STATE OF MINNESOTA
IN COURT OF APPEALS
Donald D. Kallestad,
Filed December 14, 1999
Dissenting, Anderson, Judge
Hennepin County District Court
File No. CT98-003488
Richard A. Saliterman, Floyd E. Siefferman, Jr., 1000 Northstar East, 608 Second Avenue South, Minneapolis, MN 55402 (for appellant)
Considered and decided by Halbrooks, Presiding Judge, Klaphake, Judge, and Anderson, Judge.
Appellant Weavewood, Inc. contends that the district court erred in granting respondent Donald Kallestad's motion for summary judgment. Weavewood contends that (1) the district court lacked subject matter jurisdiction over Kallestad's claims because the contract sued upon contains an arbitration clause, and (2) genuine issues of material fact exist. We hold that Weavewood waived its right to arbitration and failed to produce evidence sufficient to demonstrate the existence of a genuine issue of material fact. We affirm.
On July 16, 1996, Weavewood terminated Kallestad. Following the termination, Weavewood refused to provide Kallestad with any severance pay. Kallestad initiated this lawsuit in December 1996, alleging breach of his contract.
Weavewood contends that the contract is fraudulent. It argues that Thompson did not have the authority to enter into the contract with Kallestad, and that the contract was actually executed subsequent to Kallestad's termination. The only "fact" evidence presented by Weavewood in opposition to Kallestad's motion for summary judgment was the affidavit of Gail Thompson Mosley. Mosley is Thompson's sister and an employee of Weavewood.
Weavewood, through Mosley's affidavit, alleges that Kallestad was a poor employee, stole from the corporation, and did not have an executed employment contract prior to his termination. Weavewood filed a counterclaim against Kallestad, alleging that he breached a fiduciary duty owed to it and that he misappropriated certain corporate assets.
Kallestad filed a motion for summary judgment on October 16, 1998. The district court granted Kallestad's motion, dismissed the counterclaim against Kallestad, and ordered judgment in favor of Kallestad in the amount of $106,562.77. The district court arrived at this figure based on the severance payment formula in the contract and the contract provision allowing for reimbursement of business expenses. The judgment was subsequently amended to $107,750.18, including costs and attorney fees.
Subject matter jurisdiction involves the court's authority to hear particular cases and answer particular questions. Cochrane v. Tudor Oaks Condominium Project, 529 N.W.2d 429, 432 (Minn. App. 1995), review denied (Minn. May 31, 1995). "[L]ack of subject matter jurisdiction may be raised at any time, including for the first time on appeal." Id. (citations omitted). Whether a district court had subject matter jurisdiction is an issue of law that we review de novo. Bisbee v. City of Fairmont, 593 N.W.2d 714, 717 (Minn. App. 1999).
Although Weavewood challenges the validity of the contract, it argues that, to the extent the contract forms the basis for Kallestad's claim, the district court lacked subject matter jurisdiction because the contract sued upon contains an arbitration clause. The arbitration clause in the contract reads
Settlement by Arbitration. Any claim or controversy that arises out of or relates to this agreement, or the breach of it, will be settled by arbitration in accordance with the rules of the American Arbitration Association. Judgment upon the award may be entered in any court possessing jurisdiction of arbitration awards.Weavewood is raising this issue for the first time on this appeal.
Contrary to Weavewood's contention, an agreement to arbitrate disputes does not divest the district court of its jurisdiction to resolve the dispute. Park Constr. Co. v. Independent Sch. Dist., No. 32, 209 Minn. 182, 186, 296 N.W. 475, 477 (1941). But an arbitration agreement will be enforced if enforcement is sought in a timely manner. Minn. Stat. § 572.08 (1998); see also Niazi v. St. Paul Mercury Ins. Co., 265 Minn. 222, 230-31, 121 N.W.2d 349, 355 (1963). In other words, an arbitration agreement may create a right to arbitration, but it is a right that can be waived. Bast v. Capitol Indem. Corp., 562 N.W.2d 24, 29 (Minn. App. 1997).
The Minnesota Supreme Court addressed the issue of waiver in Brothers Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422 (Minn. 1980). The court noted:
Even though parties have an agreement to arbitrate disputes, an attempt by one of the parties to enforce such an agreement may under certain circumstances be challenged on the grounds of laches and waiver. We have held consistently that a party to a contract containing an arbitration provision will be deemed to have waived any right to arbitration if judicial proceedings based on that contract have been initiated and have not been expeditiously challenged on the grounds that disputes under the contract are to be arbitrated.
Id. at 428 (citations omitted).
Assuming the contract is valid, the parties in this case did have an agreement to arbitrate any disputes arising out of the contract. The language of the contract is clear on this point. The parties' actions, however, constitute a waiver of that agreement. Kallestad waived his right to arbitrate by filing the lawsuit in district court. See id. Weavewood waived its right to arbitration by answering the complaint and participating in the litigation for nearly two years without raising the issue of the arbitration agreement. See id.
Kallestad also argues that ordering arbitration at this stage of the litigation would be prejudicial. Prejudice is a legitimate consideration for this court when considering a party's attempt to enforce an arbitration agreement. See Preferred Fin. Corp. v. Quality Homes, Inc., 439 N.W.2d 741, 744 (Minn. App. 1989) (noting that ordering arbitration after summary judgment motion argued and trial on the merits was conducted would result in prejudice due to additional expenses and delay). The parties have now spent more than two years litigating this dispute. Limited discovery was conducted, and motions, including the motion for summary judgment, were brought before the district court. Enforcement of the arbitration clause at this time would prejudice Kallestad.
2. Summary judgment
On appeal from summary judgment, this court must determine whether there are any issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). The district court granted summary judgment on Kallestad's claim for breach of contract and dismissed Weavewood's counterclaim. Weavewood claims that material facts are in dispute and were before the district court in the form of Mosley's affidavit. The district court, however, determined that this affidavit was not sufficient to create a genuine issue of material fact.
To defeat a motion for summary judgment, the nonmoving party must establish a genuine issue of material fact through affirmative evidence tending to support each element of the claim. Carlisle v. City of Minneapolis, 437 N.W.2d 712, 715 (Minn. App. 1989). The nonmoving party must "do more than rely on `unverified or conclusionary allegations' in the pleadings or postulate evidence which might be produced at trial." W.J.L. v. Bugge, 573 N.W.2d. 677, 680 (Minn. 1998) (quoting Lubbers v. Anderson, 539 N.W.2d 398, 401 (Minn. 1995)). "Mere speculation or conjecture, without some concrete evidence, is not enough to avoid summary judgment." Bob Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323, 328 (Minn. 1993).
Specifically, the party opposing a summary judgment motion must do so with depositions or affidavits containing facts sufficient to raise a jury issue. Lundgren v. Eustermann, 370 N.W.2d 877, 881 (Minn. 1985). Any affidavits must be based on personal knowledge and contain facts that would be admissible in evidence. Minn. R. Civ. P. 56.05. In this case, there have been no depositions and Weavewood has produced only one affidavit.
A. Existence of a valid contract
An employment contract will exist if there is a promise of employment on particular terms, definite in form and communicated to the offeree. Pine River State Bank v. Mettille, 333 N.W.2d 622, 626 (Minn. 1983). The contract sued upon meets these elements on its face. The contract promised Kallestad employment for five years with an annual salary plus a bonus equal to a percentage of Weavewood's gross sales. It is written and signed by Kallestad and by Thompson for Weavewood.
Weavewood contends, however, that the contract was not executed until after both Kallestad and Thompson were terminated. In other words, the contract is fraudulent. Weavewood's sole support for these allegations is Mosley's affidavit. The substantive averments in Mosley's affidavit lack the context necessary to demonstrate that they were made with personal knowledge. See Minn. R. Civ. P. 56.05 (affidavits shall be made on personal knowledge, setting forth such facts as would be admissible in evidence, and shall show affirmatively that affiant is competent to the matters stated therein). As a result, they are not the type of evidence sufficient to prevent summary judgment.
Weavewood also contends that, even if the contract was executed on October 25, 1995, Thompson lacked the authority to bind Weavewood. But, the district court concluded that the corporate documents, naming Thompson the sole director of Weavewood and authorizing the contract, established either Thompson's actual authority to contract on behalf of Weavewood or his apparent authority. We agree.
Apparent authority to act is created by any conduct of the principal that, reasonably interpreted, causes a third party "to believe that the principal consents to have the act done on his behalf by the person purporting to act for him." Hagedorn v. Aid Ass'n for Lutherans, 297 Minn. 253, 257-58, 211 N.W.2d 154, 158 (1973). Although Weavewood claims that Thompson was never legitimately appointed the sole director and president of Weavewood, the company nonetheless operated with Thompson in control for some time both before and after the contract was executed. There is no evidence, other than the conclusionary allegations contained in Mosley's affidavit, that Kallestad knew or had reason to know that questions may have existed as to Thompson's authority to bind Weavewood. Indeed, the parties operated under the terms of the contract for more than eight months before Kallestad was fired. In other words, all of the manifestations of the principal, Weavewood, to Kallestad prior to July of 1995 reasonably indicate that Thompson had authority to act on Weavewood's behalf. See Truck Crane Serv. Co. v. Barr-Nelson, Inc., 329 N.W.2d 824, 826-27 (Minn. 1983) (holding that apparent authority can only be based on conduct by the principal and not conduct by the apparent agent).
The existence of an agency is a question of fact unless the evidence is conclusive. Lundman v. McKown, 530 N.W.2d 807, 824 (Minn. App. 1995), review denied, (Minn. May 31, 1995). In this case, the evidence is conclusive. Even if Thompson did not have actual authority, he had apparent authority based on the acquiescence of Weavewood to Thompson's actions and its holding Thompson out to the public as its president.
B. Breach of contract
Because we hold that a valid contract existed, we must determine whether Kallestad's termination was a breach. See Portlance v. Golden Valley State Bank, 405 N.W.2d 240, 243 (Minn. 1987) (holding "[d]ischarge from employment is actionable, if at all, because it constitutes a breach of the employment contract). We hold that Weavewood's failure to employ Kallestad for the term of the contract, or alternatively, to provide him with the severance pay provided for by the contract was a breach entitling Kallestad to damages.
The district court correctly determined that the damages flowing from the breach of the contract equal the amount of severance pay Kallestad was entitled to under the contract plus reimbursement for expenses as provided for in the contract. Contrary to Weavewood's claim, mitigation is not required in this case. The damages awarded by the district court represent the bargained-for amount payable to Kallestad because Weavewood chose to terminate his employment prior to the expiration of the contract. See Kauffman Stewart, Inc. v. Weinbrenner Shoe Co., 589 N.W.2d 499, 502 (Minn. App. 1999) (approving use of termination fees in service contracts). The district court's award of damages was appropriate.
D. Weavewood's counterclaim.
The district court also ordered summary judgment in favor of Kallestad on Weavewood's counterclaim. The district court indicated that the counterclaim was not well defined, but that it was apparently based on Kallestad's alleged breach of fiduciary duties and misappropriation of company property and assets.
There is no evidence in the record indicating that Kallestad owed the company any fiduciary duty or that any duty, if one existed, was breached. Furthermore, although Mosley's affidavit makes numerous allegations regarding the claims of misappropriation of company property and assets, the allegations all lack the specificity necessary to withstand a motion for summary judgment. See Bugge, 573 N.W.2d at 680 (stating "[t]he nonmoving party must present specific facts which give rise to a genuine issue of material fact for trial"). The district court properly dismissed Weavewood's counterclaim.
ANDERSON, Judge (dissenting)
I concur in part and respectfully dissent, in part, from the majority decision in this matter.
I agree that the district court properly dismissed appellant's counterclaim. The counterclaim is poorly defined and not supported with affidavits by anyone with personal knowledge and thus cannot withstand a motion for summary judgment. W.J.L. v. Bugge, 573 N.W.2d 677, 680 (Minn. 1998).
I also agree that the district court in this case had jurisdiction and that appellant waived its right to arbitration by failing to raise the issue in a timely manner. See Brothers Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422, 427-28 (Minn. 1980). Additionally, respondent makes an impressive claim of prejudice in light of the late discovery by appellant of the arbitration provision.
Where I part company with the majority, however, is on a central issue to this case--the validity of the management contract itself. This issue was resolved by the district court, improperly in my view, by granting summary judgment in favor of the alleged employee.
Appellant's argument opposing summary judgment is based almost entirely on the affidavit of Gail Thompson Mosley, and, as the majority points out, this is a thin reed upon which to rely.
Nonetheless, the affidavit raises a number of troubling issues that the district court ignores and glosses over.
It is not disputed that Mosley is part-owner of the business. It is not disputed that she has worked for appellant on a full-time basis for the last 16 years. It is not disputed that she has experience in bookkeeping and accounting issues.
The majority opinion relies on the inability of appellant to prove a negative--that no employment contract existed between appellant and respondent, a difficult task under any circumstances. While appellant is unable to prove the absence of a contract, the affidavit of Mosley does establish that, given her interest as an owner in the business, her status as a full-time employee in this small family operation and her knowledge of the family circumstances surrounding the business, if such a contract existed, she would have knowledge of it. She denies any such knowledge. She also reports the key and undisputed fact that the employment contract first appeared in August of 1996 shoved "through an open window along with several pieces of junk mail."
She also points out in her affidavit that she received no notice of the meeting at which the alleged management contract was executed and the minutes of that meeting reflect that respondent was to receive certain benefits as part of the management contract that, according to the records of the business, were not, in fact, received. The inference to be drawn here is that the minutes are self-serving and perhaps fabricated.
Nor is this all. The October 23, 1995 minutes reflect "[u]pon the urging of both Ann Schultz, attorney for the estate and John Caylor, Corporate CPA and advisor, Mr. Kallestad should be granted a 5 year management contract for the mutual benefit of both parties." This completely self-serving statement is not supported by affidavits from either attorney Schultz or CPA Caylor. The blunt truth is that the existence of this management contract is attested to only by Kallestad himself and a party he claims hired him, Howard Thompson, Jr., both of whom submitted affidavits in support of respondent. Both have litigation pending against the company and both have axes of various sorts to grind with appellant. The absence of affidavits from those who were at the meeting who carry at least a sheen of objectivity about what transpired on that date is telling.
As the district court recognized, summary judgment is not designed as a substitute for a jury trial where material fact issues are to be determined. See Vieths v. Thorpe Fin. Co., 305 Minn. 522, 525, 232 N.W.2d 776, 778 (1975). Significantly, it has long been the law of this state that all inferences from circumstantial evidence and all doubts must be resolved against the movant for summary judgment without undertaking a credibility determination. Anderson v. Twin City Rapid Transit Co., 250 Minn. 167, 186, 84 N.W.2d 593, 605 (1957). In fact, uncontradicted supporting documents may not be sufficient to sustain the burden of proof required to grant summary judgment. Sauter v. Sauter, 244 Minn. 482, 485, 70 N.W.2d 351, 353 (1955).
The Mosley affidavit is riddled with inconsistencies, recitation of hearsay statements that may or not be admissible at trial, and conclusory statements unsupported by documentary or other evidence. Having said this, it is a direct challenge to the existence of the management contract by a family member in a position to know and creates serious and material fact issues such that granting summary judgment on this issue is inappropriate. I would reverse the district court on the very narrow issue of whether or not the management contract existed and remand to the district court for the purpose of allowing a trier of fact to determine whether a management contract, in fact, truly exists.
 We have previously held that where a defendant knows of individuals with personal knowledge of facts precluding summary judgment, and fails to product affidavits or deposition testimony from these key individuals, a district court may properly award summary judgment to the adverse party. Boulevard Del., Inc. v. Stillman, 343 N.W.2d 50, 53 (Minn. App. 1984). The present controversy is the reverse of the Boulevard circumstances. Here there are key witnesses to a central fact issue which respondent has failed to produce. Given the high standard applicable to a motion for summary judgment and given all the circumstances of this case, the logic of Boulevard should lead to rejection of the request for summary judgment and a trial to determine whether the management contract did, or did not, exist.