Summary
In Mittelstaedt, this court concluded that Minn. Stat. § 544.42 (2018), which sets forth certain expert-affidavit requirements for actions alleging professional "negligence or malpractice," applied to the breach-of-fiduciary-duty claim at issue.
Summary of this case from Hagle v. EricksonOpinion
A20-0573
01-04-2021
Steven Lee MITTELSTAEDT, et al., Appellants, v. William H. HENNEY, et al., Respondents.
Adam C. Hagedorn, Charles J. Lloyd, Livgard & Lloyd PLLP, Minneapolis, Minnesota (for appellants) William H. Henney, Minnetonka, Minnesota (attorney pro se and for respondents)
Adam C. Hagedorn, Charles J. Lloyd, Livgard & Lloyd PLLP, Minneapolis, Minnesota (for appellants)
William H. Henney, Minnetonka, Minnesota (attorney pro se and for respondents)
Considered and decided by Jesson, Presiding Judge; Cochran, Judge; and Slieter, Judge.
JESSON, Judge
The central issue before us is whether, by framing an attorney-misconduct claim as a breach-of-fiduciary-duty claim, a litigant must meet the expert-affidavit requirements of Minnesota Statutes section 544.42. Here, appellant Steven Mittelstaedt claimed that his alleged attorney, respondent William H. Henney, breached his fiduciary duties to Mittelstaedt by failing to disclose his participation in a lease agreement involving Mittelstaedt's home and place of business. The district court granted summary judgment to Henney on Mittelstaedt's breach-of-fiduciary-duty claim, but allowed Mittelstaedt's breach-of-fiduciary-duty and breach-of-contract claims against Mittelstaedt's business partner, respondent John Prosser, and one of Prosser's companies, as well as an eviction action against Mittelstaedt and one of Mittelstaedt's companies, to proceed to a bench trial. Mittelstaedt now appeals, arguing that the district court erred by granting summary judgment to Henney, making clearly erroneous factual findings, and otherwise not meeting the requisite specificity in its damages calculations. Because we conclude that Mittelstaedt was required to submit expert affidavits in support of his breach-of-fiduciary-duty claim against Henney under Minnesota Statutes section 544.42, and because Mittelstaedt fails to show that the district court's factual findings were clearly erroneous, or otherwise prejudicial, we affirm.
FACTS
This case involves multiple businessmen, intertwined projects and financing, a joint venture to refurbish and sell trucks, and a trail of debts. According to the district court, it also features two principal parties (Mittelstaedt and Prosser) with unclean hands, as well as an attorney (Henney) who allegedly operated at times as Mittelstaedt's attorney and at times as Prosser's business partner. To describe the underlying facts, we first identify the major participants in this litigation. Next, we summarize the relevant business transactions. We end with a summary of the legal proceedings before the district court.
Mittelstaedt was the president of appellant Iron Range Repair & Storage LLC and Wide Open Services LLC, while respondent Prosser is the president of respondent Prosser Holdings LLC, a limited liability company engaged in vehicle financing and related activities. Prosser and Mittelstaedt met at a trade show around 2008 and developed a business relationship with Prosser helping to finance trucks for Mittelstaedt. A couple of years into their relationship, Prosser introduced Mittelstaedt to his attorney, Henney. Henney later provided legal advice to Mittelstaedt in matters regarding an insurance claim and (to at least some degree) Mittelstaedt's divorce. Subsequently, Henney and Prosser created respondent Maxim Management LLC (Maxim), which also played a prominent role in the underlying dispute here.
It is often difficult, based on the record and evidence produced at trial, to determine at what point Mittelstaedt and Prosser were acting in their capacity as individuals or as their related business entities.
We turn now to the relevant business transactions. In 2012, in an effort to increase his iron ore hauling operations, Mittelstaedt relocated to a property in the town of Virginia. The Virginia property was partially residential and partially commercial. The residential portion of the property had a house and a garage. The commercial portion had a large garage where Mittelstaedt's company's trucks could be serviced and repaired. Beacon Bank, the owner of the Virginia property, drafted two leases for the property—a residential lease for the house and a commercial lease for the remainder of the property. Mittelstaedt paid Beacon Bank $60,000 to include an option-to-purchase clause in both leases. Mittelstaedt used the commercial portion of the property for Wide Open Services’ operations, which hauled iron ore from mine dumps to a processing plant owned by the sole client of Wide Open Services.
When that sole client went bankrupt, causing Mittelstaedt's business to stagnate, Mittelstaedt fell behind on lease payments to Beacon Bank. Hoping to remain on the property—and ultimately purchase it—Mittelstaedt asked Prosser if he would buy the property from Beacon Bank and, in turn, lease it to Mittelstaedt with an option to purchase. In March 2015, Prosser agreed to Mittelstaedt's proposal and signed a purchase agreement with Beacon Bank for the two parcels leased by Mittelstaedt. Prosser and Henney then created Maxim to own and manage the property. Shortly before Mittelstaedt signed the lease agreement, Mittelstaedt and his former wife conveyed an adjacent parcel of property through a quitclaim deed to Maxim.
In April 2015, Maxim and Wide Open Services entered into the first lease agreement (first lease) with an option to purchase. Henney drafted all of the documents related to the property between Mittelstaedt, Wide Open Services, Prosser, and Maxim. Henney signed on behalf of Maxim and Mittelstaedt signed on behalf of Wide Open Services. Mittelstaedt personally guaranteed the lease. Part of the agreement was that Mittelstaedt would pay for insurance and taxes on the property.
It is disputed whether Mittelstaedt was represented by separate counsel during the negotiations of both leases.
At the same time, Mittelstaedt—in need of income to make lease payments to Maxim—entered into a joint venture with Prosser to acquire, repair, and sell used trucks and trailers. The arrangement was that Mittelstaedt would locate the trucks or trailers, Prosser would buy them, and Mittelstaedt would repair them. Prosser would pay Mittelstaedt for the work and other expenses in refurbishing the trucks and then sell the trucks through one of his companies. Prosser would keep the first $2,000 of net profit and the remaining profit was to go to Maxim to be applied toward Mittelstaedt's lease payments.
But Mittelstaedt still had difficulty making rent payments to Maxim. In late 2015, Mittelstaedt and Prosser agreed to enter into a new lease agreement (second lease) for the property with an effective date of January 1, 2016, that reduced monthly payments from $6,100 to $5,000. This new agreement was between Maxim and Iron Range Repair with one additional change: this new lease did not contain an option to purchase.
The second lease also required a co-guarantor, who was intended to be Mittelstaedt's now-ex-girlfriend, but she did not sign the guaranty until after the eviction action commenced.
Mittelstaedt, believing that his share of the profits from the joint venture were sufficient to satisfy his rent payments, stopped making payments under the lease. Yet he remained on the property. Prosser believed that Mittelstaedt was in default of their lease agreement.
In May 2017, Maxim brought an eviction action against Mittelstaedt and Iron Range Repair. In response, Mittelstaedt and Iron Range Repair sued Henney, Prosser, and Maxim, alleging, among other things, fraud, breach of fiduciary duties, and breach of contract. The claims against Henney centered on Mittelstaedt's allegation that (at the time of the transactions described here) Henney was acting as his attorney and that Henney did not disclose to Mittelstaedt that he was a part-owner of Maxim. Because Henney was purportedly Mittelstaedt's attorney, Mittelstaedt claimed he did not closely scrutinize the documents that Henney drafted, which left Mittelstaedt at a disadvantage. The claims against Prosser and Maxim focused on the alleged failure to credit Mittelstaedt with his fair share of the proceeds of the joint venture, as well as their fiduciary failure to disclose Henney's involvement with Maxim. Maxim responded with a counterclaim against Mittelstaedt alleging that he was in breach of the lease by failing to make rent payments.
Mittelstaedt's lawsuit was consolidated with the eviction action. Mittelstaedt remained on the property and the district court ordered him to pay to the court $5,000 per month while the action proceeded, totaling $140,000 by the time of trial.
Henney moved for summary judgment on the breach-of-fiduciary-duty claim against him, and summary judgment or dismissal of the fraud claims for failure to plead fraud with particularity, and for judgment on the pleadings. The district court granted Henney's motion, dismissing Mittelstaedt's breach-of-fiduciary-duty and fraud claims against Henney.
Maxim also moved for summary judgment on Mittelstaedt's breach-of-contract and breach-of-fiduciary-duty claims against it, but the district court denied the motion, and the denial is not at issue in this appeal.
This left the claims for a breach of fiduciary duty and contract against Prosser and Maxim and the eviction and breach-of-lease actions against Mittelstaedt. Following a bench trial, the district court determined that Prosser and Maxim breached their contract and fiduciary duties to Mittelstaedt. The district court concluded that Mittelstaedt was only entitled to contract damages for their joint venture. Those damages, including the $140,000 paid by Mittelstaedt to the court during the litigation, totaled $275,328.28 owed to Mittelstaedt. The district court also concluded that while Mittelstaedt did not breach his lease, he still owed rent, insurance payments, and taxes to Prosser that amounted to $272,421. The court ordered that Mittelstaedt's damages were to be offset by the amounts owed under the lease, netting Mittelstaedt $2,907.28 in damages.
Mittelstaedt moved the district court to amend its findings of fact and conclusions of law, or alternatively, to grant a new trial. The district court denied the posttrial motions.
This appeal follows.
ISSUES
I. Did the district court appropriately grant summary judgment to Henney on the claim that he breached fiduciary duties owed to Mittelstaedt?
II. Were the district court's findings of fact supported by the record, clearly erroneous, or otherwise prejudicial?
ANALYSIS
Mittelstaedt raises two primary arguments on appeal. First, Mittelstaedt argues that the district court erred in granting summary judgment on his breach-of-fiduciary-duty claim against Henney. Second, Mittelstaedt contends that several of the district court's findings of fact are clearly erroneous. We address each issue in turn.
Mittelstaedt also argues that the district court erred in granting a summary-judgment motion and dismissing his fraud claim against Henney and Prosser using the wrong standard. See Minn. R. Civ. P. 12.03. We find no merit in Mittelstaedt's argument. While Henney and Prosser did move for relief under rule 12, they also moved for a summary judgment ruling on the same claim. Because Henney and Prosser made alternative motions under rule 12 and for summary judgment, we conclude that the district court did not err by applying the summary-judgment standard.
I. The district court appropriately granted summary judgment to Henney on the claim that he breached fiduciary duties owed to Mittelstaedt.
On an appeal from summary judgment, we review a district court's application of the law and its determination that there are no genuine issues of material fact de novo. STAR Ctrs., Inc. v. Faegre & Benson, L.L.P. , 644 N.W.2d 72, 77 (Minn. 2002). We examine the evidence in the light most favorable to the party against whom judgment was granted. Fabio v. Bellomo , 504 N.W.2d 758, 761 (Minn. 1993). But summary judgment is required if a party fails to establish an essential element of a claim. Bebo v. Delander , 632 N.W.2d 732, 737 (Minn. App. 2001), review denied (Minn. Oct. 16, 2001). And we may affirm a grant of summary judgment if it can be sustained on any grounds presented to the district court, even if not decided by the district court. Doe , 817 N.W.2d at 163.
The district court granted Henney's summary-judgment motion because Mittelstaedt "failed to provide any material evidence that defendant Henney took unfair advantage of that professional relationship or that the terms of the overall business dealings among the parties were unfair to plaintiffs." On appeal, Mittelstaedt primarily argues that the district court erred by granting summary judgment on a basis not raised by a party. We do not need to address this argument because, as explained above, we may affirm a grant of summary judgment if it can be sustained on any grounds. Doe v. Archdiocese of St. Paul & Minneapolis , 817 N.W.2d 150, 163 (Minn. 2012).
We begin our review with an examination of the elements necessary to establish a breach-of-fiduciary-duty claim arising out of the attorney-client relationship in Minnesota. To do so, we consider Minnesota precedent, as well as persuasive caselaw and commentary. After setting forth the elements of a breach-of-fiduciary-duty claim in this context, we turn to the applicability of Minnesota Statutes section 544.42, which generally requires expert testimony to establish a prima facie case of legal malpractice. Finally, we apply the governing law to the undisputed facts in this case.
Elements of Breach-of-Fiduciary-Duty Claim Against an Attorney
At its heart, an attorney-client relationship is a fiduciary relationship. But when it comes to claims against attorneys, breach of duty does not create a separate path to liability for attorney malpractice. In Padco, Inc. v. Kinney & Lange , we observed that a breach-of-fiduciary-duty claim against an attorney requires proof of the same elements as a legal-malpractice claim in Minnesota. 444 N.W.2d 889, 890-91 (Minn. App. 1989), review denied (Minn. Nov. 15, 1989). In short, it requires
(1) the existence of an attorney-client relationship; (2) acts constituting negligence or breach of contract; (3) that such acts were the proximate cause of the plaintiff's damages; and (4) that but for defendant's conduct, the plaintiff would have been successful in the prosecution or defense of the action.[ ]
In legal-malpractice cases involving damage to or loss of a cause of action, the fourth element requires the plaintiff to show that, but for the defendant's conduct, the plaintiff would have been successful in the action. Togstad v. Vesely, Otto, Miller & Keefe , 291 N.W.2d 686, 692 (Minn. 1980). In legal-malpractice cases arising out of representation in a transactional matter, the fourth element instead reads "that but for the defendant's conduct, the plaintiff would have obtained a more favorable result in the underlying transaction than the result obtained." Schmitz v. Rinke, Noonan, Smoley, Deter, Colombo, Wiant, Von Korff & Hobbs, Ltd. , 783 N.W.2d 733, 738 (Minn. App. 2010) (citing Jerry's Enters., Inc. v. Larkin, Hoffman, Daly & Lindgren, Ltd. , 711 N.W.2d 811, 816, 819 (Minn. 2006) ).
Jerry's Enters. , 711 N.W.2d at 816 (quotation omitted).
More recently, in Noske v. Friedberg , we reiterated the intertwined nature of legal-malpractice claims and breach-of-fiduciary-duty claims against attorneys, noting that "Minnesota law recognizes various legal theories of recovery related to attorney misconduct, including intentional fraud and misrepresentation, breach of contract, breach of fiduciary duty, and professional negligence." 713 N.W.2d 866, 875 (Minn. App. 2006), review denied (Minn. July 19, 2006). And while we noted in Noske that claims of professional negligence are separate and distinct from fraud, we did not extend that distinction to breach-of-fiduciary-duty claims. Id. at 876.
Minnesota's alignment of elements between the two causes of action finds support in federal caselaw, which we view as persuasive, as well as recognized treatises. In Sandhu v. Kanzler , the Eighth Circuit Court of Appeals noted that, in Minnesota, "[a] claim for breach of a fiduciary duty that arises out of an attorney-client relationship is essentially a malpractice claim in another form." 932 F.3d 1107, 1115 (8th Cir. 2019) (quotation omitted); see also Afremov v. Sulloway & Hollis, P.L.L.C. , 922 F. Supp. 2d 800, 815 (D. Minn. 2013) (characterizing claims for breach of fiduciary duty against an attorney as "derivative of" legal-malpractice claims).
"A federal court's interpretation of Minnesota law is not binding on this court, though it may have persuasive value." TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC , 890 N.W.2d 423, 431 (Minn. App. 2017).
Finally, a leading treatise on legal malpractice defines a fiduciary breach as legal malpractice "because it concerns the representation of a client and involves the fundamental aspects of an attorney-client relationship." 2 Ronald E. Mallen, Legal Malpractice § 15.2, at 657-58 (2020 ed.). The author notes, however, that because a breach of fiduciary duty derives from equity, equitable remedies may be available, should a claim be established. Mallen, supra , § 15.1, at 656; see also R.E.R. v. J.G. , 552 N.W.2d 27, 30 (Minn. App. 1996) (recognizing that "actions for the breach of a fiduciary duty generally sound in equity").
A common remedy for a claim of fiduciary breach is fee forfeiture or disgorgement. See Mallen, supra , § 15.29, at 735-39; see also, e.g. , Rice v. Perl , 320 N.W.2d 407, 411 (Minn. 1982) (explaining a client's rights to disgorge an attorney's fees).
Based upon our precedent, persuasive federal caselaw, and a learned treatise, we conclude that, while a breach-of-fiduciary-duty claim against an attorney may yield different remedies than a legal-malpractice claim, the elements to establish the claims are identical.
To attempt to persuade us otherwise, Mittelstaedt points to Colstad v. Levine , 243 Minn. 279, 67 N.W.2d 648 (1954), and a series of cases involving attorney-fee disputes. He contends that Colstad stands for the proposition that, once the plaintiff establishes that a fiduciary relationship is established, the burden shifts to the fiduciary (here, Henney) to show that the transaction was inherently fair—even before establishing the elements of a claim. We read Colstad more narrowly. The relevant holding in Colstad is as follows:
The relation between an attorney and his client is a fiduciary one of the highest trust and confidence and, as long as the relationship or the influence thereof exists, requires the attorney to observe the utmost good faith and candor and not to allow his private interest to conflict with those of his client.
Id. at 654 (emphasis omitted) (footnote omitted).
This is certainly good law today, as it was in 1954. But since 1954, the law evolved as to how these fiduciary claims are proven. Although Mittelstaedt alleged in his complaint that Henney breached his fiduciary duties by failing to comply with the Minnesota Rules of Professional Conduct, we note that Colstad predates both the 1970 adoption of the Minnesota Code of Professional Responsibility, its 1985 successor the Minnesota Rules of Professional Conduct, and Minnesota Statutes section 544.42 (enacted in 1997). See 1997 Minn. Laws ch. 212, § 2, at 1917-19 (adopting Minn. Stat. § 544.42 ); In re Discipline of Johnson , 414 N.W.2d 199, 200 n.2 (Minn. 1987) (describing the history of professional rules for attorneys in Minnesota). Colstad predates the defined prima facie case elements described in Padco as well. And the other cases cited by Mittelstaedt are distinguishable because they involve a remedy against an attorney who has forfeited his rights to compensation, or involved shareholders. See, e.g. , Rice , 320 N.W.2d at 411 (explaining a client's rights to disgorgement attorney fees); Pedro v. Pedro , 463 N.W.2d 285, 288 (Minn. App. 1990) (minority shareholder right to disgorgement, not attorney-client relationship), review denied (Minn. Jan. 24, 1991). What is immediately before us is not a question of remedy—but instead whether Mittelstaedt established the elements of a claim in the first place.
Application of Minnesota Statutes Section 544.42 Requiring Expert Testimony
Having concluded that the elements of a breach-of-fiduciary-duty claim against an attorney and a legal-malpractice claim align, we turn to an issue raised by Henney in his summary-judgment motion: whether Minnesota Statutes section 544.42 applies to Mittelstaedt's breach-of-fiduciary-duty claim against him. We begin by observing that expert testimony is generally required to establish an attorney's standard of care, breach of that standard, and causation—three of the four elements of a legal-malpractice claim. Fontaine v. Steen , 759 N.W.2d 672, 677 (Minn. App. 2009) ; see also Mallen, supra , § 15.5, at 674 (indicating that "[e]xpert testimony usually is essential to establish the standard of conducts in an action for breach of fiduciary duty"). And in Minnesota, that general expert-testimony requirement is reflected in the stark requirements of Minnesota Statutes section 544.42. Under that section, a plaintiff alleging legal malpractice must submit two affidavits in support of his or her claim. First, the plaintiff must submit an affidavit of expert review with the pleadings, which must state that
the facts of the case have been reviewed by the party's attorney with an expert whose qualifications provide a reasonable expectation that the expert's opinions could be admissible at trial and that, in the opinion of this expert, the defendant deviated from the applicable standard of care and by that action caused injury to the plaintiff.
Minn. Stat. § 544.42, subd. 3(a)(1).
Second, the plaintiff must serve an affidavit of expert disclosure within 180 days after filing the complaint. Id. , subds. 2(2), 4(a). The affidavit
must be signed by the party's attorney and state the identity of each person whom the attorney expects to call as an expert witness at trial to testify with respect to the issues of negligence, malpractice, or causation, the substance of the facts and opinions to which the expert is expected to testify, and a summary of the grounds for each opinion.
We have noted the importance of compliance with section 544.42 because if a "claimant brings a malpractice action assuming that the malpractice is obvious and that an expert is unnecessary to make a prima facie case, the claimant risks dismissal if that assumption is wrong." Fontaine , 759 N.W.2d at 677.
Here, it is undisputed that Mittelstaedt failed to submit either an affidavit of expert review or an affidavit of expert disclosure. Still, he argues that section 544.42 ’s requirements do not apply for two reasons. First, he asserts that these requirements only relate to claims of legal malpractice, not breach-of-fiduciary-duty claims. This argument is resolved by our conclusion above: because the elements of a breach-of-fiduciary-duty claim are the same as a claim for legal malpractice, the expert affidavit requirements are the same.
To hold otherwise would provide a large back door to trial without expert disclosures by characterizing a malpractice claim as a breach-of-fiduciary-duty claim. A simple change in nomenclature should not entitle a party to avoid the strict requirements of section 544.42. Certainly, nothing in the statute itself reflects that legislative intent. And our decision is consistent with the decision in Sandhu , where the Eighth Circuit Court of Appeals applied these statutory expert-affidavit requirements to a breach-of-fiduciary-duty claim against an attorney. 932 F.3d at 1115 (stating that "claims for breach of an attorney-client fiduciary duty require compliance with [Minn. Stat.] § 544.42 unless the attorney's conduct can be adequately evaluated by the jury without an expert's opinion").
But Mittelstaedt further asserts that even if the section 544.42 requirements generally apply to a breach-of-fiduciary-duty claim against an attorney, they do not apply to his specific claim because it was "so blatantly obvious" that Henney violated his duties, no expert affidavits are necessary. We disagree. We first observe that the requirements of section 544.42 are strictly enforced. See Middle River-Snake River Watershed Dist. v. Dennis Drewes, Inc. , 692 N.W.2d 87, 91 (Minn. App. 2005) (observing that strict adherence to the requirements of expert review and disclosure is required). As a result, attorney-misconduct cases that do not require expert testimony are "rare and exceptional." Cf. Sorenson v. St. Paul Ramsey Med. Ctr. , 457 N.W.2d 188, 191 (Minn. 1990).
Further, in that rare case, the district court "should make a finding that expert testimony is not necessary." Sorenson , 457 N.W.2d at 191. That did not happen here.
This is not that rare case. Rather, to determine the standard of care and whether it was breached, the jury would likely be asked to consider Mittelstaedt's allegation that Henney's conduct violated rules 1.7 and 1.8 of the Minnesota Rules of Professional Conduct, which Mittelstaedt specifically claimed in his complaint. These rules are intricate. And the facts here are complicated and murky. As the Eighth Circuit Court of Appeals explained in Sandhu , this is not the situation of "an obviously missed deadline or a clear case of stealing client funds" which might not require expert testimony. 932 F.3d at 1116 (quotation omitted); see also Hill v. Okay Constr. Co. , 312 Minn. 324, 252 N.W.2d 107, 117 (1977) (holding that no expert testimony was required on an element of legal-malpractice claim when the matter to be proven was "obvious to any layman"). Rather, Mittelstaedt's claim involves intertwined business relationships between Mittelstaedt and his alleged attorney, Henney. The complexities of conflict-of-interest questions are far from the "common knowledge" of most jurors. Schmitz , 783 N.W.2d at 739 (quotation omitted).
While the violation of a rule of professional conduct does not itself "give rise to a cause of action against a lawyer," an attorney's violation of a rule of professional conduct may "be evidence of breach of the applicable standard of conduct" to support a malpractice claim. Leonard v. Dorsey & Whitney LLP , 553 F.3d 609, 628 (8th Cir. 2009) (quoting Minn. R. Prof. Conduct, Scope cmt. 20).
For example, Mittelstaedt claims Henney represented him in an unrelated matter while at the same time drafting the transaction documents between himself and Maxim. Henney claims that when he represented Wide Open Services in a transaction in 2015, Mittelstaedt was not a named officer of the company. Henney further argues that even if he had represented Mittelstaedt in the past, Mittelstaedt was represented by separate counsel in the first lease transaction.
In sum, we conclude that, except in rare circumstances, the expert-affidavit requirements of section 544.42 apply to a claim against a plaintiff's attorney, whether framed as a breach-of-fiduciary-duty claim or attorney malpractice. Because Mittelstaedt indisputably did not comply with section 544.42, and because this is not a rare case that does not require expert testimony, we affirm the district court's grant of summary judgment on Mittelstaedt's breach-of-fiduciary-duty claim against Henney on this basis.
II. The district court's findings of fact are supported by the record, and regardless, Mittelstaedt has not demonstrated prejudice.
In addition to contending that his breach-of-fiduciary-duty claim against Henney should have proceeded to trial, Mittelstaedt challenges several of the district court's factual findings on the remaining claims. Specifically, he challenges findings regarding (1) his failure to maintain corporate formalities, (2) the joint venture start date, (3) whether there were any preconditions to the lease agreements, (4) whether Mittelstaedt had unclean hands, and (5) the district court's damages calculation.
We will set aside a district court's finding of fact "only if clearly erroneous." Goldman v. Greenwood , 748 N.W.2d 279, 284 (Minn. 2008). Findings of fact are clearly erroneous only when an appellate court is "left with the definite and firm conviction that a mistake has been made." Id. (quotation omitted). But error without causing harm to the appealing party is neither prejudicial nor grounds for reversal. Midway Ctr. Assocs. v. Midway Ctr., Inc. , 306 Minn. 352, 237 N.W.2d 76, 78 (1975). It is the plaintiff's burden to demonstrate prejudice. Sinda v. Sinda , 949 N.W.2d 170, 176 (Minn. App. 2020). We address each disputed finding below.
Finding Regarding Corporate Formalities
Mittelstaedt argues that there is no evidence to support the district court's finding that he failed to maintain corporate formalities when dealing with Prosser and Prosser's companies.
We disagree. Failure to maintain corporate formalities may include failing to make formal distinctions between corporate and individual property, rarely or never making a formal record of transactions, and repeatedly transferring money between a corporation and an individual as though they were one entity. Victoria Elevator Co. of Minneapolis v. Meriden Grain Co. , 283 N.W.2d 509, 512-13 (Minn. 1979). Mittelstaedt's testimony supports the district court's finding that he failed to maintain corporate formalities. He testified that he does not keep any kind of business records for any of his businesses. Mittelstaedt also admitted that the joint venture with Prosser Holdings was "just a gentlemen's agreement" and not in writing. Moreover, due to a lack of documentation, it is unclear from the record who owned what companies at what time.
This testimony supports the finding that Mittelstaedt failed to maintain corporate formalities. Still, Mittelstaedt points to evidence in the record purportedly demonstrating that he made efforts to maintain corporate formalities. But a district court's findings are not defective merely because the record might support findings other than those made by the court. Vangsness v. Vangsness , 607 N.W.2d 468, 474 (Minn. App. 2000).
Because there is sufficient evidence to support the district court's finding that Mittelstaedt did not maintain corporate formalities, it is not clearly erroneous.
Finding Regarding the Joint Venture Start Date
Mittelstaedt argues that the district court misstated when his joint venture with Prosser began. Specifically, he argues that the district court erroneously determined that the joint venture did not begin until 2016 when it actually began in 2015. Mittelstaedt argues that the district court consequently ignored relevant 2015 truck transactions when calculating damages.
The record does not support Mittelstaedt's claim. The district court found that the joint venture was entered into in connection with the first lease, which began in April of 2015. And it is clear from the evidence in the record that the district court included truck transactions from 2015 when calculating damages regarding the joint venture, negating Mittelstaedt's assertion that the district court misunderstood that the joint venture did not start until 2016. Based on our review of the record, we conclude that the district court's findings on this issue are not clearly erroneous.
Findings Regarding the Transfer of Adjacent Property to Maxim
Mittelstaedt argues that the district court's findings regarding the transfer of adjacent land (from Mittelstaedt and his ex-wife to Maxim) as a condition precedent to the first lease agreement is contrary to the lease agreement and, as a result, clearly erroneous.
Mittelstaedt also contends that he did not receive written notice of default and, as a result, Maxim is barred from collecting missed rent payments. Mittelstaedt relies solely on Valspar Refinish, Inc. v. Gaylord's, Inc. , to argue that a contract requiring written notice of default bars the non-defaulting party from asserting a claim for damages when it violates the notice requirement. 764 N.W.2d 359, 364 (Minn. 2009). But, Valspar in no way relieves parties of previous or ongoing rental agreement obligations, which is what the district court included in its damage calculations.
The district court found that "Mittelstaedt waived whatever interest he may have had in the money he paid to Beacon Bank to get the option to purchase the property in order to facilitate the sale of the property to John Prosser." The district court further found "[t]hat as a condition to become involved in the purchase of the building, John Prosser required that Steven Mittelstaedt convey an adjacent parcel of property owned by Steven Mittelstaedt and his former wife, to Maxim Management LLC. No sum of money was paid by Maxim Management LLC or John Prosser to Steven Mittelstaedt for this parcel."
Mittelstaedt characterizes these findings as related, and argues that they are clearly contradicted by the parties’ written contract in the first lease that says that "there are no understandings or other agreements with respect to the property outside of this agreement." He claims this means that there could not have been an inducement for Prosser/Maxim to purchase the property from Beacon Bank, otherwise the lease would reference that understanding. We are not persuaded.
Testimony in the record supports the district court's related finding. Prosser and Henney both testified to their understanding that Mittelstaedt's transfer of the adjacent property was the first step in their overall transaction. And even if this testimony is in conflict with the lease and the district court did clearly err in finding that the transfer of the adjacent land was a condition precedent to the lease, Mittelstaedt fails to demonstrate how this finding—which, at its core, relates to a non-party, Beacon Bank—would have changed the outcome with regard to any relevant legal conclusion or the calculation of damages.
The findings detailing the conditions predating the first lease agreement are not clearly erroneous.
Mittelstaedt further contends that because his ex-girlfriend, who was to serve as co-guarantor, did not sign his personal guaranty to the second lease before the eviction action, the district court erred in directing Mittelstaedt to pay $272,421 in unpaid rents and other costs related to his lease. Mittelstaedt only cites to one case to argue that he cannot be singularly liable for rent payments when the co-guarantor did not sign the lease: Clarke v. Williams , 61 Minn. 12, 62 N.W. 1125, 1125 (1895). But the holding in Clarke is meant to protect the parties to a guaranty before it becomes effective. That is not the case before us, as the second lease became effective after Mittelstaedt continued to live and operate on the property.
Finding that Mittelstaedt had Unclean Hands
Mittelstaedt argues that the district court clearly erred in finding that both he and Prosser had "unclean hands and breached their fiduciary duty to each other" because it is actually a legal conclusion. Mittelstaedt contends that this finding means that the fiduciary breaches between Prosser and Mittelstaedt "amount to the parties breaking even," which affects the proper calculation of damages.
But "the mislabeling of a finding of fact as a conclusion of law, or vice versa, is not determinative of the true nature of the item." Dailey v. Chermak , 709 N.W.2d 626, 631 (Minn. App. 2006), review denied (Minn. May 16, 2006). And, once again, Mittelstaedt fails to show prejudice from the mislabeling.
The district court's conclusions of law do not suggest it calculated damages against Mittelstaedt due to his own breach of fiduciary duties. To the contrary, the district court indicated that "while the parties may have breached their fiduciary duties to each other, neither party has proved any damages flowing from that breach. " (Emphasis added.)
The district court did not err in its conclusion regarding the breaches of fiduciary duty by Mittelstaedt and Prosser because it was labeled as a finding of fact.
Finding Regarding Damages Calculation
Finally, Mittelstaedt challenges the district court's finding that the net profit from truck sales in the joint venture totaled $94,872.92. He asserts that he is unable to replicate the district court's calculation and asks this court to remand with instructions to the district court to make findings of fact with respect to each of the separate truck transactions. Mittelstaedt argues that the district court's findings regarding the net profit from truck sales are not sufficiently specific under Minnesota Rule of Civil Procedure 52.01.
Rule 52.01 provides, in part, that "[i]n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law." (Emphasis added.) We read this requirement for factual findings in light of longstanding Minnesota caselaw on the specificity necessary for damages calculations. Our precedent "most certainly does not require that damages be calculable with absolute precision." Faust v. Parrott , 270 N.W.2d 117, 120 (Minn. 1978). Instead, we require only "reasonable certainty" in damages calculations. Hughes v. Sinclair Mktg., Inc. , 389 N.W.2d 194, 199-200 (Minn. 1986). Considering the district court's 59 specific factual findings in support of its conclusions on damages, we conclude that the damages calculation was "reasonably certain" and that the district court's findings were sufficient to satisfy rule 52.01. We also observe that while Mittelstaedt says he cannot replicate the final number, he points to no specific evidence demonstrating that the district court's damages calculation was erroneous.
Thus, the district court's carefully crafted findings regarding damages are not clearly erroneous.
DECISION
Whether framed as breach of fiduciary duty or attorney malpractice, a claim based on an attorney's breach of duty is subject to the requirements of Minnesota Statutes section 544.42. Because Mittelstaedt did not submit an expert affidavit to support his breach-of-fiduciary-duty claim against his alleged attorney, the district court did not err in granting summary judgment on Mittelstaedt's breach-of-fiduciary-duty claim against Henney. Nor did Mittelstaedt demonstrate clear error in the district court's findings of fact or prejudice arising therefrom.