This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. 480A.08, subd. 3 (1996).

STATE OF MINNESOTA

IN COURT OF APPEALS

C9-97-1737

C3-97-2253

Hunerberg Construction Company,

Plaintiff,

One-Two Property Limited Liability Company,

Appellant,

vs.

Glass Service Company, Inc.,

Respondent.

Filed June 30, 1998

Affirmed in part, reversed in part

Peterson, Judge

Hennepin County District Court

File No. 9514906

Kay Nord Hunt, John M. Giblin, Lommen, Nelson, Cole & Stageberg, P.A., 1800 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for appellant)

Charles J. Lloyd, Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for respondent)

Considered and decided by Peterson, Presiding Judge, Shumaker, Judge, and Foley, Judge.*

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

U N P U B L I S H E D O P I N I O N

PETERSON, Judge

One-Two Property appeals from judgment entered in favor of Glass Service Company and from the denial of its motion for a new trial or judgment notwithstanding the verdict. We affirm in part and reverse in part.

FACTS

Respondent Glass Service Company contacted appellant One-Two Property about buying property that One-Two was operating as a parking lot. One-Two did not want to sell the property. Michael Berg, part-owner of One-Two, and George Corporaal, president and part-owner of Glass Service, discussed leasing the property and ultimately entered a 20-year lease agreement. The lease provided that Glass Service would build a building on the property and pay rent to One-Two. Corporaal initially wanted to build a one-story building. After the lease was signed, the City of Minneapolis informed Glass Service that because the lot was in a historical district, any building would have to have two stories and contain certain features. Glass Service hired Hunerberg Construction to build a suitable building.

Before the lease was signed, Berg told Corporaal that there was once a gas station on the lot, there had been pollution on the site, and the Minnesota Pollution Control Agency (MPCA) had been involved in the cleanup. Berg told Corporaal that the property was clean, the fuel tanks had been removed, and the property was filled with sand down to the bedrock. Corporaal considered testing the soil, but Berg told him it would be wasteful because the MPCA had already approved the site. Corporaal signed the lease without testing the soil. When excavation began, the construction crew encountered debris, rubble, and the foundation of an old building. When the smell of diesel fuel was detected, excavation stopped, and the MPCA was contacted. Corporaal testified that he terminated the lease because Glass Service could not afford to build a suitable building on the lot.

This action began as a claim by Hunerberg Construction seeking payment from One-Two and Glass Service for excavation work it performed. One-Two and Glass Service asserted cross-claims against each other arising out of their lease agreement. The district court determined that Hunerberg's claims would be tried separately first. After Hunerberg's claims were resolved, the cross-claims between One-Two and Glass Service were tried to a jury.

The claims before the jury included One-Two's claim for damages for Glass Service's breach of the lease agreement and Glass Service's fraudulent misrepresentation claim. The jury found for Glass Service on both claims. One-Two moved for judgment notwithstanding the verdict or a new trial. The district court denied the motion. One-Two appeals from the judgment and amended judgments and from the denial of its posttrial motion.

D E C I S I O N

Denial of a motion for judgment notwithstanding the verdict is a question of law subject to de novo review. Edgewater Motels, Inc. v. Gatzke, 277 N.W.2d 11, 14 (Minn. 1979). Whether a party owes a duty to another is a question of law. Safeco Ins. Co. of Am. v. Dain Bosworth Inc., 531 N.W.2d 867, 873 (Minn. App. 1995), review denied (Minn.

July 20, 1995). The decision to grant a new trial is ordinarily within the discretion of the district court. Halla Nursery, Inc. v. Baumann-Furrie & Co., 454 N.W.2d 905, 910 (Minn. 1990). But where the district court bases its order on an error of law, we apply a de novo standard of review. Id.

I. Misrepresentation

In its answers on the special verdict form, the jury concluded that Berg made a false material representation to Corporaal before the lease was signed. The special verdict form then asked, "Did Michael Berg make the representation knowing that it was false?" The jury answered, "No." The special verdict form then asked, "Did Michael Berg make the representation as of his own knowledge without knowing whether it was true or false?" The jury answered, "Yes." One-Two argues that the answers on the special verdict form lead to the conclusion that the jury found only negligent misrepresentation and that Glass Service had no actionable negligent misrepresentation claim against One-Two. Glass Service argues that the answers on the special verdict form demonstrate that the jury found intentional misrepresentation.

In Florenzano v. Olson, 387 N.W.2d 168, 175 (Minn. 1986), the jury found by special verdict that the defendant in an action for misrepresentation asserted a fact of his own knowledge without knowing the fact to be true or false. The supreme court stated that the jury's finding was not inconsistent with the court's holding that the misrepresentation was negligent, not fraudulent. Id. Similarly, the jury finding that Berg made the representation of his own knowledge without knowing whether it was true or false does not lead to the conclusion that there was an intentional misrepresentation.

Merely asserting a fact without knowing whether it is true or false is not intentional misrepresentation. In Florenzano, the supreme court explained that fraudulent intent is an element of intentional misrepresentation.[1] Id. at 173. The court then explained:

Fraudulent intent is, in essence, dishonesty or bad faith. What the misrepresenter knows or believes is the key to proof of intent. * * * There is no doubt of fraudulent intent when the misrepresenter knows or believes the matter is not as he or she represents it to be. Fraudulent intent is also present when a misrepresenter speaks positively and without qualification, but either is conscious of ignorance of the truth, or realizes that the information on which he or she relies is not adequate or dependable enough to support such a positive, unqualified assertion.

Id. (emphasis added).

Thus, to prove intentional misrepresentation where the jury found that Berg did not make the representation knowing that it was false, it was necessary to show that when Berg asserted the fact without knowing whether it was true or false, he was either consciously aware that he did not know whether the fact was true or false or he realized that his basis for stating the fact was not adequate or dependable enough for him to be making the statement as a positive, unqualified statement of fact. Glass Service has not cited any evidence in the record that indicates that when Berg stated that the lot was clean, he was aware that he did not know whether his statement was true or false or he realized that he did not have a basis for making the statement.

To the contrary, the evidence cited by Glass Service merely indicates that Berg was frequently near the lot throughout the period when it was being cleaned up. He had the opportunity from time to time to observe what was being done, but he did not watch all the work as it was being done. This evidence proves only that Berg was in a position to have learned what was done to clean up the lot. It does not prove that Berg was aware that despite his observation of the clean-up, he was ignorant of the truth about what was done, or that despite his observation of the clean-up, he realized that he did not have an adequate basis to support his statement about the clean-up.

The evidence that Berg had the opportunity to periodically observe the clean-up and then made a false statement about the extent of the clean up proves only that his misrepresentation was made negligently.

A misrepresentation is made negligently when the misrepresenter has not discovered or communicated certain information that the ordinary person in his or her position would have discovered or communicated. Proof of the subjective state of the misrepresenter's mind, whether by direct evidence or by inference, is not needed to prove negligence. Negligence is proved by measuring one's conduct against an objective standard of reasonable care or competence. In Minnesota, one making representations is held to this duty of care only when supplying information, either for the guidance of others in the course of a transaction in which one has a pecuniary interest, or in the course of one's business, profession or employment.

Id. at 174.

Because the record supports a finding of nothing more than negligent misrepresentation, this court's decision in Safeco Ins. Co. of Am. v. Dain Bosworth Inc., 531 N.W.2d 867 (Minn. App. 1995), compels us to reverse the denial of JNOV on the misrepresentation issue. In Safeco, Dain, a bond underwriter, negotiated a business deal with Safeco. Id. at 870. The district court granted summary judgment to Dain on a negligent misrepresentation claim, finding that Dain owed no duty to Safeco beyond honesty. This court affirmed, holding that

Because Dain was selling a deal to Safeco, and not supplying information for the guidance of Safeco, and because they were sophisticated equals negotiating a commercial transaction, Dain did not owe Safeco a duty for purposes of a negligent misrepresentation tort threshold.

* * * *

* * * It would be unreasonable to impose a duty whenever a party gives any information to another party. That is why the law of negligent representation imposes a duty on parties providing information for the guidance of others in the course of business or where there is a pecuniary interest. In other commercial relationships, for example between parties to a contract, the aggrieved party is limited to suit in contract or in fraud.

Id. at 872-73.

Under Safeco, One-Two did not owe Glass Service a duty for purposes of a negligent misrepresentation tort threshold. Berg and Corporaal were experienced business owners who negotiated a commercial lease. There is no evidence that One-Two provided information for the guidance of Glass Service or that the lease negotiations were anything other than an arm's-length transaction. This is the type of commercial transaction where "the aggrieved party is limited to suit in contract or in fraud."

Glass Service argues that One-Two waived its ability to make a legal duty argument. But a reviewing court may address the merits of a claim of fundamental error even in the absence of an objection. Kiminski v. American Family Mut. Ins. Co., 505 N.W.2d 50, 50-51 (Minn. 1993) (order op); see also Minn. R. Civ. App. P. 103.04 (scope of review).

In light of our holding that One-Two did not owe Glass Service a duty, we do not address (1) One-Two's claim that Glass Service failed to establish that it had been damaged by One-Two's misrepresentation, or (2) One-Two's claim that the record does not support a finding that Glass Service justifiably relied on Berg's oral representations.

II. Breach of Contract

The special verdict form asked, "Could Glass Service Company have built a suitable building at 100 Washington Avenue North?" The jury answered, "No." One-Two argues that the jury's answer is not justified by the evidence because it was undisputed that a suitable building could have been built on the lot. One-Two contends that only the cost prevented Glass Service from putting up its building, and there is nothing in the lease that allowed Glass Service to terminate the lease if the cost of the building exceeded some subjective sum that was not set forth in the lease.

The lease provides in paragraph 14:

Termination of Lease. In the event [Glass Service], for any reason, cannot build a suitable building on the premises this Lease shall be null and void.

(Emphasis added.)

There was expert testimony that the building Glass Service intended to build could have been built on the lot, but only if the soil was corrected. Glass Service could not build a suitable building on the lot as it existed. It could only build a suitable building on a substantially different lot B one where the problems with the soil were corrected. One-Two's argument that cost was the only reason why a suitable building could not be built on the premises ignores the fact that if Glass Service did not incur the costs of correcting the soil conditions, a suitable building could not be built on the premises. Because paragraph 14 provides that if for any reason a suitable building could not be built on the premises, and a suitable building could not be built on the existing soil conditions, Glass Service did not breach the contract.

Affirmed in part and reversed in part.

[1] In Florenzano, the supreme court used the term "fraudulent misrepresentation" rather than "intentional misrepresentation."