This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C8-00-1434

 

 

Kenneth G. Brcka, et al.,
Respondents,

vs.

Falcon Electric Corporation,
Defendant
,

 

Roger Johnston,

Appellant.

 

 

Filed June 12, 2001

Affirmed

Peterson, Judge

 

 

Hennepin County District Court

File No. CT9813810

 

Eric J. Magnuson, Ben G. Campbell, John R. Neve, Rider, Bennett, Egan & Arundel, LLP, 333 South Seventh Street, Suite 2000, Minneapolis, MN  55402 (for respondents)

 

 

Miguel J. Azar, Tracy N. Tool, 8301 Creekside Circle, Suite 101, Bloomington, MN  55487 (for appellant)

 

 

            Considered and decided by Shumaker, Presiding Judge, Randall, Judge, and Peterson, Judge.

U N P U B L I S H E D   O P I N I O N

PETERSON, Judge

            This action arose out of the sale of the assets of respondent ADA Engineering, L.L.C., to Falcon Electric Corporation.  Appellant Roger Johnston, respondent Kenneth G. Brcka, and two others were partners in ADA, and Johnston was also the major shareholder in Falcon.  Respondents brought this action against Falcon and Johnston alleging claims for unjust enrichment against both Falcon and Johnston; breach of contract and conversion against Falcon; and breach of fiduciary duty to a partner against Johnston.  In this appeal from a judgment and posttrial order, Johnston argues that the district court erred in granting partial summary judgment on the breach-of-contract claim and in denying his motion for a new trial or JNOV on the unjust-enrichment and breach-of-fiduciary-duty claims.[1]  Respondents seek review of the district court’s decision granting remittitur of the damage award.  We affirm.

FACTS

 

            In 1992, Brcka, Robert Churchill, Larry Jeutter, and Johnston formed ADA.  ADA was in the business of designing and manufacturing motor controls.  The predecessor to ADA was Technabilities, a company owned by Brcka, Churchill, and Jeutter.  Brcka, Churchill, Jeutter, and Johnston all contributed capital to Technabilities and were equal partners in ADA.

The motor controls manufactured by ADA were used as component parts in some products sold by Falcon.  Johnston was an officer and the major shareholder of Falcon.  Johnston also owned another company, Vikeland Sales, which ADA used to market their products.  Brcka estimated that 70 to 75% of ADA’s sales were made through Vikeland.  ADA paid Vikeland a five percent sales commission.

In March 1995, Johnston sent a letter to Brcka and Churchill discussing the possible benefits of a merger between ADA and Falcon.  Johnston outlined how a merger could significantly increase the efficiency of the two businesses and reduce ADA’s rent and overhead expenses.  Brcka testified that the merger was Johnston’s idea from the beginning. During the rest of 1995, Brcka and Johnston engaged in ongoing negotiations regarding the merger.  Johnston was given full access to ADA’s financial records, and other information that he requested was provided to him.

In late 1995, ADA experienced financial difficulties.  A merger with Falcon was attractive because Falcon was more financially stable and because a merger would cut ADA’s expenses and place ADA in close proximity to Vikeland’s sales personnel.

In December 1995, ADA and Falcon reached a tentative agreement on the terms of a merger.  A letter of intent was drafted by Falcon and sent to ADA’s partners.  The letter stated that Falcon would issue 100,000 new shares of common stock each to both Brcka and Churchill.  Falcon also agreed to assume the following promissory notes owed to ADA’s partners:  $95,000 to Brcka; $82,000 to Churchill; $70,000 to Johnston; and $25,000 to Jeutter.  A later asset-purchase agreement (APA), drafted by Falcon’s attorney and dated January 1, 1996, stated that Falcon would issue 125,000 new shares of common stock each to both Brcka and Churchill.  The APA did not contain a price term.  No representative from either Falcon or ADA ever signed the APA.

Good-faith negotiations on the terms of a merger continued among Johnston, Brcka, and Churchill during early 1996.  In March 1996, without a final agreement on the terms of a merger having been reached, ADA’s assets and ongoing operations were entirely merged into Falcon.  As had been consistently contemplated during negotiations, ADA turned over all its assets, including documents regarding its customer base, to Falcon.  Although appellants claimed that ADA had no value as of January 1, 1996, a value of $50,000 was assigned to ADA’s equipment and a value of $44,315 was assigned to ADA’s goodwill in Falcon’s 1996 tax return.

Falcon took over ADA’s day-to-day operations, including receipt of accounts receivable and satisfaction of accounts payable, and merged ADA’s books into its own.  As contemplated during the merger negotiations, Brcka and Churchill began what they intended to be long-term employment with Falcon, managing Falcon’s new motor-controls division.

            When ADA was formed, Brcka, Churchill, Jeutter, and Johnston intended it to be a limited liability company (LLC).  The attorney retained to incorporate ADA failed to file the necessary documents to create an LLC.  This failure was not discovered until after the merger between ADA and Falcon.  An unsigned memo dated May 14, 1996, and written on Falcon stationery, stated that because the secretary of state had no record of ADA as an LLC, Falcon would treat ADA as a partnership for purposes of documentation and purchase ADA’s assets and assume its liabilities as a partnership.  The memo was circulated to Brcka and Johnston.

            After the merger was effected, negotiations among Johnston, Brcka, and Churchill broke down, and no final agreement on the merger’s terms was reached.  Falcon made no payments, either in stock shares or on the promissory notes, and did not offer long-term employment contracts to Brcka and Churchill.  The employment relationship between Brcka and Johnston deteriorated, resulting in Brcka quitting in July 1997.

            Brcka brought this action alleging claims for unjust enrichment against Falcon and Johnston; breach of contract and conversion against Falcon; and breach of fiduciary duty to a partner against Johnston.  The complaint later was amended to add ADA as a plaintiff and comply with the requirements for a shareholder-derivative action.  Respondents withdrew their conversion claim, and the district court granted partial summary judgment in favor of Falcon and Johnston on the breach-of-contract claim based on insufficient evidence to prove the existence of a contract between Falcon and ADA.

The remaining claims, unjust enrichment and breach of fiduciary duty, were tried to a jury.  The jury returned a verdict in favor of respondents, awarding them $300,000 on their unjust-enrichment claims against Falcon and Johnston and $96,000 on their breach-of-fiduciary-duty claim against Johnston.  The district court granted Johnston’s posttrial motion for remittitur, eliminating the $96,000 award for breach of fiduciary duty because it would afford respondents a double recovery and reducing the unjust-enrichment award from $300,000 to $225,000 to reflect Johnston’s one-fourth ownership interest in ADA.

D E C I S I O N

            1.  Johnston argues that the district court erred in including Johnston and Falcon together in special-verdict questions one and two and, therefore, they are entitled to a new trial.

On appeal from a denial of a motion for a new trial, an appellate court should not set aside a jury verdict unless it is manifestly and palpably contrary to the evidence viewed as a whole and in the light most favorable to the verdict.  An appellate court must reconcile the special verdict answers in a reasonable manner consistent with the evidence and its fair inferences.  The verdict should stand if the answers can be reconciled on any theory.

 

Raze v. Mueller, 587 N.W.2d 645, 648 (Minn. 1999).

            Question one on the special verdict asked, “Were Defendants Falcon Electric Corporation and Roger Johnston unjustly enriched?”  Question two asked:

What amount of money, if any, would restore Plaintiffs Kenneth G. Brcka and ADA Engineering with the benefits that they conferred on Defendants Roger Johnston and Falcon Electric Corporation at or near the time ADA Engineering was transferred to Falcon Electric Corporation?

 

            Respondents argue that Johnston waived this issue by failing to properly object before the case was submitted to the jury.  See Kath v. Burlington N. RR.. Co., 441 N.W.2d 569, 572 (Minn. App. 1989) (failure to object to special verdict waives issue on appeal), review denied (Minn. July 27, 1989).  During a discussion about jury instructions and the special-verdict form between the district court and counsel for both parties, Johnston’s counsel raised the issue of and explained Johnston’s objection to including Johnston and Falcon together on questions one and two.

The purpose of an objection is to advise the court of the reasons for opposition to the action that the court has taken, thereby giving the court the opportunity to avoid error.  Teas v. Minneapolis St. Ry., 70 N.W.2d 358, 362, 244 Minn. 427, 431-32 (1955).  Johnston’s objection to the special-verdict form satisfied this purpose.  The district court was not denied the opportunity to correct an error but rather rejected Johnston’s analysis of the law. Johnston did not waive his objection to the special-verdict form.

            The district court has broad discretion in drafting special-verdict questions.  Dang v. St. Paul Ramsey Med. Ctr., Inc., 490 N.W.2d 653, 658 (Minn. App. 1992), review denied (Minn. Dec. 15, 1992).

[T]he rule which is well recognized that all who actively participate in any manner in the commission of a tort, or who procure, command, direct, advise, encourage, aid, or abet its commission, or who ratify it after it is done, are jointly and severally liable for the resulting injury, even though they act independently and without concert of action or common purpose, provided their several acts concur in tending to produce one resulting event.

 

Greenwood v. Evergreen Mines Co., 220 Minn. 296, 309, 19 N.W.2d 726, 733 (1945) (quotations and citations omitted).  Although unjust enrichment is not a tort, the principles governing contribution and indemnity are derived from quasi-contract and the equitable principles of unjust enrichment.  Lambertson v. Cincinnati Corp., 312 Minn. 114, 122-23, 257 N.W.2d 679, 685 (1977) (citations and quotations omitted).

            Brcka testified that the merger was Johnston’s idea from the beginning.  Johnston, while a partner in ADA, was also the principal shareholder of Falcon and represented Falcon in negotiations with ADA.  Because Johnston actively participated in Falcon’s acquisition of ADA, the district court did not err by including Johnston and Falcon together on the special-verdict questions regarding the unjust-enrichment claim.  See Wenzel v. Mathies, 542 N.W.2d 634, 643-44 (Minn. App. 1996) (district court has broad discretion to determine equitable remedies that will accomplish justice on the facts of each case and adequately compensate plaintiffs), review denied (Minn. Mar. 28, 1996).

            Johnston’s argument that the district court erred in failing to require the jury to determine the amount that each Falcon and Johnston was unjustly enriched and that Johnston can only be held liable for the amount that he was unjustly enriched is contrary to the principles of joint and several liability.  See Blomgren v. Marshall Mgmt. Servs., Inc., 483 N.W.2d 504, 506 (Minn. App. 1992) (contribution is the appropriate remedy where there is common liability among tortfeasors).

            Johnston also argues that the district court’s finding that the evidence was insufficient to pierce Falcon’s corporate veil and hold Johnston individually liable for his actions as a Falcon officer is inconsistent with including Falcon and Johnston together on the special-verdict questions.  We disagree.  As the district court explained, Johnston’s liability for unjust enrichment was based on his status as a partner in ADA.  See Minn. Stat. § 323A.4-05(b) (2000) (partner may maintain an action against another partner for legal or equitable relief).

            2.  Johnston argues that the district court erred in denying his motions for a directed verdict and JNOV on the unjust-enrichment and breach-of-fiduciary-duty claims against him.  An appellate court reviews de novo the denial of a motion for a directed verdict or JNOV.  Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998) (JNOV); Claflin v. Commercial State Bank of Two Harbors, 487 N.W.2d 242, 247 (Minn. App. 1992) (directed verdict), review denied (Minn. Aug. 4, 1992).

            In reviewing an order denying a directed verdict, an appellate court will consider whether the evidence was sufficient to present a fact question to the jury.  Claflin, 487 N.W.2d at 247.  A directed verdict will be granted only when,

in light of the evidence as a whole, it would be the duty of the trial court to set aside a contrary verdict as manifestly contrary to the evidence or to the law.

 

Id.  Similarly, JNOV will not be granted if the verdict can be sustained on any reasonable theory of the evidence.  Pouliot, 582 N.W.2d at 224.  The evidence must be practically conclusive against the verdict so that reasonable minds can reach only one conclusion.  Nadeau v. County of Ramsey, 277 N.W.2d 520, 522 (Minn. 1979).  The court must view the evidence in the light most favorable to the nonmoving party.  Pouliot, 582 N.W.2d at 224 (JNOV); Claflin, 487 N.W.2d at 247 (directed verdict).

A claim for unjust enrichment does not lie simply because one party benefits from the actions of another;  rather, the term “unjust enrichment” is used in the sense that the benefit has been gained illegally or unlawfully.  An action for unjust enrichment may be founded upon failure of consideration, fraud, or mistake, or situations where it would be morally wrong for one party to enrich himself at the expense of another.

 

Holman v. CPT Corp., 457 N.W.2d 740, 745 (Minn. App. 1990) (citations and quotations omitted).

All partners owe fiduciary obligations to all other partners and “are held to high standards of integrity in their dealings with each other.”  Rothmeier v. Investment Advisers, Inc., 556 N.W.2d 590, 594 (Minn. App. 1996) (citation omitted), review denied (Minn. Feb. 26, 1997).  A “partner owes a duty to all other partners to exercise the utmost good faith, fairness, and loyalty.”  Id. (citation omitted); see also Minn. Stat. § 323.20 (2000) (“[e]very partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by that partner without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by that partner of its property”).

            Johnston argues that because the proposed merger contemplated a contract between Falcon and ADA and Johnston was not intended to be a party to the contract, the evidence is insufficient to hold him personally liable.  Johnston’s personal liability, however, is not based on contract.  Johnston also argues that because all of ADA’s assets were transferred to Falcon, he did not personally benefit from the merger.  Johnston cites no authority to support the position that, because the evidence was insufficient to pierce the corporate veil and hold him personally liable in his capacity as a Falcon shareholder, he cannot be held personally liable in his capacity as an ADA partner under the theories of unjust enrichment and breach of fiduciary duty.  Johnston also cites no authority to support his apparent contention that because the evidence was insufficient to pierce the corporate veil, damages cannot be computed based on his ownership interest in Falcon.

The record contains evidence that ADA had significant value at the time of the merger and evidence showing that the merger benefited Falcon.  As the result of the merger, Johnston became the principal owner of ADA, while his partners in ADA lost their ownership interests and received nothing in return.  The jury also could reasonably have inferred that some of the salary and benefits Johnston received through Vikeland were attributable to the merger between Falcon and ADA.  The district court did not err in denying Johnston’s motions for a directed verdict and JNOV on the unjust-enrichment and breach-of-fiduciary-duty claims.

            3.  Johnston argues that the district court erred in finding that ADA was a partnership and not a de facto limited liability corporation.

Except in those rare cases where the evidence is conclusive, partnership or no partnership is a question of fact.  Since there is no arbitrary test for determining the existence of a partnership, each case must be decided according to its own peculiar facts; and upon appeal this court will not disturb the findings of the trier of fact unless the evidence is conclusive.  * * *

* * * [A] trial court’s finding that a partnership exists must be sustained if the evidence as a whole reasonably shows that the parties have entered into a contractual relation whereby they have combined their property, labor, and skill in an enterprise or business as co-owners for the purpose of joint profit.

 

Cyrus v. Cyrus, 242 Minn. 180, 183-84, 64 N.W.2d 538, 541 (1954).

            The record shows that ADA’s co-owners associated together to carry on a business for profit.  Johnston argues that ADA was an LLC because that is what its owners intended it to be.  It is undisputed that ADA’s owners intended it to be an LLC, but the necessary papers were never filed with the secretary of state.

The district court explained its finding that ADA was a partnership as follows:

            The May 14, 1996 memorandum on Falcon stationery, stating the intention to treat ADA as a partnership subsequent to the discovery of its defective incorporation, does not constitute a legal conclusion.  It is, however, evidence of the intentions of the parties and specifically of Falcon Electric, prior to this litigation.  It is obvious that Falcon’s management deemed partnership status appropriate for the defective corporation, until this litigation was commenced. * * *

 

            There is no evidence in the record that would establish that Falcon, who had by May of 1996 taken possession of the assets and ongoing business of ADA, considered any attempt to revive its corporate status or that Falcon, ever for any purpose, had characterized ADA as a de facto corporation prior to this litigation.  This belated invocation of the de facto corporate status would appear to be merely a disingenuous basis upon which to argue that this matter was defectively pled.  In other words, prior to the commencement of this litigation, there was no dispute and there was an informal accord that ADA’s defective incorporation had resulted in a de facto partnership.

 

            The supreme court has held that a partnership may result by operation of law:

A partnership may be the legal result of an agreement notwithstanding an expressed intention not to create such a relationship.  It is the substance and not the name of the arrangement which determines the legal relation of the contracting parties to each other.

 

Randall Co. v. Briggs, 189 Minn. 175, 178, 248 N.W. 752, 754 (1933).  The supreme court has also recognized, without adopting, the rule that when a business is operated following a failure to perfect a contemplated incorporation, the business becomes a partnership.  Halvorson v. Geurkink, 238 Minn. 371, 376, 56 N.W.2d 793, 796 (1953); Johnson v. Corser, 34 Minn. 355, 359-60, 25 N.W. 799, 801 (1885).  In Manufacturers Bldg., Inc. v. Heller, 306 Minn. 180, 182, 235 N.W.2d 825, 826-27 (1975), the supreme court applied the rule that when a business successfully incorporates but later fails to operate as a corporation, the business becomes a partnership.

In 1997, the legislature enacted the following statute:

(a) Except as otherwise provided in subsection (b), the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.

 

            (b) An association formed under a statute other than this chapter, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this chapter.

 

1997 Minn. Laws ch. 174, art. 2, § 9 (codified at Minn. Stat. § 323A.202 (2000).  Minn. Stat. § 323A.2-02 did not become effective until January 1, 1999, so it does not apply to this case.  1997 Minn. Laws ch. 174, art. 12, §§ 67 and 69.  However, in light of the prior caselaw defining the term partnership and applying and recognizing the rules resulting in an enterprise becoming a partnership by law, we conclude that Minn. Stat. § 323A.2-02 codified the existing common law.  ADA falls within Minn. Stat. § 323A.2-02(a) and is not excluded by Minn. Stat. § 323A.2-02(b).  The district court did not err in concluding that ADA became a partnership by law.

            Relying on Kingsley v. English, 202 Minn. 258, 278 N.W. 154 (1938), Johnston argues that respondents should be estopped from denying ADA’s limited liability status.  In Kingsley, a manager decided to operate a business as a corporation, Thompson Construction Company.  202 Minn. at 259-60, 278 N.W. at 155.  Stock was issued and officers and directors were elected at a purported stockholders’ meeting, but no steps to incorporate were taken.  Id.  The business manager was elected to be both an officer and a director.  Id.  In hundreds of financial transactions with a bank, the business manager purported to act as the president and manager of a corporation, and he provided the bank with financial statements in corporate form.  Kingsley, 202 Minn. at 260, 278 N.W. at 155.  Throughout Thompson Construction’s operation, the business manager held it out and represented it to be a corporation.  Id.  When Thompson Construction went into bankruptcy, the bankruptcy proceedings were conducted on the theory that Thompson Construction was a valid and legally existing corporation.  Kingsley, 202 Minn. at 261, 278 N.W. at 155. 

Later, the administrator for the business manager’s estate sued the other owners of Thompson Construction for unpaid commissions and moneys advanced to the business by the business manager.  Id.  The action was brought on the theory that Thompson Construction was a partnership and that the defendants were individually liable as surviving partners.  Id.  The supreme court held that the administrator, as the business manager’s representative, was estopped from denying the valid existence of the Thompson Construction Company as a corporation.  The court explained:

[T]he general rule is that the members of a pretended corporation, active as officers and directors thereof, are estopped to deny its valid existence for the purpose of holding the stockholders or members liable to contribution as partners, or for the purpose of holding them personally liable on contracts made by such officers with the corporation.

 

Kingsley, 202 Minn. at 261, 278 N.W. at 156.

 

We conclude that Kingsley does not control this case.  In Kingsley, effectively, the party seeking to deny the business’s corporate status was the person who had purported to be a corporate officer, had actively managed the business, and had consistently held the business out and represented it to be a corporation.  In this case, Johnston cites no evidence showing that respondents did anything to hold out or represent ADA as an LLC or that ADA in any way functioned as an LLC.  On the contrary, the evidence in the record shows that when the failed incorporation was discovered, the parties agreed to treat ADA as a partnership.

            4.  Johnston argues that Brcka lacked standing to bring this lawsuit because the claims belong to the partnership and, therefore, the partners bringing the action must own a majority interest in the partnership.  When the facts are undisputed, standing is a legal question subject to de novo review.  Eagle Creek Townhomes, LLP v. City of Shakopee, 614 N.W.2d 246, 250 (Minn. App. 2000), review denied (Minn. Sept. 13, 2000).  We need not decide whether the majority-interest rule applies in Minnesota.  Even if it does, courts will create an exception if the complaining partnership shows that the nonconsenting partners have conspired, acted in bad faith, and declined to sue on a valid, valuable partnership cause of action.  See, e.g., Cates v. International Tel. & Tel. Corp., 756 F.2d 1161, 1178 (5th Cir. 1985); Thomasson v. Manufacturers Hanover Trust Co., 657 F. Supp. 448, 452 (S.D. Tex. 1987).  The record contains evidence that Churchill supported this action and if Johnston’s interest is discounted, Churchill and Brcka represent a majority interest in the partnership.

            Relying on Stein v. O’Brien, 565 N.W.2d 472, 474-75 (Minn. App. 1997), Johnston argues that Brcka lacked standing to bring an unjust-enrichment claim against him.  The Stein court held that the plaintiff could not bring an unjust-enrichment action against his partner for failing to provide his share of capital to the partnership because the matter was expressly governed by the partnership agreement.  Id.  The conduct at issue in this case was not covered in the partnership agreement.

            Johnston also contends that Brcka lacked standing to bring this action because there has not been an accounting or settlement of partnership affairs.  A partner cannot bring an action at law against a partner until there has been an accounting of partnership affairs.  Id. at 474.  But an exception exists when a complex accounting is unnecessary and it appears that the partnership affairs are wound up.  Id.

            The district court found that an accounting was unnecessary because ADA’s value, not individual transactions, was at issue in this lawsuit.  The district court also found that although there had been no winding up of partnership affairs as contemplated by the Partnership Act, an accounting was unnecessary to wind up partnership affairs because ADA’s business activities had not been terminated but rather had been taken over by Falcon.  The evidence supports these findings.  Moreover, both unjust enrichment and breach of fiduciary duty are equitable claims.  Lambertson, 312 Minn. at 122-23, 257 N.W.2d at 685 (unjust enrichment); R.E.R. v. J.G., 552 N.W.2d 27, 30 (Minn. App. 1996) (breach of fiduciary duty).  The district court did not err in concluding that Brcka had standing to bring this action.

            Appellants also argue that Brcka cannot sue for unjust enrichment because the breach-of-fiduciary-duty claim provides an adequate remedy at law.  But breach of fiduciary duty is an equitable claim.

            5.  Johnston argues that the district court erred in concluding that the evidence was insufficient as a matter of law to prove the existence of a contract and granting summary judgment on the breach-of-contract claim.  On appeal from a summary judgment, this court must review the record to determine whether any genuine issues of material fact exist and whether the district court erred in applying the law.  In re Estate of Palmen, 588 N.W.2d 493, 495 (Minn. 1999).  This court must view the evidence in the light most favorable to the nonmoving party.  Id.

            Generally, the existence and terms of a contract are issues for the trier of fact to determine.  Knezevich v. Dress, 399 N.W.2d 219, 200 (Minn. App. 1987).  But if an alleged contract is so uncertain as to any of its essential terms that it cannot be consummated without new and additional stipulations between the parties, no contract exists as a matter of law.  Triple B & G, Inc. v. City of Fairmont, 494 N.W.2d 49, 53 (Minn. App. 1992).

            There is no evidence that the parties reached a final agreement on price.  Johnston testified that the APA was never signed because contract negotiations were still going on and the parties never reached a final agreement. Johnston and Falcon denied that Falcon agreed to assume any of the ADA partners’ notes.  Respondents presented evidence that Falcon had agreed to assume the ADA partners’ notes, but neither party cites evidence that the parties reached a final agreement on the amount of the notes.  “Consideration is an essential element of a contract.”  In re Estate of Peterson, 579 N.W.2d 488, 491 (Minn. App. 1998), review denied (Minn. Aug. 18, 1998).  The district court did not err in granting summary judgment on the breach-of-contract claim.

            6.  Johnston argues that he is entitled to a new trial based on improper closing argument by respondents’ counsel.

The decision whether to grant a new trial due to improper argument by counsel rests almost entirely within the discretion of the trial court and should not be reversed on appeal absent a clear abuse of discretion.

 

Jewett v. Deutsch, 437 N.W.2d 717, 721 (Minn. App. 1989).  “A new trial is not warranted unless the misconduct of counsel clearly resulted in prejudice to the losing party.”  Sather v. Snedigar, 372 N.W.2d 836, 839 (Minn. App. 1985).  The district court is in a much better position than the appellate court to determine whether improper argument by counsel resulted in prejudice.  Ellingson v. Burlington N. R.R., 412 N.W.2d 401, 405 (Minn. App. 1987), review denied (Minn. Nov. 13, 1987).

            Counsel for both parties emphasized Falcon’s 1995 and 1996 tax returns, which had been admitted into evidence during closing argument.  The tax returns were prepared and signed by Daniel Bot.  During closing argument, respondents’ counsel suggested that Johnston declined to call Bot to testify because he would have revealed financial information that was damaging to appellants’ theory of the case.  But respondents’ counsel also noted that respondents could have subpoenaed Bot to testify and opted not to do so.  This argument was proper.  See Connolly v. Nicollet Hotel, 258 Minn. 405, 413-14, 104 N.W.2d 721, 728 (1960) (when a party fails to produce an available witness who has knowledge of the facts and whose testimony presumably would be favorable to him, the jury may draw an inference that the testimony would have been unfavorable).

            Johnston next objects to respondents’ counsel stating that respondents declined to call a valuation expert because the total cost of doing so would have been $15,000 to $20,000.  But during Johnston’s closing argument, counsel stated that the jury should consider the fact that respondents did not call a valuation expert.  Johnston cites no authority indicating that this response to his argument was improper.

            Johnston objects to respondents’ counsel pointing out that the expert who testified for him on ADA’s value spent only six hours on the case.  The argument was based on evidence in the record, and there was also evidence that the expert did not review all documents relevant to ADA’s value.  Johnston cites no authority indicating that the amount of time spent on a case by an expert is not relevant to the expert’s credibility or that a jury is incompetent to evaluate whether the time spent was appropriate in light of the complexity of the case.

            Johnston next contends that the argument that he must have received money that had been passed through Falcon was improper.  The evidence regarding the interrelationship between Falcon and Vikeland supports an inference that some of the salary and benefits Johnston received through Vikeland were attributable to the merger between Falcon and ADA.  Therefore, the argument was proper.

            Johnston next asserts that the following statements were unsupported by the evidence: Falcon and Johnston expensed cars, vacations, and related items; sales margins were 30%; sales were $500,000 in 1996; and the ADA-related sales on Falcon’s 1996 tax returns showed only three months of ADA-related sales.  Respondents cite to no evidence supporting these statements, but nothing in the record suggests that respondents’ counsel was deliberately attempting to mislead the jury.  If Johnston was concerned about the potential impact of the statements, he could have promptly objected and sought a curative instruction.  The district court did instruct the jury that counsel’s argument was not evidence and that jurors should rely on their own recollection of the evidence.

            Johnston next argues that respondents’ counsel improperly argued that the losses shown on Falcon’s 1996 tax return were unrelated to ADA.  Johnston and Campbell testified that a large portion of ADA’s accounts receivable were written off because they were uncollectible.  Respondent’s counsel simply pointed out that this testimony was inconsistent with the fact that the line on Falcon’s 1996 tax return identifying bad debts was blank.

            Johnston contends that respondents’ counsel improperly asked the jury to compensate Brcka and Churchill for employment with Falcon.  Johnston cites no authority indicating that it was improper for counsel to ask the jury to consider whether Brcka and Churchill were fairly compensated during their employment with Falcon in light of the evidence that Brcka and Churchill were promised items in addition to employment, which they did not receive.  To the extent that respondents sought damages for future wages or lost business opportunity, the law permits such damages.  See Leoni v. Bemis Co., Inc., 255 N.W.2d 824, 826 (Minn. 1977) (a business can recover damages for loss of prospective profits provided that the amount is established to a reasonable degree of certainty); Norwest Bank Minn., N.A. v. Midwestern Mach. Co., 481 N.W.2d 875, 880 (Minn. App. 1992) (discussing damages arising from lost business opportunities), review denied (Minn. May 15, 1992); Knezevich, 399 N.W.2d at 220-21 (discussing reliance damages for lost income and lost business opportunity).

            Even if some or all of respondents’ counsel’s argument was improper, given the broad discretion accorded to the district court to determine prejudice, the cumulative effect of any misconduct was not serious enough for this court to conclude that it clearly resulted in prejudice.

            7.  Johnston argues that the damages awarded to respondents were the product of unfair surprise because respondents represented during discovery that they would call an expert to testify as to the value of ADA.  Johnston argues that respondents’ decision not to call an expert and to have Brcka and Churchill testify on valuation deprived him of the opportunity to adequately respond to respondents’ valuation testimony.

Trial courts have discretion to determine the appropriate sanction for a violation of the discovery rules.  The general rule in Minnesota is expert testimony should be suppressed for failure to make a timely disclosure of the expert’s identity only where counsel’s dereliction is inexcusable and results in disadvantage to his opponent.  The crucial question is whether the late disclosure resulted in any appreciable degree of prejudice.

 

Norwest Bank Midland v. Shinnick, 402 N.W.2d 818, 823 (Minn. App. 1987) (citations and quotations omitted).

            The information that Brcka and Churchill relied on to estimate ADA’s value was disclosed in discovery responses to questions about expert testimony on valuation and was in Johnston’s possession.  Johnston had the opportunity to cross-examine Brcka and Churchill and does not explain how deposing them before trial would have made cross-examination more effective.  Johnston also had the opportunity to argue that the valuation method used by his expert was more reliable than the testimony of Brcka and Churchill and that the jury should not assign weight to their testimony.  The district court did not err in finding that Johnston was not prejudiced by respondents’ decision to not call an expert.

            Johnston argues that the district court erred in admitting the letter of intent and APA as evidence of ADA’s value.  “A district court’s decision on whether to admit or exclude evidence will not be reversed on appeal unless the decision constitutes an abuse of discretion or is based on an erroneous view of the law.”  H Window Co. v. Cascade Wood Prods., Inc., 596 N.W.2d 271, 276 (Minn. App. 1999), review denied (Minn. Aug. 17, 1999).  The admission of the letter of intent was not an abuse of discretion.

            8.  Respondents argue that the district court erred in reducing the damages awarded for unjust enrichment by one-fourth to reflect Johnston’s ownership interest in ADA.  Respondents rely on cases applying the rule that a party cannot profit by breaching a fiduciary duty.  See, e.g., Pedro v. Pedro, 463 N.W.2d 285, 288 (Minn. App. 1990), review denied (Minn. Jan. 24, 1991).  The rule does not apply to this case because Johnston’s ownership interest pre-existed the negotiations between ADA and Falcon, and respondents do not claim that the sale to Falcon deprived them of realizing greater profits.  The law does permit assessment of penalties against a party for breach of fiduciary duty.  Rice v. Perl, 320 N.W.2d 407, 411 (Minn. 1982).  But respondents cite no authority supporting their position that the district court erred in not requiring Johnston to forfeit his partnership interest.  We cannot conclude that the district court erred in reducing the damages awarded for unjust enrichment.

            Affirmed.



[1]  Falcon and Johnston were represented together at trial and filed a joint notice of appeal.  Falcon filed for bankruptcy and did not further participate in this appeal and is no longer represented.