erred by denying their motion for summary judgment and submitting
this issue to the jury. We may review nonappealable interlocutory
orders, such as an order denying summary judgment, on appeal from a judgment if
that order involves the merits or affects the judgment. Schoer
Appellants argue that respondent’s conviction of knowingly and intentionally aiding and abetting others in withholding a material fact from another for use in determining the other’s rights to Medicare benefits and payments in violation of 42 U.S.C. § 1320a-7b(a)(2) (2000) and 18 U.S.C. § 2 (2000) precludes his indemnification under Minn. Stat. § 302A.521, subd. 2(a) (2006) because that conviction establishes that respondent did not act in good faith. “[A] corporation shall indemnify a person made . . . a party to a proceeding by reason of the former or present official capacity of the person . . . if, with respect to the acts or omissions of the person complained of in the proceeding, the person. . . acted in good faith.” Minn. Stat. § 302A.521, subd. 2(a). “Good faith” is defined as “honesty in fact in the conduct or the act or transaction concerned.” Minn. Stat. § 302A.011, subd. 13 (2006).
determination of whether someone acted in good faith necessarily involves
factual findings. Tonka Tours, Inc. v. Chadima, 372 N.W.2d 723, 728 (
acts of a person whom a defendant aids and abets become the acts of the
Respondent affirmed under oath that he “knowingly and [willfully] aided and abetted the offense of 42 U.S.C., Section 1320a-7b(a)(2).” As such, he “cannot fairly be said to have acted in good faith.” See United States v. Rice, 449 F.3d 887, 896 (8th Cir. 2006) (holding that “defendant who . . . acted with intent to defraud cannot fairly be said to have acted in good faith”), cert. denied, 127 S. Ct. 601 (2006); see also United States v. Brown, 478 F.3d 926, 928 (8th Cir. 2007) (holding that, based on district court’s instruction on willfulness and intent, jury’s finding of guilt necessarily indicated that it had found that defendants “did not act with honest intentions in their transactions”); United States v. Jain, 93 F.3d 436, 440-41 (8th Cir. 1996) (holding that conviction of violating 42 U.S.C. § 1320a-7b, which makes it unlawful to “knowingly and willfully” receive kickbacks for referring individual to another for Medicare-paid services, requires proof that defendant knew conduct was wrongful, which is higher standard than general requirement that defendant have mere consciousness of act).
Because both the undisputed evidence of respondent’s sworn admission that he acted with fraudulent intent and respondent’s conviction conclusively establish that he did not act in good faith and because good faith is an essential element of an indemnification claim, respondent’s indemnification claims fail as a matter of law. Therefore, the district court erred in denying appellants’ motion for summary judgment.
2. Attorney fees.
Our conclusion that appellants did
not violate Minn. Stat. § 302A.521, subd. 2(a), by refusing to indemnify
respondent compels the conclusion that respondent was not entitled to attorney
fees under Minn. Stat. § 302A.467 (2006) (providing that a court may award
attorney fees if a corporation has violated
3. Effect of independent appraisal.
Because it found genuine issues of material fact as to whether the parties’ separation agreement stipulated that a third party’s independent appraisal of stock was to be conclusive, the district court denied appellants’ motion for summary judgment on respondent’s claim that appellants breached the agreement.
“[U]nder Minnesota law, as well as generally,
the result of an appraisal which the parties have thus contracted to have made
is . . . conclusive upon them . . . if they have expressly
stipulated that it shall be so conclusive, or if the intention to be so bound
is fairly inferable from the language which they have used.” Sanitary Farm Dairies v. Gammel, 195
F.2d 106, 113 (8th Cir. 1952) (citing Nelson
v. Charles Betcher Lumber Co., 88
intent to be . . . bound is determined by the objective
manifestations of the parties’ words, conduct, and documents, and not by their
subjective intent.” Norwest Bank
4. Jury Instructions
that the jury instructions on respondent’s breach-of-contract claim did not
fairly or correctly state the law. When
jury instructions do not fairly and correctly state the law, the objecting
party is entitled to a new trial. Alevizos
v. Metro. Airports Comm’n, 452 N.W.2d 492, 501 (
D E C I S I O N
The undisputed evidence that respondent acted with fraudulent intent conclusively establishes that he did not act in good faith and is not entitled to indemnification under Minn. Stat. § 302A.521, subd. 2(a) (2006). Because appellants did not violate Minn. Stat. § 302A.521, subd. 2(a), respondent is not entitled to attorney fees based on that violation under Minn. Stat. § 302A.467 (2006). We therefore reverse the awards of indemnification and attorney fees. Because the jury instruction did not fairly or correctly state the applicable law on whether an independent appraisal mandated by a contract is binding and conclusive, we reverse the award of contractual damages and remand for a new trial.
Reversed and remanded.
Respondent brought a statutory-indemnification claim based on Minn. Stat.
§ 302A.521, subd. 2(a) (2006), and a contractual-indemnification claim
based on the parties’ December 31, 2002 separation agreement, which requires
Augustine Medical to indemnify respondent for “all attorney’s fees, costs, disbursements
and damages that he may incur as a result of and relating to any act or
omission that he allegedly committed while serving as an officer, director
and/or employee . . . to the extent, and subject to the exceptions,
that Minnesota law provides.” Because
the separation agreement provides that appellants’ contractual indemnification
obligation is “to the extent . . . that
 Because we reverse the district court’s denial of summary judgment on this ground, we need not consider appellants’ arguments that the district court’s evidentiary rulings and jury instructions were erroneous.
The district court did not err, however, in rejecting appellants’ argument that
collateral estoppel mandates summary judgment on respondent’s indemnification
claims. Collateral estoppel requires a final judgment on the merits
in the prior adjudication. Hauschildt v.
Beckingham, 686 N.W.2d 829, 837 (
 Having resolved the attorney fee issue on this basis, we do not reach appellants’ argument that Minn. Stat. § 302A.466 does not apply to indemnification claims brought by corporate officers against a corporation.
 Because the absence of a stipulation is readily discerned by examining the agreement, the district court erred in finding genuine issues of material fact as to whether the agreement contained a stipulation.