This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2004).
STATE OF MINNESOTA
IN COURT OF APPEALS
D & K Healthcare Resources, Inc.,
Supplee Enterprises, Inc., d/b/a Wayzata Rexall,
Richard W. Gibson,
Filed May 31, 2005
Hennepin County District Court
File No. CT 03-005552
Stephanie A. Ball, Fryberger, Buchanan, Smith & Frederick, P.A., 302 West Superior Street, Suite 700, Duluth, MN 55802 (for respondent)
Phillip R. Krass, Benjamin J. Court, Krass Monroe, P.A., 8000 Norman Center Drive, Suite 1000, Minneapolis, MN 55437-1178 (for appellant)
Considered and decided by Hudson, Presiding Judge; Halbrooks, Judge; and Dietzen, Judge.
Appellant challenges the district court’s denial of his motion for JNOV or a new trial arguing that (1) there was no breach of fiduciary duty when the evidence showed that reimbursements made to him by the corporation were for contemporaneous loans; (2) the evidence did not establish the necessary “badges of fraud” to sustain a fraudulent-transfer claim; (3) the damage award for conversion is excessive and not supported by the evidence; (4) the district court abused its discretion by allowing introduction of evidence speculating as to the amount of the inventory held by Supplee Enterprises, Inc.; and (5) the district court abused its discretion by excluding evidence of financial statements by appellant after it admitted such a statement by respondent. Because there is evidence from which the jury could have reasonably concluded that appellant breached his fiduciary duty, violated the Uniform Fraudulent Transfer Act, and converted respondent’s property, and because any evidentiary errors were not prejudicial, we affirm.
Supplee Enterprises, Inc., d/b/a Wayzata Rexall (Supplee), was a closely held corporation, wholly owned by appellant Richard W. Gibson. In 1997, Supplee executed a $250,000 note with Beacon Bank, formerly known as First State Bank of Excelsior (bank). Gibson and his wife personally guaranteed this loan. In June 1999, the bank sold the note to the Gibsons for $250,000.
The Gibsons subsequently entered into a loan agreement with Supplee. This agreement authorized additional advances to Supplee from the Gibsons. Gibson testified that additional advances were made to Supplee and that Supplee repaid some of those advances.
Respondent D&K Healthcare Resources, Inc. (D&K) is a wholesale seller of pharmaceutical products that supplied part of Supplee’s inventory. In September 1999, Supplee executed an inventory purchase-money security agreement in favor of D&K. D&K then perfected its security interest by filing a UCC financing statement with the secretary of state.
Supplee began experiencing financial difficulties in the late 1990s. Gibson testified at his deposition, and affirmed at trial, that by 2000, Supplee was having trouble paying its bills as they came due. Charles Levy, D&K’s vice president of financial services, testified at trial that during the entire time that D&K was supplying Supplee, Supplee was “pretty well constantly running late” with its payments. Nonetheless, with one exception, Supplee was able to pay its invoices from D&K until March 21, 2003. After Supplee failed to make this payment, D&K considered Supplee to be delinquent and stopped shipping to Supplee on March 23.
D&K provided Supplee with a notice of default on April 2, 2003. The next day, D&K filed a complaint instituting a replevin action against Supplee. D&K amended the complaint on April 30, naming Gibson as an additional defendant and alleging conversion and fraudulent transfer. The district court issued an order for prejudgment replevin on May 2. On May 7, Supplee filed for bankruptcy protection. Accordingly, a stay was granted with respect to claims against Supplee, and D&K proceeded with its action against Gibson.
The action was tried before a jury, which returned a verdict in favor of D&K. The jury found that Gibson breached a fiduciary duty that he owed to D&K, fraudulently transferred funds from Supplee in violation of the Minnesota Uniform Fraudulent Transfer Act (UFTA), and converted property belonging to D&K. The jury awarded D&K damages in the amount of $132,275.43. The district court ordered entry of judgment pursuant to a jury verdict on April 13, 2004. On May 3, Gibson filed a motion for JNOV or, in the alternative, a new trial. The district court denied Gibson’s motion. This appeal follows.
A new trial may be granted
when, among other things, the verdict is not supported by the evidence, errors
of law occurred at the trial, or the damages awarded are excessive.
Gibson first contends that
the jury’s finding that he breached a fiduciary duty to D&K constituted an
error of law because the evidence established that the payments he received
from Supplee were reimbursements for contemporaneous loans. Directors and officers may make loans to
their corporations and collect bona fide debts owed to them using the same
methods as other creditors. Snyder
Elec. Co. v. Fleming, 305 N.W.2d 863, 869 (
When a corporation is
insolvent, corporate executives may be reimbursed for personally paying current
corporate debts, but not for antecedent debts.
Additionally, at Gibson’s request, the district court gave the following instruction to the jury:
It is not a preference for an insolvent corporation to reimburse corporate executives for personally paying current but not antecedent corporate debts or expenses. No preference is created when an insolvent corporation assigns, conveys, or encumbers property if it is necessary to secure loans made in good faith from officers or directors where the proceeds are used to pay debts and security is given for the loan.
Here, the burden was on Gibson to prove that the payments he received were not preferences. There was evidence from which the jury could have concluded that the payments were for antecedent, rather than current, debt and the verdict was not “manifestly and palpably contrary to the evidence.” ZumBerge, 481 N.W.2d at 110. Thus, the district court did not err in denying Gibson’s motion for JNOV or a new trial on the breach of fiduciary duty claim.
Gibson also argues that the district court’s denial of his motion for JNOV or a new trial on the UFTA claim was an error of law because the evidence did not establish the “badges of fraud” necessary to find a fraudulent transfer. Although the aggrieved party normally bears the burden of proving that a transfer was fraudulent, “[t]ransactions involving corporations and their executives . . . are to be regarded with skepticism by the courts and closely scrutinized. . . . [S]uch transactions are presumptively fraudulent and to overcome this presumption the executive must show by clear proof [that] he acted with impartiality and fairness to the corporation.” Snyder Elec. Co., 305 N.W.2d at 867.
The UFTA states:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor . . . .
. . . .
(b) In determining actual intent under subsection (a)(1), consideration may be given, among other factors, to whether:
(1) the transfer or obligation was to an insider;
(2) the debtor retained possession or control of the property transferred after the transfer;
(3) the transfer or obligation was disclosed or concealed;
(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) the transfer was of substantially all the debtor's assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and
(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Gibson admits in his brief that three of the badges of fraud were present, or could have been found to be present, by the jury. He then argues that there was no credible evidence to support finding the presence of any other badges. But evidence was presented that many of the payments made by Supplee to Gibson were deposited into an account for Whitefish Mini-Storage (Whitefish), a storage company owned by Gibson. It is reasonable that the jury could have viewed this as an attempt to conceal the transfer. Consequently, the jury could have found the presence of “several or more” badges. Northgate Computer Sys., 240 B.R. at 360. Furthermore, the jury could have considered other factors indicative of fraud. Sholdan, 217 F.3d at 1009. Thus, there is evidence to support the verdict and the district court did not abuse its discretion in denying Gibson’s motion for JNOV or a new trial on the UFTA claim.
Gibson next contends that the district court erred by denying his motion for JNOV or a new trial because the damage award is excessive and not supported by the evidence. He argues that “to the extent that any conversion of funds occurred, the amount of the conversion could only have constituted $17,500.00.”
The district court may grant
a new trial based on excessive damages where those damages “appear to have
been given under the influence of passion or prejudice.”
Conversion is an act of
willful interference with personal property that deprives another of its use
and possession without lawful justification.
DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (
Here, the jury awarded D&K damages of $132,275.43. At trial, D&K submitted a statement dated March 16, 2004, showing that sum to be the amount owed by Supplee. Gibson did not object to the admission of this evidence. Moreover, in his brief, Gibson admits that this was the “exact amount” Supplee owed D&K for the inventory it had shipped to Supplee but which had not been returned.
Gibson suggests that the jury’s award is not supported because “the amount of D&K inventory physically in the store [as of the date D&K provided Supplee with a notice of default], if any, could not possibly have been the amount listed on the” March 16, 2004 statement. But the amount of inventory in the store is not relevant; the proper measure of damages is the value of D&K’s property at the time of the conversion. Molenaar, 553 N.W.2d at 431. Gibson has admitted that the March 16 statement represents the “exact amount” owed to D&K. Thus, it provides sufficient evidence on which the jury could have based its award of damages.
Gibson has not demonstrated
that the jury’s award was influenced by “passion or prejudice.”
Finally, Gibson argues that
he is entitled to JNOV or a new trial because the district court abused its
discretion by allowing D&K to introduce opinion testimony regarding the
amount of inventory held by Supplee and by refusing to admit financial
statements offered by Gibson.
“Evidentiary rulings concerning materiality, foundation, remoteness,
relevancy, or the cumulative nature of the evidence are within the [district]
court’s sound discretion and will only be reversed when that discretion has
been clearly abused.” Johnson,
518 N.W.2d at 601 (quotation omitted). A
party is entitled to a new trial based on improper admissions, only if it can
“demonstrate prejudicial error.” Uselman
v. Uselman, 464 N.W.2d 130, 138 (
Gibson argues that the district court committed reversible error by allowing Charles Levy, D&K’s vice president of financial services, to provide opinion testimony regarding the approximate amount of D&K’s inventory possessed by Supplee. Levy testified, over Gibson’s objection, that he estimated the value of the inventory held by Supplee to be “about 130 to 150 thousand” dollars at the time that D&K made its initial demand for return of that inventory.
The Minnesota Rules of
Evidence provide that a lay witness may testify only to matters about which the
witness has “personal knowledge.”
During the direct examination of Levy, the following exchange occurred:
Q: Now, backing up to the time period when D&K made its initial demand for return of the inventory, was that prior to the actual start of the lawsuit?
Q: At that time, . . . do you have an opinion as to the value of the inventory that would have been, D&K’s inventory that would have been in place at Supplee?
A: We would –
Appellant’s Counsel: Excuse me, Your Honor. I’m going to object to that. There’s no foundation that this witness has any information about what was on site at that time.
The Court: Sustained.
Q: Mr. Levy, do you have an understanding, based on your relationship with working with Supplee, as to the approximate value of inventory that they were depleting, in other words selling, and the rate at which they were purchasing from D&K healthcare?
A: Well, they were buying 25 to $30,000 a week. Pharmacies usually turn their inventory four to six times, so they probably had about a hundred –
Appellant’s Counsel: Excuse me, Your Honor. Probably, this is the speculation I’m objecting to. He doesn’t know.
The Court: Sustained.
Q: Are you able to give us an approximate or an estimate as to the value of the inventory that would have been at Supplee when D&K made its initial demand?
Appellant’s Counsel: Same objection, Your Honor.
The Court: Overruled as to that question.
A: It would be about 130 to 150 thousand.
Although Levy likely had personal knowledge about the purchasing history of Supplee, there is no indication in the record that he had personal knowledge regarding the amount of D&K inventory that Supplee had on hand. His assessment of how often pharmacies “usually” turn over their inventory does not indicate adequate perception of Supplee’s situation to satisfy the personal knowledge requirement. Accordingly, the district court erred in admitting Levy’s opinion testimony on this point.
But to warrant a new trial, Gibson must demonstrate that this error was prejudicial. Uselman, 464 N.W.2d at 138. At trial, a statement indicating the amount owed to D&K by Supplee was offered into evidence without objection from Gibson and Gibson’s attorney cross-examined Levy regarding this statement. The jury awarded damages in the exact amount indicated on the statement. Thus, Gibson has not demonstrated that he was prejudiced by the admission of Levy’s opinion testimony.
Gibson also contends that the district court erred by refusing to admit Supplee’s 2001 and 2002 financial statements. D&K objected to these statements based on Minn. R. Evid. 1006, which provides:
The contents of voluminous writings, recordings, or photographs which cannot conveniently be examined in court may be presented in the form of a chart, summary, or calculation. The originals, or duplicates, shall be made available for examination or copying, or both, by other parties at a reasonable time and place. The court may order that they be produced in court.
Gibson asserts that the statements were made available, noting that D&K had “twice set the deposition of Michelle Clarine [Gibson’s daughter and the manager of Supplee] with a subpoena duces tecum,” and that “[t]wice [D&K] canceled those depositions.” Gibson thus argues that “the documents were indeed made available to [D&K]; however, [D&K] failed to take advantage of their availability.”
We begin by noting that D&K properly requested discovery of “copies of all documents which [Gibson] intend[ed] to use at trial . . . including . . . documents which will be introduced into evidence as exhibits.” Gibson did not provide D&K with the contested statements during discovery. Thus he cannot now complain that D&K “failed to take advantage of their availability” at a later date.
But even if the district court erred by excluding the financial statements, an evidentiary error necessitates a new trial only if that error was prejudicial. Uselman, 464 N.W.2d at 138. Gibson argues that these statements were necessary to establish that he had made loans to Supplee. But, as the district court noted, “Gibson introduced evidence of the loan in the form of testimony, tax returns and other documentation.” Thus, even if the district court had erred, the error was not prejudicial. See Buttz v. Bergeson, 392 N.W.2d 917, 921-22 (Minn. App. 1986) (holding that exclusion of evidence was not prejudicial when other similar evidence had been admitted and excluded evidence would be cumulative).
Gibson also argues that the
error was prejudicial because “introduction of the reports would have
contradicted [D&K’s] assertion that Supplee was insolvent for the entire
final year of its operation.” But Gibson
affirmed at trial that by 2000, Supplee was having difficulty paying its bills
as they came due. “A debtor who is
generally not paying debts as they become due is presumed to be
 Because the Gibsons allowed their transferred security agreement to lapse for a period of time, it became second to D&K’s security interest.
 Entry of the judgment was stayed for 30 days and the judgment was entered on May 14. On May 21, the district court issued an order for stay of entry of judgment pending resolution of Gibson’s motion for JNOV or new trial. On November 18, 2004, the judgment entry of May 14 was vacated pursuant to an affidavit and order signed on May 27, 2004, and filed on November 18, 2004.
 In Snyder Elec. Co., the supreme court applied the Uniform Fraudulent Conveyances Act (UFCA), which was repealed by the legislature in 1987 and replaced by the UFTA. See Minn. Laws 1987, ch. 19 (repealing the UFCA and enacting the UFTA). But this court has previously applied Snyder Elec. Co. to UFTA claims. See, e.g., New Horizon Enters., Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12, 15-16 (Minn. App. 1997) (discussing burden of proof under UFTA in light of Snyder Elec. Co.).
 Gibson admits that the transfers were to an insider and that the property was retained. He also acknowledges that the jury “could have concluded that” Supplee was insolvent at the time of the transfers.
 Gibson argues that he did not have the documents which were in possession of Clarine, but evidence was presented at trial that Gibson had regular and significant contact with Clarine regarding the day-to-day operations of the corporation.