This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).


Chung Kan, et al.,


Stephan J. Wensmann, et al.,

Minnesota Department of Commerce,
Contractor's Recovery Fund, third-party defendant,

Filed December 21, 1999
Affirmed in part, reversed and remanded in part.
Mulally, Judge[*]

Dakota County District Court
File No. C6987188

Lee W. Mosher, Davern, McLeod & Pezalla, Suite 150, 7500 Olson Memorial Highway, Golden Valley, MN 55427 (for respondents)

Mike Hatch, Attorney General, David M. Aafedt, Assistant Attorney General, 525 Park Street, Suite 500, St. Paul, MN 55103 (for appellant)

Considered and decided by Davies, Presiding Judge, Foley, Judge,[**] and Mulally, Judge.

U N P U B L I S H E D   O P I N I O N


Appellant disputes the trial court’s decision ordering it to pay respondents $10,850.34 from the Minnesota Contractor’s Recovery Fund, claiming that the fund is not required to pay damages in the amount required to put respondents in the position they would have been in had their contractor not breached the contract. Because the statute limits recovery to "the amount of actual and direct out of pocket loss," we reverse and remand.


During the course of having a house built, respondents requested that their contractor install special low-energy windows. These were more expensive than regular triple-pane windows. Respondents paid for the more expensive low-energy windows, but their contractor failed to install them; he instead installed regular triple-pane windows. Respondents brought a claim against their contractor and were awarded a judgment in the amount of $10,408.84 (the amount it would now cost to install the low-energy windows ), plus attorneys fees and costs. They were unable to collect the judgment from the contractor and filed a claim with the Contractor’s Recovery Fund. Minn. Stat. § 326.975. The trial court ordered appellant, the Minnesota Contractor’s Recovery Fund, to pay the amount of the judgment, but failed to award attorney’s fees or costs.


1. Interpretation of the statute

Statutory interpretation is a question of law subject to de novo review. Metropolitan Sports Facilities Comm’n v. County of Hennepin, 561 N.W.2d 513, 515 (Minn. 1997). The object of statutory interpretation is to determine and give effect to the legislature’s intent. Minn. Stat. § 645.16 (1998). If the words in a statute are clear and unambiguous, the court must give effect to the plain meaning of the language. Tuma v. Commissioner of Economic Sec., 386 N.W.2d 702, 706 (Minn. 1986).

The Minnesota Contractor’s Recovery Fund is part of Chapter 326 of the Minnesota Statutes, which regulates employments licensed by the state. Minn. Stat. § 326.975 provides relief for victims of residential contractors’ fraudulent or deceptive practices, conversion of funds, or failure of performance by establishing a recovery fund, financed with contractors’ license fees, for such victims. See Minn. Stat. § 326.975 (1998). The fund is subject to "all the requirements and limitations provided by section 82.34," with certain exceptions. Minn. Stat. § 326.975, subd. 1.

Minn. Stat. § 82.34 governs Minnesota’s Real Estate Education, Research and Recovery fund, providing some recompense to victims of the "fraudulent, deceptive, or dishonest practices, or conversion of trust funds arising directly out of" certain actions of real estate brokers or agents. Minn. Stat. § 82.34, subds. 6 and 7 (1998). The amount of damages which victims of real estate fraud may recover is specifically limited to "the amount of actual and direct out of pocket loss." Id. at subd. 7. Our courts have defined "out-of-pocket" to mean the "difference between the actual value of the property received and the price paid for the property." B.F. Goodrich v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988).

While there are exceptions to the applicability of the Real Estate Recovery Fund’s limitations on the Contractor’s Recovery Fund, none of these exceptions apply to the provision limiting the amount of recovery from the fund. These exceptions relate to the amount of the fee each licensed contractor must pay into the fund, a description of the purpose of the fund, the maximum recovery amount available, and a provision that the fund will not reimburse victims for claims based on causes of actions arising before the contractor contributed to the fund. Minn. Stat. § 326.975, subd. 1 (a) (1) – (4).

Furthermore, there is merit in appellant’s argument that we should consider the Commissioner’s interpretation of the statute. "‘When the meaning of a statute is doubtful, courts should give great weight to a construction placed upon it by the Department charged with its administration.’" Estate of Atkinson v. Minnesota Dept. of Human Servs., 564 N.W.2d 209, 213 (Minn. 1997) (quoting Mammenga v. State Dept. of Human Servc., 442 N.W.2d 786, 792 (Minn. 1989)). The Commissioner of Commerce has made it clear in its memoranda regarding this suit that the position of the department is that the "out-of-pocket loss" limitation expressed in Minn. Stat. § 82.34 is applicable to Minn. Stat. § 326.975.

The Contractor’s Recovery Fund refers to language in another statute that limits the amount a victim may recover. The Contractor’s Recovery Fund does not except this limitation in its language, and the governing agency has interpreted this limitation as applicable to the Contractor’s Recovery Fund. The trial court erred when it determined that respondents were entitled to recover more than their "out-of-pocket loss" from the Recovery Fund. We reverse and remand this portion of the trial court’s decision for a determination of respondents’ "out-of-pocket loss."

2. Attorney’s Fees

Respondents appeal the trial court’s decision denying them attorney’s fees under Rule 11. In reviewing a district court’s determination regarding sanctions under rule 11, we apply an abuse-of-discretion standard. Uselman v. Uselman, 464 N.W.2d 130, 145 (Minn. 1990). Awarding attorneys’ fees under rule 11 requires a violation of an attorney’s or party’s affirmative duty reasonably to investigate the factual and legal bases of claims to ascertain that they are well grounded and not made for an improper purpose. See Radloff v. First American Nat’l Bank, 470 N.W.2d 154, 156-57 (Minn. App. 1991), review denied (Minn. July 24, 1991). In determining whether rule 11 sanctions apply, the district court must analyze whether there was "an objectively reasonable basis for pursuing a factual or legal claim." Uselman, 464 N.W.2d at 143. Rule 11 is to be narrowly construed, id. at 142, and is not triggered "merely because a party does not prevail on the merits." Radloff, 470 N.W.2d at 157.

The trial court found that respondents had not shown any evidence suggesting that appellants had no "objectively reasonable basis" for refusing to pay the full damages award respondents requested. There is nothing in the record to suggest that the trial court abused its discretion in so finding. Appellant reasonably did not believe that the statute required it to pay respondents the damages award they were requesting.

Respondents also argue that portions of appellant’s brief and appendix should be stricken, as they were not a part of the original trial court’s record. "Matters outside the record may not be considered by an appellate court and must be stricken." In re Fairview-University Medical Center, 590 N.W.2d 150, 155 (Minn. App. 1999). However, in this case, the information in the offending materials is readily available from other documents that were a part of the original record. Therefore, striking the offending portions of the brief and appendix would have little, if any, effect on this court’s consideration of the primary issue in this case.

Affirmed in part, reversed and remanded in part.

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

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