may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Appletree Square I Limited Partnership, et al.,
Investmark, Inc., et al.,
New York Life Insurance Company,
Landmark Development Corporation, et al.,
Filed February 18, 1997
Hennepin County District Court
File No. 9116792
Clinton E. Cutler, Laurie J. Miller, Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Ave. S., Minneapolis, MN 55402 (for Respondents)
Considered and decided by Norton, Presiding Judge, Lansing, Judge, and Huspeni, Judge.
Appellants sued respondents for allegedly failing to disclose the presence of asbestos in the office building respondents built and sold to appellants. After the jury returned a verdict for respondents, appellants moved unsuccessfully for judgment notwithstanding the verdict or a new trial, arguing improper jury instruction, erroneous admission of certain evidence, a perverse jury verdict, and erroneous enforcement of a provision in a contract between the parties. Because we see no abuse of discretion in the jury instructions or the evidentiary decisions and no error of law in the enforcement of the contract, we affirm.
One Appletree Square was originally owned by an Ellerbe subsidiary, Landmark Development Corporation (Landmark). Landmark financed the building by obtaining a loan from New York Life Insurance Company. Ownership of the building was transferred to Ellerbe in 1975. Various Ellerbe entities leased and occupied 40 to 50 percent of the space in the building.
By the late 1970's, Ellerbe wanted to sell the building and began discussions with CRI, a company in the business of financing and developing real estate. Together they formed appellant Appletree Square I Limited Partnership (ATS I) to purchase and own One Appletree Square. The three general partners were appellant CRHC, Inc. (CRHC) formed by CRI; respondent Applemark, Inc. (Applemark), formed by Ellerbe; and appellant Crimark Office Building Associates Limited Partnership (Crimark), equally controlled by CRI and Ellerbe. The two limited partners were CIP XX, formed by CRI and owning a 75 percent interest, and respondent Investmark, Inc. (Investmark), formed by Ellerbe and owning a 25 percent interest.
In 1985, Ellerbe wanted to sell its remaining 25 percent interest. CRI formed appellant CIC IV to purchase this interest for $1 million cash and a $1 million promissory note, providing for two payments of $500,000, the second of which would be due in the event of the sale, transfer, or other disposition of all or substantially all of the project.
Appellants claim that they learned for the first time in 1986 that the building contained asbestos. By the late 1980's, the presence of asbestos in the building was frustrating appellants' efforts to sell it. In 1987, the legislature passed Minn. Stat. § 541.22, permitting recovery of asbestos removal costs from the providers of material containing asbestos. In 1990, ATS I filed suit against W.R. Grace; the action was dismissed because the statute of limitations had run. See Appletree Square 1 Ltd. Partnership v. W.R. Grace & Co., 815 F. Supp. 1266, 1281 (D. Minn. 1993), aff'd, 29 F. 3d 1283 (8th Cir. 1994).
In 1991, New York Life sued both appellants and respondents for ATS I's failure to make payments on the loan, and appellants sued respondents for their alleged failure to provide appellants with information on the problems resulting from asbestos in the building prior to the 1981 and 1985 transactions. The two actions were consolidated. Respondents were granted summary judgment on all appellants' claims: breach of contract; violation of the Limited Partnership Act, Minn. Stat. § 322.17 (1990); violation of the Deceptive Trade Practices Act, Minn. Stat. § 325D.44 (1990); fraud and misrepresentation; and negligent misrepresentation. Appellants then moved to amend, adding claims of breach of fiduciary duty and violation of the Minnesota Environmental Response and Liability Act, Minn. Stat. § 115B.16 (1990). The trial court denied the motion to amend. On appeal this court affirmed the denial of appellants' motion to amend, but reversed the summary judgment, holding that there were genuine fact issues as to whether respondents knew of the presence of asbestos in the building, whether appellants' reliance on respondents' disclosures was reasonable, and whether appellants exercised reasonable diligence. See Appletree Square I Ltd. Partnership v. Investmark, Inc., 494 N.W.2d 889, 893-95 (Minn. App. 1993), review denied (Minn. Mar. 13, 1993).
On remand, respondents' claim for damages for appellants' failure to make payments to New York Life pursuant to the 1981 and 1985 agreements was tried to the court; appellants' claims, that respondents committed material misrepresentations or nondisclosures of fact relative to the presence of asbestos in the building prior to the 1981 and 1985 transactions, were tried to the jury. The jury returned two special verdict forms, one for each transaction. The jury found no misrepresentation or nondisclosure prior to the 1981 transaction. Prior to the 1985 transaction, the jury found negligent misrepresentation or nondisclosure by respondent Investmark to appellant CIC IV, but also found that CIC IV had waived misrepresentation or nondisclosure and affirmed the 1985 transaction, that CIC IV was 50 percent negligent in the misrepresentation or nondisclosure, and that CIC IV's damages from the misrepresentation or nondisclosure were $0.
Appellants' motions for JNOV or a new trial were denied and judgment was entered awarding respondents $2,986,559.47 under the 1981 agreement and $1,053,342.47 under the 1985 agreement. Appellants challenge both the jury findings and the judgment under the 1985 agreement.
Appellants contend that the trial court erred in submitting to the jury the question of whether respondents had a duty to disclose, quoting as law of the case: "Under the common law, respondents had a duty to disclose information regarding asbestos if they knew about it." Appletree Square, 494 N.W.2d at 892. We find the doctrine of law of the case inapplicable.
Appellants' argument ignores the final clause, "if they knew about it." Other language in Appletree Square makes it clear that this court did not impose an unconditional duty to disclose; the duty to disclose was contingent on respondents' knowledge of the danger, and there were fact issues as to that knowledge. Id. at 892-94. Therefore, Appletree Square did not preclude submitting to the jury the question of duty to disclose.
2. Jury instructions.
Trial courts are allowed considerable latitude in selecting the language in jury instructions; an appellate court will not reverse a decision on the basis of jury instructions absent an abuse of discretion. Alholm v. Wilt, 394 N.W.2d 488, 490 (Minn. 1986).
A. Failure to instruct that a fiduciary relationship, imposing a duty to disclose, existed among the parties.
The jury was instructed on both negligent and intentional nondisclosure. Appellants do not challenge the accuracy or sufficiency of the instruction, but they argue that the jury should not have been given the option of deciding whether there was a failure to disclose. Appellants assert the jury should have been asked only if respondents knew prior to the 1985 transaction that the building contained asbestos and if respondents had any reasonable basis to believe appellants knew about the asbestos: That if the answer to the first question was yes and the answer to the second was no, the jury should have been told that, as a matter of law, respondents breached their fiduciary duty. However, the real question here is respondents' knowledge of the hazardous nature of asbestos, not the mere presence of asbestos. Respondents could not "fail to disclose" what they did not know. The jury was properly instructed on respondents' duty to disclose. We see no abuse of discretion in the instruction.
B. Failure to instruct the jury not to consider appellants' activities subsequent to the 1981 and 1985 transactions.
Appellants claim the instruction on negligence with respect to the 1981 and 1985 transactions was improper and prejudicial because the jury was not instructed to consider only activities that occurred prior to the transactions. However, the jury had heard evidence of appellants' activities subsequent to the transactions; this evidence was necessary for the purpose of showing waiver and affirmation. The trial court could not have differentiated what portions of five weeks of evidence the jury could and could not consider relative to each question on the special verdict form.
Appellants cite the comparative fault statute, Minn. Stat. § 604.01 (1994), stating that a jury may consider only those actions of an injured party which, at the time the injury occurred, would have limited damages. Here it is undisputed that the injury occurred well after the 1981 and 1985 transactions: appellants did not incur expense or difficulty in selling the building until the late 1980's. Therefore, considering actions subsequent to 1981 and 1985 does not violate the statute. The jury instructions on comparative fault do not provide a basis for a new trial.
C. The trial court's ex parte communication to the jury.
The jury received two copies of its instructions; on one copy, the sentence "Additionally, a finding of waiver will preclude recovery by [appellants] as to the subject transaction" had been omitted. After reading this incomplete copy, the jurors addressed to the court the following note:
There was some confusion among the jurors yesterday when we sent out our question about whether or not we need answer question 7 [amount of damages] if we would answer "yes" to waiver and/or affirmation. * * *
The court informed the jury ex parte that a finding of waiver meant no damages to appellants; this was corroborated when the jury found the complete copy of its instructions.
Even assuming that a jury instruction is erroneous, an appellant must show that the instruction resulted in substantial prejudice before a new trial will be granted. Stenvick v. Constant, 502 N.W.2d 416, 421 (Minn. App. 1993), review denied (Minn. Aug. 24, 1993). Appellants do not explain what prejudice resulted from the court's ex parte communication.
Appellants also assert that the jury was improperly influenced by the court's communication, citing Meinke v. Lewandowski, 237 N.W.2d 387, 393-94 (Minn. 1975) (reversing because a judge told the jury to change a particular answer in order to resolve the inconsistency in a special verdict). Meinke is readily distinguishable: the trial court here merely answered a question concerning how the jury was to proceed with question seven if it answered questions five or six in the affirmative; the court did not tell the jury to change an answer. A judge who sends a jury back to resolve inconsistencies in a verdict "has broad discretion to amplify and modify, as well as merely repeat, his initial instructions." Meinke, 237 N.W.2d at 392. The judge answering this jury's question had that discretion. Neither the fact that the jury was temporarily confused as to whether it should answer one question, nor the fact that the court resolved that confusion with a brief ex parte communication, created substantial prejudice warranting a new trial.
3. Evidence supporting the jury finding that CIC IV had waived misrepresentation or nondisclosure.
Appellants must show that there is no way to reconcile the jury's finding of waiver with the evidence, or lack thereof. See Hanks v. Hubbard Broadcasting, Inc., 493 N.W.2d 302, 309 (Minn. App. 1992) (holding that if a jury's finding can be reconciled on any theory, the verdict will not be disturbed), review denied (Minn. Feb. 12, 1993).
Waiver of the right to seek damages for fraud requires a showing that the waiving party had full knowledge of the facts and his or her legal rights and intended to relinquish those rights. Carpenter v. Vreeman, 409 N.W.2d 258, 262 (Minn. App. 1987). The jury heard testimony from William Willoughby, who was an officer and co-owner of CRI, the executive vice-president and 50 percent shareholder of appellant CRHC, and the executive vice-president of a shareholder of the general partner of appellant Crimark. Willoughby was also the signatory of the 1985 agreements for appellants CIC IV and CRHC. He testified that "sometime in 1986" he had been told of the asbestos problem; that he had seen an internal Ellerbe memo from 1984 indicating that respondents knew of the asbestos problem then; that he had not sued Ellerbe because they had a good relationship with Ellerbe as a tenant and didn't like lawsuits; that he did not tell the other appellants about the asbestos problem; that he did not attempt to rescind the purchase or make any asbestos-related demands or requests of Ellerbe in 1987, 1988, 1989, or 1990, or prior to the lawsuit in 1991; and that ATS I did not want to return the building to Ellerbe even after learning about its asbestos problem. This testimony indicates that appellants had full knowledge of the facts about respondents' alleged nondisclosure of the asbestos problem several years before the lawsuit. Other testimony showed that appellants continued dealing with Ellerbe: they accepted rent payments and leased additional space to Ellerbe in 1987. Viewing this evidence in the light most favorable to the jury's finding of waiver, that finding can be reconciled, and we will not disturb it.
4. Admission of evidence on appellants' suit against W.R. Grace.
The question of whether to admit or exclude evidence rests within the broad discretion of the trial court and its ruling will not be disturbed unless it is based on an erroneous view of the law or constitutes an abuse of discretion. Entitlement to a new trial on the grounds of improper evidentiary rulings rests upon the complaining party's ability to demonstrate prejudicial error.
Uselman v. Uselman, 464 N.W.2d 130, 138 (Minn. 1990) (citation omitted). The jury heard that, although appellants spent $460,000 on their suit against W.R. Grace, they did not recover because the lawsuit was served too late. Respondents argued to the jury that appellants were attempting to recover from respondents what they could not recover from W.R. Grace. Appellants claim this argument led to the jury's verdict that appellants had waived their rights to recover for respondents' fraud and may have led to the jury's alleged "decision not to calculate" appellants' damages.
Appellants' failure to recover in the W.R. Grace litigation was relevant to the issues of causation and damages in their suit of respondents; the trial court therefore did not err in admitting some evidence about this lawsuit. Appellants accepted the court's offer to give a curative instruction on this testimony, and although they heard the court's instruction before it was given and voiced no objection, they argue on appeal that the instruction served only to "exacerbate the prejudice." Appellants do not explain, however, how this evidence would have affected the jury's decision on waiver. Testimony that appellants had continued dealing with Ellerbe for some years after knowing about both the hazards of asbestos itself and Ellerbe's nondisclosure of the hazards provides evidence sufficient to support the special verdict finding of waiver. Because evidence supports the finding, we see no prejudice to appellants resulting from that evidence and no basis for a new trial.
5. The jury's finding of zero damages.
Answers to special verdict questions will not be set aside unless they are perverse and palpably contrary to the evidence or where the evidence is so clear as to leave no room for differences among reasonable people. Hanks, 493 N.W.2d at 309. The jury was instructed that the first element of "misrepresentation" is that one party makes a false representation or fails to disclose a material fact to another. The jury was asked, "With respect to the 1985 transaction, do you find that any defendant made a negligent misrepresentation or nondisclosure to CIC IV?" The jury answered "Yes." The jury was also asked, "With respect to the 1985 transaction, what are CIC IV's damages?" and answered, "$0." Appellants argue the jury could not have found both "no damages" and "misrepresentation" because damages are an element of misrepresentation. We disagree.
Appellants' argument is semantically flawed: the tort of misrepresentation is not synonymous with the making of a misrepresentation. While damages are an element necessary to recover for the tort of misrepresentation, the making of a misrepresentation does not presuppose or require damages.
The jury identified Investmark as the defendant that had made a misrepresentation to appellants prior to the 1985 transaction, in which CIC IV purchased Investmark's 25 percent interest. The measure of damages in a misrepresentation case is "usually * * * the difference between what plaintiff parted with and what he received." Lewis v. Citizens Agency of Madelia, Inc., 306 Minn. 194, 200, 235 N.W.2d 831, 835 (1975). The jury was instructed on this rule.
Appellant CIC IV apparently did not present evidence that, because it relied on Investmark's misrepresentation, what it parted with was of greater value than what it received. The jury had heard evidence that CIC IV paid $2,000,000 for a 25 percent interest in the building in 1985, when the value of the building was about $18,000,000. The jury also heard testimony from a real estate appraiser that the presence of asbestos did not affect the value of commercial real estate in 1984, 1985, or 1986. This evidence would support the jury's finding of zero damages sustained by CIC IV as a result of Investmark's misrepresentation.
6. Enforceability of the 1985 note stating that appellants would pay respondents $500,000 if the building were sold.
The construction and effect of a contract are questions of law for the court. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). A reviewing court does not give deference to a trial court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). Respondent Investmark claimed $500,000 plus interest from appellants, pursuant to a provision in the 1985 note, which provided that appellants would pay Investmark $1 million:
1. Five Hundred Thousand and 00/100 Dollars ($500,000.00) on July 1, 1986; and
2. Five Hundred Thousand and 00/100 Dollars ($500,000.00), together with accrued interest, if any, on the unpaid principal balance hereof, on the 15th day of the first calendar month following the end of any period of three (3) consecutive calendar months ("Period") subsequent to the date hereof in which the Net Cash Flow of Appletree Square I Limited Partnership, a Minnesota limited partnership ("Partnership") from the Project (as hereinafter defined) on an annualized basis during such Period shall be equal to or greater than Two Hundred Thousand and 00/100 Dollars ($200,000.00). * * * [There follows a complex formula for determining Net Cash Flow.]
Notwithstanding anything contained herein to the contrary, the unpaid principal balance hereof, together with all accrued interest thereon, shall be due and payable on the date of:
(i) The sale, transfer or other disposition of all or substantially all of the Project * * *.
The building was sold at a loss for $3,700,000 cash in 1994 in connection with the bankruptcy proceedings of ATS I. The trial court awarded judgment of $500,000 plus another $500,000 in interest to respondents because it held that the final payment provision of the 1985 note was triggered by the sale.
Appellants argue that the note is ambiguous and that the phrase "due upon sale of the building" really means "profitable sale" because the second $500,000 was not due until the building achieved a certain level of profitability. They claim the purpose of the final payment provision was to enable respondents to share in the profit if the building sold at a profit, not to impose a further burden on appellants if it sold at a loss. We disagree and find no ambiguity.
The phrase "Notwithstanding anything contained herein to the contrary" before the provision that $500,000 would be due upon the sale of the building indicates that this provision is to supersede other possibly conflicting provisions. A contract is ambiguous if the language is susceptible of more than one interpretation. Current Tech. Concepts, Inc. v. Irie Enter., Inc., 530 N.W.2d 539, 543 (Minn. 1995). The provision itself is free from ambiguity: the balance of $500,000 became due and payable on the date the property was sold.
Even conceding appellants' argument that the purpose of the last $500,000 payment was to enable respondents to share in the building's profitability, that purpose cannot override the clear language that the payment would be due upon the sale of the building. "Where explicit language indicates a purpose different from that thought to be the main purpose of the agreement, the language must be given its obvious meaning and cannot be overruled." Reliable Metal, Inc. v. Shakopee Valley Printing, Inc., 407 N.W.2d 684, 687 (Minn. App. 1987) (citing Marso v. Mankato Clinic, Ltd., 278 Minn. 104, 115, 153 N.W.2d 281, 289 (1967)). The provision of the 1985 note making $500,000 due and payable upon the sale of the building is enforceable; the trial court did not err in enforcing it.
We see no basis for JNOV or a new trial in the instructions given to the jury, the evidence admitted, or the jury's verdict, and we find no error in the enforcement of the 1985 note.
[ ]1One individual, William Willoughby, was an officer and co-owner of CRI, the executive vice-president and 50 percent shareholder of CRHC, and the executive vice-president of the general partner of Crimark.
[ ]2The building was sold at a loss in bankruptcy proceedings in 1994.
[ ]3The special verdict questions asked (1) whether any respondent made an intentional misrepresentation or nondisclosure to ATS I, and if so, which respondent; (2) whether any respondent made a negligent misrepresentation or nondisclosure to ATS I, and if so, which respondent; (3) whether, if negligence had been found, there was any negligence of ATS I that contributed to its damages; (4) if there was negligence of ATS I, how the total negligence was apportioned between ATS I and respondents; (5) whether ATS I had waived misrepresentation or nondisclosure; (6) whether ATS I had affirmed the agreement; and (7) what were ATS I's damages with respect to the transaction.
[ ]4Respondents argue that appellants failed to preserve the jury instruction issue for appeal because appellants did not object to the failure to instruct during trial. However, in their motion for JNOV or a new trial, appellants raised the issue of failure to instruct on respondents' continuing duty to disclose while in the partnership. An alleged error in jury instructions with respect to fundamental law may be assigned in a motion for a new trial even though it was not otherwise called to the attention of the court. Minn. R. Civ. P. 51. Therefore, appellants preserved the jury instruction issues for appeal by raising them in their motion for a new trial.
[ ]5The instruction read:
If you do not find a false representation, you must consider whether there has been a failure of disclosure if there was a duty to disclose. There is no such duty except that:
(a) a person who speaks has a duty to say enough to prevent his words from misleading the other party;
(b) a person who has special knowledge of material facts to which the other party does not have access has a duty to disclose these facts; and
(c) a person who stands in a fiduciary relationship has a duty to disclose material facts.
(Partners stand in fiduciary relationships to one another, and so long as they are partners they owe a continuing duty to disclose material facts to one another. You must decide whether any of the parties were partners. Two or more persons (whether natural persons or entities) who by directly stated or implied agreement consent to join together as owners in a business for profit, each contributing either property, money or services to the business, are partners.)
[ ]6The jury was instructed:
Questions 3 on each special verdict form ask whether the Purchaser (either Appletree Square Partnership or CIC IV as the case may be) was negligent with respect to the subject transaction. You should utilize the definition of "negligent" set out above for purposes of answering questions 3, and determine whether the Purchaser was negligent in failing to use reasonable care in relying on the defendant(s) or in failing to learn or know, with respect to the subject information.
If you find with respect to either transaction that any such negligence of the Purchaser was a direct cause of Purchaser's damage with respect to such transaction, then you will be asked to compare such negligence of such Purchaser with that negligence of the defendant(s) involved in the negligent misrepresentation or nondisclosure associated with that transaction. Should you find that any such negligence of such Purchaser is greater than any such negligence of one or all of such defendant(s), then such Purchaser will not recover any damages with respect to the claim of negligent misrepresentation or nondisclosure respecting that transaction. In any event, the recovery of damages by the Purchaser with respect to such transaction will be reduced by any such percentage of negligence you find to have been that of such Purchaser.
[ ]7Ellerbe entities were at this point paying over $1,000,000 annually in rent for space in One Appletree Square.
[ ]8The jury assessed damages at $0. Had the jury declined to calculate damages, it presumably would have left the space on the special verdict form blank, not written in "$0."
[ ]9The curative instruction read:
You have heard and may hear additional evidence with respect to a lawsuit or claims against WR Grace, the manufacturer of the Mono-Kote 3 fireproofing [containing asbestos and used in One Appletree Square].
Since any case against Grace, on the one hand, and the case that is here before you in court now, on the other hand, are subject to very different legal and procedural issues, it's important that I provide to you some guidance so that this evidence is not misused or misconsidered by you with regard to your rendering a verdict in this case.
You may, to the extent that you find relevant, consider evidence relative to claims or litigation against Grace as that evidence may bear on any decisions that any of the parties made or could have made or as it may bear on the cause or extent of any damages.
Unless and until I instruct you otherwise, you should not consider this evidence for any other purpose. This limited use of the evidence with respect to any claims or litigation with Grace also applies to any evidence that the lawsuit brought by Appletree against Grace ended without recovery. The termination of the lawsuit against Grace was prior to any trial or determination as to whether the claims were or were not meritorious. And the termination was based on a procedural determination which has no relevance to any of the issues in this case.
You should not concern yourselves with the reasons for such termination of that case against Grace. This is because the fact of or the reasons for the termination have no relevance to the reasonableness of the conduct or the decisions of any of the parties here, and have no relevance to the value or lack of value of the claims which either Appletree or Ellerbe may have had against Grace.
[ ]10Appellants argue that evidence of damages was presented as to both the amount they spent abating the asbestos problem in the building and the amount they lost in investment. However, these damages were not incurred "with respect to the 1985 transaction"; and the jury was asked to compute damages only with respect to that transaction, using the out-of-pocket rule.
[ ]11Arguably, this issue is not before the court. The alleged ambiguity in the 1985 note was never argued orally before the trial court, and there is no evidence that the trial court considered it. "A reviewing court must generally consider only those issues that the record shows were presented and considered by the trial court in deciding the matter before it." Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). However, because appellants raised the issue in their posttrial reply memorandum to respondents' memorandum opposing appellants' memorandum, the issue was at least presented to the trial court. In the interests of completeness, we address it here.