Opinion
No. A04-1217.
Filed May 10, 2005.
Appeal from the District Court, Dakota County, File No. Cx-02-10732.
Jonathan R. Fay, Jonathan Fay, P.C., (for appellant).
Stewart, C. Loper, Becky L. Erickson, Chestnut Cambronne, P.A., (for respondent)
Considered and decided by Willis, Presiding Judge, Stoneburner, Judge, and Crippen, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant law firm represented respondent Dean Terry and associated corporations, of which he was the majority shareholder, in underlying actions and then sought to recover legal fees personally from respondent after the corporations became defunct. Following a bench trial, the district court rejected the claims. Appellant argues that (1) the court clearly erred in finding that respondent was not made aware of his personal liability for legal fees; (2) the court erred in ruling that, when respondent was securing legal representation for the defunct corporations, he was acting as an officer of the corporations and committing the corporations, without his joint liability, for attorney fees; and (3) the court misapplied the law of unjust enrichment. Finding no merit in these contentions, we affirm.
FACTS
Respondent Dean Terry was the majority shareholder of Terry Farms, Inc., which owned four subsidiary corporations involved in growing mushrooms and developing associated technology. Appellant Metropolitan Law Center provided legal services to Terry and the corporations over a period of approximately 27 years.
In 1998 and 1999, the corporations began to suffer economic difficulties and defaulted on loans to Diversified Business Credit, Inc. (DBCI). In response to pressure from DBCI, Terry Farms began negotiating the sale of assets of the subsidiary corporations. Prior to the sale, another creditor, Compost Supply, Inc., sued one of the subsidiary corporations, Princewood Farms, Inc., and filed notice of lis pendens on real estate belonging to Princewood, affecting real estate Terry Farms had intended to sell. After the prospective buyer backed out because of the pending litigation, DBCI and Terry Farms agreed to voluntarily foreclose the assets of three of the four corporations, which were then sold by DBCI. As of August 31, 1999, the corporations no longer had assets.
DBCI also foreclosed assets of the fourth corporation, Terry Farms Technology, Inc., and then conveyed them to AG-Tech Systems, LLC, a new entity formed by Terry. The consideration for this transaction was an amount equal to the existing indebtedness of Terry Farms. But Terry Farms Technology was worth approximately $7,200,000, and the remaining indebtedness to DBCI was $1,200,000. Appellant represented all of the Terry enterprises in the foreclosure proceedings with DBCI.
Compost Supply ultimately learned that, by naming Princewood Farms as a defendant, it had sued the wrong Terry Farms subsidiary, and it amended its complaint to implead Terry Farms and Terry in November 1999. Compost Supply alleged that Terry Farms was liable on the contract with its subsidiary corporation and alleged personal liability of Terry based on the theory that the corporate veil should be pierced.
Because DBCI had sold the former Terry subsidiary assets following foreclosure and subject to a lis pendens, DBCI executed an agreement reserving the right to control the litigation of the Compost Supply matter. The agreement provided that "DBCI shall have the right to select and retain counsel to conduct the Litigation on behalf of itself, Dean Terry [and] Terry [Farms]." DBCI selected another firm to represent Terry Farms, but appellant represented Terry in the Compost Supply action. In the course of its representation, appellant changed its billing account designation from Princewood Farms to Terry, but did not open a new file. Terry ultimately settled with Compost Supply for $25,000.
Appellant also provided legal services to AG-Tech Systems, LLC, the successor to Terry groups corporations, which ceased doing business in April 2001. In an August 21, 2001, letter to Terry, appellant requested a credit agreement of $200,000 as "collateral for the fees that AG-Tech Systems, LLC owes to the firm." Terry and appellant executed a credit agreement, promissory note, security agreement, and mortgage and security agreement in December 2001. The district court found that Terry reasonably believed that the credit agreement "represented all fees due by AG-Tech and the Corporations in so far as [Terry's] calculation of the total fees for AG-Tech and the other Corporations was $192,000."
Appellant initiated the present action in May 2002, alleging breach of contract, account stated, and unjust enrichment and seeking a judgment for $92,975.66 plus interest. The district court found that appellant did not inform Terry of the change in the billing account and that he did not know that the change had been made until appellant informed him in the spring of 2002, after the end of the Compost Supply action, that he was personally liable for fees and costs incurred in his defense. The court concluded that the legal fees charged by appellant for the Compost Supply and other actions were the obligation of Princewood Farms and Terry Farms and not Terry personally, and that Terry was entitled to dismissal of the claims with prejudice. The district court denied appellant's motion for amended findings and conclusions.
DECISION 1.
"On appeal, a trial court's findings of fact are given great deference, and shall not be set aside unless clearly erroneous. Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999). We will not disturb those findings if there is reasonable evidence to support the district court's findings of fact. Id.
MLC argues the following factual findings of the district court are not supported by the record:
34. In December of 1999, [appellant] changed its billing account from Princewood Farms, Inc., to [Terry] personally. [Appellant] had historically always billed the Corporations for similar work.
35. [Appellant] did not inform [Terry] of this change and [Terry] did not know that the change had been made.
. . . .
52. [Terry], based upon the dispute of the AG-Tech fees reasonably believed that the Documents represented all fees due by AG-Tech and the Corporations in so far as [Terry's] calculation of the total fees for AG-Tech and the other Corporations was $192,000.00 and the promissory note was in the amount of $200,000.00.
Appellant contends that these findings of fact are clearly erroneous for two reasons: (1) appellant mailed "[b]ills totaling $84,800.90 and covering twenty months of representation of Dean Terry individually" directly to Terry whereas bills for Princewood were sent to a different address; and (2) the express meaning of the documents constituting the credit agreement does not support Terry's reasonable belief that the agreement represented all legal fees due from both AG-Tech and the former Terry Farms corporations.
In support of its clear-error argument, appellant points to the testimony at trial by Louis Ochocki, chief financial officer of Terry Farms. Ochocki stated that he reviewed all of the legal bills for the Terry Farms corporations, that "where they did [Terry's] personal work, I didn't even see those bills," and that "[i]t was a rarity that I would see a bill where [appellant was] doing something for [him] personally." Ochocki also stated that "substantially all" of the corporate bills sent by appellant came to him. Appellant contends that this testimony refutes the district court's finding that appellant "had historically always billed the Corporations for similar work."
This evidence does not permit a finding of clear error on the part of the district court. The court's and Ochocki's usage of the word "personal" was not necessarily synonymous. The court's finding of fact number 34 uses "personal" in a nominal sense: the file which appellant had opened for Princewood Farms in the Compost Supply litigation was renamed as the Terry file. Ochocki's testimony permits the inference that he is speaking about legal services performed for Terry by appellant that had no connection with his role as a principal of Terry Farms. On its own, Ochocki's testimony does not prevent the conclusion that appellant, if it previously represented Terry in litigation that named him as a defendant, did not send those bills directly to Terry.
Appellant also takes issue with the finding that Terry did not know that a change in the billing had been made. Appellant argues that, although Terry stated that he never looked at the bills, he never denied receiving them and that it is "unreasonable to believe that a business man with more than twenty years of experience . . . would fail to review bills as they came in." But Terry argues in response that the change of address was necessary because Ochocki no longer worked for Terry Farms and that he testified that, until the present action was contemplated, he never "thought or understood . . . that [a]ppellant planned to hold him personally liable." Appellant provides no legal authority imputing knowledge of an obligation to Terry based upon his receipt of the bills. The record supports the district court's conclusion that Terry did not know about the change in billing.
Appellant also contends that the district court erred in finding number 52 by stating that Terry reasonably believed that the credit agreement was intended to cover "all fees due by AG-Tech and the Corporations." The court buttressed this finding by adding that Terry's calculation of all fees owed to appellant was approximately the same as the value sought in the credit agreement. Terry's belief does not seem consistent with the contents of the August 21 letter from appellant, which opens with the sentence: "I previously discussed with you the providing of collateral for the fees that AG-Tech Systems, LLC owes to the firm," and at no point discusses the Compost Supply litigation or any other legal matter.
But the district court considered other evidence relevant to this finding. Terry testified at trial that Larry Anderson, a partner of appellant, told Terry, in response to the question of how the legal bills would be paid, "maybe AG-Tech could pay." And the district court specifically found that the August 21 letter "was made simultaneously with" the completion of the Compost Supply litigation. These facts contribute to an understanding on the part of Terry that may have been broader than the content of the letter or subsequent documents would suggest. For that reason, the district court's finding regarding Terry's belief was not clearly erroneous.
2.
A reviewing court is not bound by and need not give deference to a district court's decision on a purely legal issue. Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn. 2003) (citing Frost-Benco Elec. Ass'n v. Minn. Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984)).
Appellant argues that the district court "overstate[d] and/or misstate[d] the law of agency, and ignore[d] Terry's contractual liability" in its memorandum in response to appellant's motion for amended findings and conclusions. Appellant indicates that the following passage is the linchpin of the district court's erroneous application of the law:
[Appellant] vehemently argues that, because the Corporations were defunct and because the legal services served only [Terry's] interests, [Terry] must have been the true contracting party. [Appellant's] argument . . . asks the Court to turn a blind eye toward fundamental principles of agency. If [Terry] was securing legal representation for the defunct Corporations then he was acting as an officer of the defunct Corporations and he was binding the defunct Corporations in contract.
But appellant does not follow this assertion by providing a legal framework for this court to assess the law of agency. He simply states that "[t]he Finding contains a contradiction in terms: that as an officer of a defunct corporation, Terry secured legal representation for and bound the corporation, while ignoring the separate and independent representation of Terry, himself."
We cannot read the district court's memorandum to state that officers of defunct corporations, as a matter of law, have the right to bind those corporations. Nor did it "ignor[e] the separate and independent representation of Terry, himself." It is not evident that appellant's argument concerns the law of agency. Rather, the argument is an attempt to continue appellant's dispute of the facts in the guise of legal argument. The district court noted that appellant maintained a single file for the Compost Supply litigation, which contained entries for both the corporations and Terry, "suggesting the existence of only one contemplated payer."
The district court partially characterized appellant's action as an attempt to require the court to decide why appellant "would enter a contractual relationship with the defunct Corporations." This characterization is true, and we cannot speculate about this mystery, which would require the contemplation of facts not in evidence. Ultimately, with respect to the issue of legal error as stated in appellant's brief, the district court concluded that any legal services contract for the Compost Supply litigation was between appellant and the corporations and that Terry's personal liability under the contract was never suggested until after the litigation ended. Appellant's assignment of error to the district court's legal analysis does not merit reversal.
3.
"In order to establish a claim for unjust enrichment, the claimant must show that another party knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for that person to retain the benefit." Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn.App. 2001).
The district court rejected appellant's claim because it recognized an enforceable contract between appellant and the corporations and concluded that "there is no reason to resort to the equitable theory of unjust enrichment." See Southtown Plumbing, Inc. v. Har-Ned Lumber Co., 493 N.W.2d 137, 140 (Minn. App. 1992) (stating that "one may not seek a remedy in equity when there is an adequate remedy at law"). Appellant correctly identifies various aspects of an unjust enrichment claim, including the receipt of something of value based upon a failure of consideration, fraud, or mistake, and asserts that appellant indisputably provided valuable services to Terry. At no point does appellant attempt to refute the district court's threshold finding that appellant had a contract with the corporations that governed the payment of legal services provided to Terry.
Regardless of this infirmity, the law will only impose a contract when the failure to do so would result in unjust enrichment to one of the parties. Stemmer v. Estate of Sarazin, 362 N.W.2d 406, 408 (Minn.App. 1985). Simple benefit to the party against whom a judgment is sought will not sustain a claim; "it must be shown that a party was unjustly enriched in the sense that the term `unjustly' could mean illegally or unlawfully" or that retention of the benefit would be morally wrong. Schumacher, 627 N.W.2d at 729 (quoting First Nat'l Bank of St. Paul v. Ramier, 311 N.W.2d 502, 504 (Minn. 1981)).
We perceive no special justice calling for a remedy for appellant, which had a long history of providing legal services to Terry Farms and was fully aware of the liquidation of its subsidiaries. Rather, as the district court found, there was a contract implied in fact between appellant and Terry Farms that included the representation of Terry. Furthermore, while the district court did not address this issue beyond making a relevant factual finding, DBCI held the right to select and retain counsel to conduct the Compost Supply litigation for both Terry Farms and Terry. This right brings into doubt the very existence of a benefit to Terry from appellant's representation. The district court did not err by denying appellant's claim of unjust enrichment.