This opinion will be unpublished and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

C0-01-353

 

 

Irving P. Knelman,

Respondent,

 

vs.

 

Investment Advisers, Inc.,

Appellant.

 

 

Filed September 11, 2001

Affirmed in part and reversed in part

Toussaint, Chief Judge

 

 

Hennepin County District Court

File No. 9911316

 

 

Joseph W. Anthony, Mary L. Knoblauch, Fruth & Anthony, P.A., 3750 IDS Center, 80 South Eighth Street, Minneapolis, MN  55402-2219 (for respondent)

 

Andrew M. Luger, Jodeen Kozlak, Becky R. Thorson, Greene Espel, P.L.L.P., 333 South Seventh Street, Suite 1700, Minneapolis, MN  55402 (for appellant)

 

            Considered and decided by Toussaint, Chief Judge, Schumacher, Judge, and Parker, Judge.*


U N P U B L I S H E D   O P I N I O N

TOUSSAINT, Chief Judge

            This is an appeal from the jury verdict and denial of posttrial motions in a breach of employment contract case.  Appellant contends that, as a matter of law, the evidence did not support the jury determination of breach of contract as to (1) underpayment of respondent’s 1996 and 1997 bonus compensation; (2) inclusion of the “carried interest” value for purposes of calculating the 1997 bonus; and (3) damages for breach of implied contract on the salary component of the severance package.  Appellant also asserts that the district court abused its discretion in denying its motion for a new trial based on evidentiary errors.  Finally, appellant contends the district court erred in awarding prejudgment interest.  We reverse the damages determination as to the salary component of the severance package but otherwise affirm.

FACTS

            Respondent began working for appellant company in 1979 as senior vice president in charge of marketing and sales and by 1996 had become chief operating officer.  In February 1997, then chief executive officer Noel Rahn announced that he planned to retire in two years and recommended that respondent succeed him.  In June 1998, appellant fired Rahn and named respondent CEO, but then discharged respondent two months later.  Respondent sued his former employer for breach of his employment contract relating to bonuses and for breach of implied contract relating to his severance pay.

            Several aspects of the bonuses are at issue.  Appellant had created a bonus plan in which some 85 executives were eligible to participate each year.  The bonus plan was funded from a predetermined percentage of annual pretax operating income, with 20% of this pool to be distributed in each of the first three quarters and the remaining 40% after the fourth quarter.  Under this plan, appellant was required to distribute the yearly pool to bonus participants within 60 days of year-end.

            In 1996 and 1997, the company did exceptionally well.  Pursuant to then-CEO Rahn’s recommendation, appellant, rather than paying out all of the yearly pool pursuant to the bonus plan, carried over $2.6 million in 1996 and an additional $2.546 million in 1997.  In 1998, when profits dropped dramatically, appellant used the carried over sums from the 1996 and 1997 bonus plans to pay bonuses to current and terminated employees.  Respondent contended that the carry-over constituted a breach of contract and that he was entitled to his full portion of the 1996 and 1997 bonus.

            Another issue arose as to the computation of the 1997 bonus pool.  The bonus plan defined “pretax operating income” to include “all unrealized gains and losses on securities held for the company’s own account.”  Respondent contended that an amount attributed to “carried interest,” the profit the company receives after a venture capital fund has repaid the original investment by the fund partners, should have been included in the 1997 bonus calculation.

            Finally, there was a dispute as to the severance plan appellant offered respondent after it terminated his employment.  The salary component of the severance package that appellant offered was consistent with the severance packages given to other employees in most respects.  But in respondent’s package, unlike the other employees’, the entire salary component was contingent on his execution of a release agreement.

            After a trial, the jury returned a verdict for respondent.  Appellant moved for judgment notwithstanding the verdict (JNOV) or a new trial and the district court denied the motion and awarded prejudgment interest.  The district court entered judgment in favor of respondent, and this appeal followed.

D E C I S I O N

            In reviewing a district court’s denial of a JNOV motion, the appellate court must affirm if there is “any competent evidence reasonably tending to sustain the verdict.”  Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998) (citation omitted).  A jury’s answers to special verdict questions must be upheld unless they are “perverse and palpably contrary to the evidence.”  Karnes v. Milo Beauty & Barber Supply Co., 441 N.W.2d 565, 567 (Minn. App. 1989), review denied (Minn. Aug. 15, 1989).  The court must consider the evidence in the light most favorable to the prevailing party, and the verdict must be affirmed if it can be sustained on any reasonable theory of evidence.  Pouliot, 582 N.W.2d at 224.

            In reviewing the district court’s denial of a motion for a new trial, an appellate court will apply an abuse of discretion standard.  The decision whether to grant a new trial is within the sound discretion of the district court and will not be disturbed unless there is a clear abuse of that discretion.  Halla Nursery, Inc. v. Baumann-Furrie & Co., 454 N.W.2d 905, 910 (Minn. 1990).

           

I.

            Appellant contends that it was entitled to a new trial or JNOV on respondent’s claim of breach of his employment contract for underpayment of his 1996 and 1997 bonus compensation. 

            Appellant argues that the district court erroneously submitted the issue to the jury because the employment agreement unambiguously guaranteed respondent only a minimum amount of the annual bonus pool.  Because the record includes evidence from which the jury could conclude that the compensation committee had authority to allocate more than the minimum percentage, the district court properly submitted the issue to the jury.

            Appellant next challenged the jury determination that respondent was entitled to his portions of the 1996 and 1997 bonus pools that were carried over to 1998.  Appellant contends that because the evidence showed the decision to carry over the funds was within its discretion, the claim should have been dismissed.  See Tierney v. Capricorn Investors, LP, 592 N.Y.S.2d 700, 702-03 (N.Y. App. Div.) (rejecting breach of contract action, in which plaintiff sought compensation not set forth in the employment agreement), review denied, 616 N.E.2d 159 (1993).

            There was sufficient evidence from which the jury could conclude that the employment agreement required the entire amount of the bonus be paid out within 60 days of the fiscal year-end.  This includes testimony by witnesses that (1) the bonus pool plan explicitly required the company to pay out a certain bonus pool each year based on the formula in the plan within 60 days of year’s end; and (2) respondent’s employment agreement provided that the company could not significantly change the plan to adversely affect him.

            Appellant also argues that even if respondent had a valid contract claim for the bonus, the jury’s award of damages was based on mere “speculation”.  See Hill v. Northern Pac. Ry. Co., 210 Minn. 190, 195, 297 N.W. 627, 629-30 (1941) (approving jury instruction that verdict cannot be based on mere speculation and conjuncture).  A review of the record shows that there was evidence to support the jury’s decision.

II.

            Appellant contends that it was entitled to JNOV or a new trial on respondent’s claim of breach of employment contract relating to including the value of the carried interest  in the calculation of the 1997 bonus.

            In 1997, appellant’s venture capital group formed two new venture capital funds, holding two distinct interests in the funds.  As an owner of a portion of the underlying fund, the venture capital group held a “direct interest” that entitled it to share in the increased value of the fund if the underlying companies increased in value.  As a general partner, the venture capital group owned “carried interest.”  Carried interest in a venture fund is the right to participate in the future profits of the fund once the value of the fund has grown large enough to return to the investors all of their initial investment.  Appellant’s bonus pool plan required the company to include as income the unrealized gains, if any, in “unmarketable securities,” and venture capital funds typically qualify as unmarketable securities.  Respondent’s expert opined that appellant should have added an additional $4,031,600 for the future value of carried interest to the 1997 bonus pool.  Based on this calculation, respondent would have received $851,200 more for his 1997 bonus.  The jury agreed and awarded this figure.

            Appellant contends that the district court erred in submitting the issue of carried interest damages to the jury and in denying its motion for JNOV because the evidence presented at trial cannot support the award.  It contends the carried interest damage award was based on remote or speculative evidence about the future value of the potential profits of the venture funds.  We disagree.  The jury was presented with conflicting evidence on this issue, and there was evidence to support its decision.

III.

            Respondent claims that appellant breached an implied contract regarding severance pay.  The jury determined a breach occurred because appellant did not offer respondent a severance package consistent with the standard severance package it offered others; instead, it required respondent to sign a release to obtain the salary component of the severance package.  Appellant does not challenge the determination that an implied contract existed or that a breach occurred, but contends the damages award was not supported by the evidence.

            In a breach of contract claim, the plaintiff must prove breach and that damages arose from the breach.  D.H. Blattner & Sons, Inc. v. Firemen’s Ins. Co. of Newark, 535 N.W.2d 671, 675 (Minn. App. 1995), review denied (Minn. Oct. 18, 1995).

            Respondent argued that he incurred damages because appellant did not pay him the portion of the salary component to which he was entitled.  The jury awarded one-half the amount respondent sought, or $182,360.  Appellant asserts that even if it was reasonable for the jury to conclude that the standard severance policy applied to respondent’s termination, he cannot prove damages because he received a more lucrative package than he would have received pursuant to the severance policy.  Appellant contends that under the standard severance agreement, respondent would have received $2,254,644, but under his specialized package, he received $2,497,750.  We agree with appellant that, under the circumstances, the evidence does not support this award, and we reverse as to the award of these damages.

IV.

            Appellant challenges the district court’s evidentiary rulings.  Evidentiary rulings are within the broad discretion of the district court.  Uselman v. Uselman, 464 N.W.2d 130, 138 (Minn. 1990).  They will not be reversed absent an abuse of discretion or error of law.  Id.

            Appellant contends that the district court committed reversible error when it denied its motion for leave to add an expert witness, identified less than one month before trial.  Whether to allow a party leave to add an expert is a decision within the district court’s discretion.  Fritz v. Arnold Mfg. Co., 305 Minn. 190, 195, 232 N.W.2d 782, 786 (1975).  There is no showing the district court abused its discretion.

            Appellant next contends that the district court committed reversible error when it admitted the written report of respondent’s damages expert over hearsay objection.  The district court denied appellant’s motion for a new trial on this basis, ruling that the report would assist the fact-finding process, appellant was given the opportunity to present a similar report, the facts recited in the report were consistent with the evidence already presented to the jury, and the expert was available for cross-examination.  Under these circumstances, the court did not abuse its discretion.

            Appellant also argues that the district court abused its discretion in ruling that appellant’s common law “business judgment rule” defense was inapplicable.  Appellant has not shown the district court abused its discretion.

V.

            Finally, appellant contends that the district court erred in awarding prejudgment interest.  An appellate court will review questions of law governing prejudgment interest de novo.  Trapp v. Hancuh, 587 N.W.2d 61, 63 (Minn. App. 1998).  Id.  “But issues underlying the application of the statute, including whether a claim is liquidated, readily ascertainable, or unliquidated, are questions of fact.”  Id.

            A party may collect prejudgment interest as “allowed by law.”  Minn. Stat. § 549.09, subd. 1 (2000).  Interest begins to run on an unliquidated claim when it is “readily ascertainable by computation.”  ICC Leasing Corp. v. Midwestern Machinery Co., 257 N.W.2d 551, 556 (Minn. 1977).  Even if the amount of interest cannot be determined until there is a jury verdict on damages, prejudgment interest may be awarded.  Myers v. Hearth Technologies, Inc., 621 N.W.2d 787, 794 (Minn. App. 2001), review denied (Minn. Mar. 13, 2001).  Accordingly, the district court properly awarded prejudgment interest from the date of loss.

            Affirmed in part and reversed in part.



* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.