Opinion
No. A03-859.
Filed February 3, 2004.
Appeal from the District Court, Hennepin County, File No. CT98809.
Jerome B. Simon, Mark W. Lee, Maslon, Edelman, Borman Brand, Llp, (for appellants).
Paul J. Robbennolt, Dorsey Whitney, Llp, (for respondents).
Considered and decided by Halbrooks, Presiding Judge, Kalitowski, Judge, and Stoneburner, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellants Thomas Grossman, et al., challenge the district court's resolution of a motion to enforce the parties' settlement agreement. Appellants contend that the district court erred by (1) ordering appellants to provide a schedule listing the expected dates and amounts of all payments to be made pursuant to the settlement agreement; (2) denying reimbursement for certain expenses, including all attorney fees, that appellants claim to have incurred in audits provided for in the settlement agreement; and (3) requiring appellants to pay interest on a delayed payment to respondents. We reverse the requirement that appellants provide a schedule of dates and expected amounts of payments but otherwise affirm.
FACTS
Appellant Thomas Grossman and his brothers have been involved in lengthy litigation involving several businesses in which the siblings participated. They finally entered into a comprehensive settlement agreement (CSA) intended to sever their business relationships to the greatest extent possible. The CSA provided for, among other things, immediate redemption by appellants of respondents' interest in two limited partnerships, and the liquidation of three insurance companies over a period of time under the supervision of an appointed independent party.
Thomas Grossman represented in the CSA that no monies had been paid out to the partners of the limited partnerships or the shareholders of the insurance companies, other than in the ordinary course of business or on a pro rata basis. The CSA provided that any limited partner of the limited partnerships and any shareholder of the insurance companies, at his own expense, could retain an auditor to verify Thomas Grossman's representation "and if such representation is found to be materially incorrect, Thomas shall both reimburse the [business] . . . and pay for the audit." The CSA provided that, except as otherwise specifically provided, "each of the parties hereto shall be responsible for all attorneys' fees and expenses incurred by such party." The CSA also provided that all of its provisions "may be enforced by an order of mandatory specific performance by the District Court of Hennepin County in the Option Case."
Respondents demanded audits of the limited partnerships and the insurance companies. Appellants demanded that respondents reimburse them for expenses related to complying with the audits. In a June 12, 2000 letter to respondents' counsel, appellants' counsel specified the following expenses for reimbursement "promptly upon receipt of monthly bills": (1) the time of Thomas Grossman and David Norton, Metropolitan Corporation's chief financial officer, at $200 per hour; (2) the time of Metropolitan Corporation's assistant comptroller at $100 per hour; (3) other staff time at $25 per hour; (4) "[c]opy costs at the rate of $0.10 per copy in addition to the staff time"; (5) applicable long-distance telephone and travel costs; and (6) "charges made by any third party vendors with respect to the audit process."
Respondents initially refused appellants' request for reimbursement and moved for an order enforcing the settlement agreement, but prior to the hearing on the motion, the parties reached an agreement. In a November 21, 2000 letter to appellants' counsel memorializing the agreement, counsel for respondents wrote "we have agreed in principle to pay the reasonable expenses incurred by your clients in connection with the audit." The auditing process began with accusations from both parties about insufficient cooperation. In March 2001, respondents' counsel requested that certain documents be forwarded to a copy service. Appellants' counsel replied that the documents would not be provided until "we receive the written agreement for payment of expenses . . . as set forth in" the June 12, 2000 letter. On April 4, 2001, appellants' counsel wrote to respondents' counsel requesting, in paragraph three of the letter, "unequivocal agreement to the terms specified" in the June 12, 2000 letter and stating that "[w]e have agreed that your clients will be entitled to a refund of any overstatement of time charges or for any third party charges (including attorneys' fees) which are not reasonable." In a letter dated April 19, 2001, respondents' counsel stated that respondents accepted "the terms stated in the third paragraph of" the April 4, 2001 letter.
In July 2001, respondents again moved for an order enforcing the settlement agreement, asserting that appellants refused to provide documents necessary to complete the audits. Respondents asserted that they had been trying to conduct the audits for more than one year, but not a single document had been produced by appellants, nor had auditors had any communication of any kind with the audited companies' personnel. Respondents conceded that they had agreed to pay appellants' audit expenses, but complained that appellants had billed substantial expenses, including attorney fees, even though the audit had not begun. Respondents specifically denied that they had agreed to reimburse attorneys fees or other third-party expenses of Metropolitan Corporation or Thomas Grossman. Appellants argued that the exchange of letters established an agreement between the parties for respondents to pay Thomas Grossman's and Metropolitan's direct expenses, as well as third-party expenses, including attorney fees.
After hearing the motion, the district court ordered appellants to give the auditors immediate and unfettered access to all documents requested. The order also provided that appellants "shall not further delay this audit based upon any future requests for reimbursement of expenses" and provided that, at the end of the audit, appellants "shall submit a claim for reimbursement of expenses." The order further provided that if the parties could not resolve any disputes over requested reimbursements, they "shall return to the Court for a final resolution of the disputes. [Respondents] shall not be required to pay [appellants'] attorney fees incurred in connection with the audit."
The audits were eventually completed and supported Thomas Grossman's representations in the CSA. Appellants billed respondents $51,877.16, including $29,192.14 in attorney fees. Respondents rejected the claim as unreasonable and the parties filed cross-motions for resolution of the issue. Appellants again argued that respondents had agreed to pay attorney fees. Respondents argued that they never agreed to pay attorney fees and that all of the amounts requested by appellants were unreasonable, noting that much of the time billed for Thomas Grossman was for his discussions with his attorney. Respondents submitted an affidavit of one of the auditors who opined that, in his experience, the audits undertaken would have required about 28 hours of employee time. Respondents also requested enforcement of the insurance company liquidation provisions of the CSA and requested that the court order Thomas Grossman to provide a schedule of the dates and amounts of future payments under the liquidation provisions. Respondents also requested interest on a payment of $38,963.95 per shareholder that was approved by the liquidation-plan supervisor on August 2, 2002, but was withheld by Thomas Grossman until January 15, 2003.
After hearing the motions, the district court ordered reimbursement for appellants' audit expenses in the amount of $3,000, ordered Thomas Grossman to provide the payment schedule requested by respondents, and awarded interest to respondents on the delayed payment. The district court found that appellants' claim of an agreement by respondents to pay attorney fees was unsupported by the record and the "vast majority" of the fees requested were "not legitimately related to [appellants'] obligation to facilitate [respondents'] audit" because most of the time spent by Thomas Grossman and David Norton was for conversations with counsel. The district court found that payment of interest was consistent with the parties' past practice, referencing Thomas Grossman's earlier request for interest on funds belonging to him that respondents had diverted to pay auditors. This appeal followed.
DECISION
I. Order to provide schedule of future payments under CSA
Appellants assert that the district court erred by ordering them to provide a schedule of the dates and amounts of future payments to be made under the liquidation provisions of the CSA, because the CSA does not provide for such a schedule. We agree.
A settlement agreement is a contract and is subject to the principles of contract law. Beach v. Anderson, 417 N.W.2d 709, 711-12 (Minn. App. 1988), review denied (Minn. Mar. 23, 1988). Contract interpretation is a question of law, subject to de novo review. Burke v. Fine, 608 N.W.2d 909, 911 (Minn. App. 2000), review denied (Minn. June 15, 2000). "It is not ordinarily the function of courts to rewrite, modify, or set aside contract provisions fully considered and agreed upon between the parties." Telex Corp. v. Data Prods. Corp., 271 Minn. 288, 295, 135 N.W.2d 681, 687 (1965). "So important and unfettered is the right to contract that courts have no authority . . . to rewrite them so as to achieve a fairer bargain for one party or another." Pollock-Halvarson v. McGuire, 576 N.W.2d 451, 455 (Minn. App. 1998), review denied (Minn. May 28, 1998).
Respondents assert that the schedule information is "a necessary component of the obligations" that appellants owe to them under the CSA and that the obligation to provide the schedule is a function of appellants' fiduciary duty to them. But the CSA does not provide for such a schedule and the fiduciary duty cited by respondents is a duty to disclose material facts, not a duty to produce information that does not yet exist. See Berreman v. West Publ'g Co., 615 N.W.2d 362, 371 (Minn. App. 2000) (concluding that fiduciary duty of shareholders in a close corporation requires disclosure of material information about the corporation), review denied (Minn. Sept. 26, 2000). Because the CSA does not require the production of such a schedule, we reverse that portion of the district court's order.
II. Reimbursement of appellants' audit expenses
a. Attorney fees
Appellants argue that the district court erred by failing to award them attorney fees and all but $3,000 of their claimed audit expenses. The existence of a contract is primarily a question of fact to be determined by the district court in a nonjury trial on the basis of the evidence presented and the surrounding circumstances. Malmin v. Grabner, 282 Minn. 82, 86, 163 N.W.2d 39, 41 (1968). The general rule requires "explicit statutory or contractual authorization" for an award of attorney fees. Fownes v. Hubbard Broad., Inc., 310 Minn. 540, 246 N.W.2d 700, 702 (1976). The district court has twice found that the record does not support appellants' contention that respondents agreed to pay attorney fees. Based on our review of the record, we cannot say that the district court's findings are clearly erroneous. The parenthetical reference to attorney fees in a portion of appellants' counsel's letter referencing appellants' obligation to reimburse respondents for unreasonable charges is not the stuff of "explicit contractual authorization" as a matter of law and we defer to the fact finder on this issue.
b. Other claimed expenses
The reasonableness of appellants' claimed expenses is a question of fact and the district court's determination on this issue will not be set aside unless clearly erroneous. See Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999). The parties dispute who has the burden of proof to show that the expenses claimed are reasonably related to the audit, but assuming respondents had the burden to show the claimed expenses are unreasonable, we cannot conclude that the district court erred by implicitly determining that respondents met this burden. The affidavit from respondents' auditor supports the district court's finding that the expenses submitted by appellants were unreasonable and was evidence of a reasonable time required to respond to the audits. The district court did not err by determining that appellants are only entitled to reimbursement for reasonable audit expenses in the amount of $3,000.
III. Interest on delayed payment
Appellants argue that the district court erred by ordering them to pay interest on a payment of liquidation proceeds that appellants admit they delayed. Appellants argue that, in the absence of any provision in the CSA, the district court was without authority to make such an award. In this case, however, the district court did not rely on the CSA, but based the award on the parties' past practice. When respondents used funds from Grossman Investments LLC, which in part belongs to Thomas Grossman, to pay for the audits, Thomas Grossman demanded and received interest on the share of his funds so used. "[A] written contract may be modified after its execution by the acts and conduct of the parties . . ." Alexander v. Holmberg, 410 N.W.2d 900, 901 (Minn. App. 1987) (citation omitted). "[W]hether such a modification occurred is a question for the factfinder." Poser v. Abel, 510 N.W.2d 224, 228 (Minn. App. 1994), review denied (Minn. Feb. 24, 1994).
The CSA provides for "prompt distribution" of liquidation proceeds and Thomas Grossman admits delaying payment. Although the CSA is silent as to a remedy for delay in payment, we cannot conclude that the district court erred by finding that, based on the remedy chosen to remedy a misuse of funds by respondents, the parties modified the CSA to choose interest as an appropriate remedy for a party's mishandling of funds from another party.