This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C1-00-1758

 

 

Info-Bahn, Inc.,

Appellant,

 

vs.

 

Paul Brown, et al.,

Respondents,

 

and

 

Paul Brown, et al.,

Third-Party Plaintiffs,

 

vs.

 

Laurie Holbrook, et al.,

Third-Party Defendants.

 

 

Filed May 15, 2001

Affirmed

Schumacher, Judge

 

Goodhue County District Court

File No. C699491

 

 

Dorothy J. Buhr, Edwin L. Sisam, Sisam & Watje, P.A., 7230 Metro Boulevard, Minneapolis, MN 55439-2128 (for appellant)

 

Phillip R. Krass, C. John Jossart, Krass Monroe, P.A., 1100 Southpointe Office Center, 1650 West 82nd Street, Minneapolis, MN 55431-1447 (for respondents)

 

 

            Considered and decided by Stoneburner, Presiding Judge, Schumacher, Judge, and Poritsky, Judge.^*

U N P U B L I S H E D   O P I N I O N

SCHUMACHER, ROBERT H., Judge

Appellant Info-Bahn, Inc. brought suit against respondents Paul Brown, Marsha Brown, and PMC, Inc. for breach of contract.  The Browns and PMC counterclaimed and brought a third-party complaint, alleging fraud and coercion.  The jury found there was a contract, but found no breach.  Info-Bahn moved for judgment notwithstanding the verdict (JNOV) or a new trial.  The district court denied both motions.  We affirm.

FACTS

Info-Bahn is a closely-held corporation owned by Laurie and Donald Holbrook, who are husband and wife.  During the relevant time period, Donald Holbrook was also executive director of the Red Wing Port Authority, a governmental agency which regulates economic development within Red Wing and occasionally provides funds or services to private businesses within the city. PMC is a closely-held corporation owned by Paul and Marsha Brown, who are also husband and wife.  PMC owns and operates the Red Wing Mall (the Mall). 

            On August 8, 1997, the Browns signed an agreement on behalf of PMC, whereby Info-Bahn would supply an automated teller machine (the Info-Bahn ATM) at the Mall and, in exchange, PMC agreed to guarantee 2000 ATM transactions per month.  PMC was to reimburse Info-Bahn at a rate of $1.43 per transaction to the extent that the actual transactions fell short of the minimum 2000 per month.  The agreement was for a term of 15 years.  The agreement also provided that Info-Bahn was to service and maintain the machine.  The Browns later signed an amendment to the agreement increasing the minimum transactions to 2,350 per month after six months of operation. 

            Once installed, the Info-Bahn ATM regularly failed to attrtact the required minimum transactions.   PMC paid the difference to Info-Bahn on at least one occasion.  In June 1998, however, Paul Brown asked the Holbrooks to remove the automated teller machine from the Mall.

            Info-Bahn sued the Browns and PMC, alleging breach of contract.  The Browns and PMC denied the allegations and brought a counterclaim and third-party complaint against the Holbrooks, alleging that the Holbrooks committed fraud and had coerced the Browns into signing the agreement.  As to the fraud claim, the Browns asserted that Laurie Holbrook had made statements to the effect that her market research indicated that the Info-Bahn ATM would generate 2000 transactions per month.  The Browns alleged such research had never been done or the results had been falsely communicated.  As for the coercion claim, the Browns alleged that Donald Holbrook threatened to use his position on the port authority to ensure that the Browns would not receive funds for an expansion project at the Mall unless the Browns agreed to enter into various contracts with the Holbrooks and with Info-Bahn. 

            At trial, the Holbrooks testified that the Browns breached the agreement.  The Browns both testified that Donald Holbrook continually used his position on the port authority in various ways to force the Browns to enter a business relationship with Laurie Holbrook and Info-Bahn.  They both testified that they signed the agreement at issue because Donald Holbrook would not permit the Mall to receive funding from the port authority unless the Browns signed the ATM agreement. 

            In addition, the Browns' attorney argued at trial that the Info-Bahn ATM malfunctioned and that this constituted legal justification for the Browns' decision to have the ATM removed.  In his opening statement, the Browns' attorney stated as follows:

In addition, you're going to hear testimony that for much of the time, the machine that the Holbrooks put in was not functioning properly.  It either was not working or didn't have money in it.  It often had a sign on it "Out of order" or one of those codes flashing across the front saying "Error."  It couldn't be used.  And you're going to hear Mr. Brown tell you and Mr. Plein tell you they got a lot of complaints from people in the mall saying "That machine isn't working.  People are complaining to us."

 

Several witnesses testified that the Info-Bahn ATM had been malfunctioning.  Paul Brown and his accountant testified that the Info-Bahn ATM  had not been serviced properly while it was at the Mall.  Doreen Mann and Tammeria Strain, both managers for tenants of the Mall, testified that they received many complaints from customers that the Info-Bahn ATM had not functioned properly.  Finally, during closing arguments, the Browns' attorney argued that the fact that the ATM did not work properly constituted "legal justification" for the Browns' decision to force removal of the Info-Bahn ATM.

            On a special verdict form, the jury determined that PMC and Info-Bahn had entered into a contract but that PMC had not breached the contract.  The jury instructions described the term "breach" as "failure without legal justification to perform a substantial part of the contract."  The jury awarded Info-Bahn $0 in damages.  The jury found that Laurie Holbrook had falsely represented material information to the defendants and awarded PMC $7,579.65 in damages.  As to the coercion claim, the special verdict form posed the following question to the jury:  "Did Don Holbrook engage in any wrongful act against PMC, Inc., Paul and/or Marsha Brown?"  The jury answered "yes" to this question.  A follow-up question on the special verdict form, however, inquired as follows:  "Was any wrongful action taken by Don Holbrook so oppressive that it constrained PMC, Inc., Paul and/or Marsha Brown against their will?"  The jury answered "no" to this question.

            Info-Bahn and the Holbrooks moved for JNOV or, in the alternative, a new trial.  The district court denied the motion as to the breach of contract claim, but dismissed the false representation claim, noting that neither Paul nor Marsha Brown claimed to have relied on Laurie Holbrook's representations as to the number of transactions that the ATM would generate in a given month.

D E C I S I O N

Under Minn. R. Civ. P. 50.02, a party may move for JNOV following the close of all evidence. 

When the trial court considers a motion for JNOV it must determine whether, viewing the evidence in the light most favorable to the nonmoving party, the verdict is manifestly against the entire evidence or whether despite the jury's findings of fact the moving party is entitled judgment as a matter of law.

 

Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998) (citation omitted).  A reviewing court examines the trial court's decision de novo.  Id.  When JNOV has been denied by the trial court, a reviewing court must affirm if there exists "any competent evidence reasonably tending to sustain the verdict"; a reviewing court will not set the verdict aside "[u]nless the evidence is practically conclusive against the verdict."  Id. (citations and quotation marks omitted). 

            Here, Info-Bahn and the Holbrooks argue that the trial court erred in declining to grant JNOV on the breach of contract claim because there was no evidence in the record to sustain the necessary finding that there existed "legal justification" for the Browns' failure to perform under the contract.  The instructions to the jury defined the term "breach" as "failure without legal justification to perform a substantial part of the contract."

The Holbrooks reason that (1) under Minn. R. Civ. P. 8.03, a defendant is required to plead all affirmative defenses; (2) PMC and the Browns only pleaded fraud and coercion as possible legal justifications or defenses; (3) the claims for fraud and coercion were dismissed by the court and jury respectively; and (4) therefore, there was no evidence reasonably tending to show "legal justification" for the Browns' failure to perform under the contract.  The Browns argue that (1) the evidence adduced at trial demonstrates that the Holbrooks failed to maintain the Info-Bahn ATM properly; (2) this failure to maintain the ATM constituted breach; and therefore (3) the Holbrooks' breach constituted "legal justification" for the Browns to decline to perform under the contract.

It is undisputed that when a party to a contract breaches first, that initial breach constitutes legal justification for the other party's subsequent failure to perform.  E.g., Carlson Real Estate Co. v. Soltan, 549 N.W.2d 376, 379-80 (Minn. App. 1996) (citing Space Ctr., Inc. v. 451 Corp., 298 N.W.2d 443, 451 (Minn. 1980)) (other citation omitted), review denied (Minn. Aug. 20, 1996).

Under general contract law, a party who first breaches a contract is usually precluded from successfully claiming against the other party.  * * *  The first breach serves as a defense against the subsequent breach.

 

Id. (citations omitted).

The Holbrooks correctly observe that reviewing courts generally will not examine affirmative defenses which were not pleaded, particularly where the issues were not considered by the court below.  See, e.g., Minnesota-Iowa Television Co. v. Watonwan T.V. Improvement Ass'n, 294 N.W.2d 297, 305 (Minn. 1980).  It is well-established, however, that "[i]ssues litigated by either express or implied consent will be treated as if they had been raised in the pleadings."  Roberge v. Cambridge Coop. Creamery Co., 243 Minn. 230, 234, 67 N.W.2d 400, 403 (1954); accord Septran, Inc. v. Independent Sch. Dist. No. 271, 555 N.W.2d 915, 919 (Minn. App. 1996), review denied (Minn. Feb. 26, 1997).   Consent may be inferred where a party argues an issue not raised in the pleadings during the opening statement and closing argument, elicits testimony concerning the issue, and the opposing party does not object.  See Brooksbank v. Anderson, 586 N.W.2d 789, 793 (Minn. App. 1998), review denied (Minn. Jan. 27, 1999). 

Here, the Browns' attorney raised the issue of the Holbrooks' failure to maintain the Info-Bahn ATM both during his opening statement and during his closing argument.  He also elicited testimony from several witnesses showing that the Holbrooks did not perform under the agreement.  Indeed, the Browns produced two witnesses for the sole purpose of showing that the Info-Bahn ATM did not function properly.  Based on the record on appeal, it does not appear that the Holbrooks' attorney objected to this testimony at any time.  Thus, we conclude this issue was properly before the jury.  See Roberge, 243 Minn. at 234, 67 N.W.2d at 403.

            The Holbrooks argue that to the extent that the Info-Bahn ATM did not function properly during the relevant time period, the malfunction was due to acts of vandalism, not the Holbrooks' failure to maintain the Info-Bahn ATM pursuant to the agreement.  The Holbrooks were free to argue this point at trial, and indeed did so.  The jury was free to credit the evidence suggesting that the Holbrooks had failed to properly maintain the automated teller machine, to determine that the Holbrooks failed to fix the Info-Bahn ATM in a timely manner following the claimed vandalism, or to make any number of possible factual determinations consistent with the theory that the Holbrooks had failed to meet their contractual obligations.

A similar mode of analysis applies to the Halbrooks' claim that the district court erred in declining to grant a new trial.  Because there exists sufficient evidence for the jury to conclude that the Holbrooks breached the contract first, the jury could have reasonably determined that the Browns had justification for not performing under the contract and therefore did not breach the contract.  See Carlson Real Estate, 549 N.W.2d at 379-80.  The district court did not err in denying the Holbrooks' motion for JNOV.

Because the trial court has discretion to grant a new trial, a reviewing court will not disturb the trial court's decision absent a clear abuse of that discretion.  Halla Nursery, Inc. v. Baumann-Furrie & Co., 454 N.W.2d 905, 910 (Minn. 1990).  Where the trial court bases its decision upon an error of law, however, a reviewing court uses a de novo standard of review.  Id.  "On appeal from a denial of a motion for a new trial, the verdict must stand unless it is manifestly and palpably contrary to the evidence, viewed in a light most favorable to the verdict."  ZumBerge v. Northern States Power Co., 481 N.W.2d 103, 110 (Minn. App. 1992), review denied (Minn. Apr. 29, 1992). 

Here, as discussed above, there exists sufficient evidence for the jury to have found that the Holbrooks breached the contract first and therefore it was proper to find that the Browns did not breach the contract.  Consequently, the Holbrooks are not entitled to a new trial on the issues of the Browns' alleged breach or the damages stemming therefrom. 

            Affirmed.