Opinion
Nos. C7-01-1533, C6-01-1541
Filed May 7, 2002.
Appeal from the District Court, Hennepin County, File No. CT 97-006651.
Cary B. Johnson, Michael L. Dolan, (for respondent)
Richard T. Ostlund, Randy G. Gullickson, Janel M. Dressen, (for appellant Upper Midwest Industries)
Patrick J. Rooney, Eric J. Magnuson, John J. Wackman, (for appellant Carlsen)
Considered and decided by Randall, Presiding Judge, Lansing, Judge, and Klaphake, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
After appellant Upper Midwest Industries, Inc. (UMI) fired respondent, he sued UMI and appellant David Carlsen, the chairman and chief executive officer. While some claims were dismissed, the jury found for respondent on his claims for misrepresentation and tortious interference with a contract. The district court found for respondent on his unfairly prejudicial treatment claim under Minn. Stat. § 302A.751 (2000) and his breach of fiduciary duty claim. The court entered judgment, denied posttrial motions, and awarded attorney fees. Appellants argue that the district court erred in determining that the parties' stock purchase agreement was ambiguous and that the agreement allowed respondent to receive fair value rather than book value for his shares. Appellants also contend that the misrepresentation and tortious interference claims were not supported by the evidence, respondent was not entitled to fair value for his shares on his unfairly prejudicial treatment and breach of fiduciary duty claims, the court erred in allowing the jury to also sit as an advisory jury for the unfairly prejudicial treatment and breach of fiduciary duty claims, the court's jury instructions on fraudulent misrepresentation and the business judgment rule and its special verdict questions were improper, the court erred in not allowing other minority shareholders to intervene, and the court erred in awarding attorney fees to respondent. Respondent filed a notice of review arguing that the court erred in calculating respondent's prejudgment interest. We affirm.
FACTS
Appellant Upper Midwest Industries, Inc. (UMI) is a closely held corporation that was founded by two brothers. UMI is involved in contract manufacturing and originally had four divisions: Atlas Manufacturing, Spantek Division, and APG Cash Drawer, which are metals industry entities, and Solar Plastics, which is a plastics industry entity. The founders' sons, Chuck Carlsen and appellant David Carlsen later joined UMI. (UMI and David Carlsen are collectively referred to as appellants). David Carlsen (hereafter referred to individually as Carlsen) is UMI's chief executive officer and serves as the company's general counsel.
Carlsen family members always owned the majority of UMI's stock, but certain non-family officers and employees have been afforded the opportunity to purchase shares at book value. UMI arranges for a bank to loan the officer or employee the funds necessary to purchase the shares. All shareholders are required to execute the company's stock purchase agreement (SPA), which contains a number of provisions relating to triggering events that would compel a shareholder to sell his shares back to the company. For instance, in the event a shareholder's employment was terminated due to retirement, disability, or death, the shareholder is required to sell his shares back to UMI for book value. The SPA also provides that the shareholder is required to sell his shares back to UMI for book value if his employment was terminated for reasons other than retirement, disability, or death. For each of these triggering events, the SPA states that the shareholder must sell his shares back to UMI for a "specified value," which the SPA defines as book value calculated at a specific valuation date. The SPA provides valuation dates for each triggering event. The parties agree that UMI employees understood that shareholders must "buy in at book and sell at book." Under the SPA, if a shareholder sold his shares due to any of these triggering events, in most instances UMI could pay the shareholder a down payment and pay the remaining balance in annual equal installments over a five-year period.
In contrast, section 16 of the SPA allows a shareholder to sell his shares to UMI for 100% cash payment if UMI liquidates or divides up more than 25% of its assets. Section 16, however, does not state that shares purchased under its terms are valued according to the "specified value" formula. In fact, the section does not provide any valuation method.
The parties characterize section 16 as an amendment to the SPA that was added in 1989. But the record demonstrates that the language of section 16 was in the SPA as early as 1985, although in earlier versions it was listed as section 17.
In December 1986, respondent Craig Swanson began working for UMI. He originally was hired as UMI's controller/treasurer, but eventually was promoted to chief financial officer and president of the Spantek Division. At first, UMI allowed respondent to purchase 20,000 shares of the company's stock. Approximately two years later, UMI allowed respondent to purchase an additional 10,000 shares. As with all other shareholders, respondent executed an SPA.
In 1988 and 1989 Carlsen and his cousin Chuck Carlsen, who together comprised UMI's majority shareholders, entered negotiations to explore the possibility of UMI splitting off Solar Plastics and selling the entity to Chuck. Such reorganization meant that UMI would be liquidating or dividing up more than 25% of its assets. Negotiations failed because, among other reasons, Carlsen objected to Chuck receiving fair market value for his shares rather than book value as the SPA provided. In 1995, Carlsen and his cousin resumed negotiations due to increasing managerial differences between them. In July 1995, Carlsen informed the other shareholders that the cousins were seriously considering spinning off Solar Plastics to Chuck (the Solar-spin). Under the terms the cousins agreed upon, Chuck would receive Solar Plastics in exchange for his stock and $300,000 in cash, and, as a result, Carlsen would become UMI's sole majority shareholder. At the time, Solar Plastics was worth $19 million and Chuck's stock had a book value of $5.5 million. Accordingly, unlike the 1988/1989 proposal that Carlsen advocated, Chuck would be redeeming his shares for more than book value. To determine whether the exchange was equal, the parties hired an appraiser to provide them with a "fairness opinion." After reviewing UMI's financial history and performance, the appraiser concluded that the proposed transaction was "fair and equitable to both parties."
Until the proposed Solar-spin in 1995, Carlsen and respondent had an excellent working relationship and respondent's employment record with UMI was extraordinary. Carlsen acknowledged that respondent was "critical" to UMI's success, and he considered respondent to be his top business advisor and their relationship as the "best business relationship" of his life.
Once the proposed Solar-spin was announced in 1995, the relationship between Carlsen and respondent deteriorated. Respondent opposed the proposed Solar-spin, principally on the basis that the benefit of the deal would be conferred almost exclusively on the cousins as majority shareholders. He believed the Solar-spin was for family purposes rather than legitimate business reasons. He believed that Solar Plastics was UMI's most profitable division with the most growth potential and that to sell it would be detrimental to the company. He further believed that it was unfair to allow Chuck to receive compensation above book value for his shares when other shareholders were required to continue to hold their shares at book value.
In August 1995, respondent and another minority shareholder, Mark Olson, met with an attorney to discuss their rights in connection with the Solar-spin proposal. They discussed their right to a fiduciary duty from other shareholders, their rights to equitable relief under Minn. Stat. § 302A.751 (2000), and the possibility that they could receive fair value for their stock based on section 16's language if they exercised their rights under this provision of the SPA. Respondent and Olson were cautious about Carlsen learning that they had met with an attorney. But, in late 1995, Olson informed Carlsen of the meeting. Although Olson only met with the attorney in August, respondent discussed the proposed reorganization with his attorney in November and December of 1995.
Carlsen and respondent had several discussions about the proposed Solar-spin. Although they differed on some of the content and tone of the discussions, each testified that they disagreed over the transaction. In December 1995, respondent and Carlsen had a heated discussion about the proposed spin-off. Carlsen informed respondent that he had a right to vote as he wished on the Solar-spin deal. Carlsen testified that he told respondent whether he could remain an employee at UMI was an "open question" if respondent sold his stock under section 16. But Carlsen acknowledged that his father, one of UMI's founders, testified in a deposition that such a policy did not exist and that he could not imagine why an officer would be subject to termination for selling his shares back to UMI. At the meeting, Carlsen and respondent strongly disagreed over whether section 16 would allow respondent to receive fair value for his shares. Respondent testified that Carlsen promised him "World War III" if respondent sought fair value for his shares. He also testified that Carlsen told him he could not continue the employment relationship if respondent asserted his rights and sold his stock back to the company. According to respondent, Carlsen said if he voted in favor of the transaction, respondent could keep his job and continue his long-term ownership and management of UMI.
On the same day, Carlsen obtained advice from an employment specialist in his attorney's firm that it was not advisable to terminate an individual for voting against the proposed reorganization or for exercising his legal rights. The following day, Carlsen discussed with his attorney whether section 16 of the SPA deals with fair value or book value. Carlsen also asked his attorney if respondent could still work at UMI if he sold his shares.
Over the next couple of days, respondent considered his options; namely, whether to risk his employment status by attempting to exercise his perceived rights under section 16 or acquiesce to the proposed Solar-spin. Eventually he reasoned that it was in his best interest to relinquish his rights in order to stay "long term" at a job that he loved. Before making his decision, however, he felt he needed assurances from Carlsen that his employment status was not in jeopardy. On January 2, 1996, while Carlsen was at a ski resort with his family, respondent phoned Carlsen and left him a message stating, "Let's talk when you come back." Instead, Carlsen returned respondent's phone call that same day. During their brief telephone conversation, respondent informed Carlsen that he was inclined to stay with UMI but needed to know if their relationship had been damaged beyond repair. Respondent told Carlsen that he believed no irreparable harm had been done to their relationship. Respondent then asked Carlsen whether Carlsen thought any irreparable harm had been done, and Carlsen responded, "No." Respondent asked Carlsen whether they could bury the hatchet, and Carlsen assured respondent "in the clearest possible terms * * * that everything was fine." Respondent also told Carlsen that it was the first time in their careers that they had gone "to the far corners" and that he thought it had all "been handled fine." Carlsen said he was pleased with respondent's inclination to stay with UMI and that he wanted respondent "to do whatever makes [him] happy." Carlsen testified that he recognized respondent had been "agonizing" over his decision and that respondent's decision was "momentous." Upon receiving Carlsen's assurances, respondent was satisfied that he still had a future at UMI. Accordingly, at the board meeting on January 17, 1996, respondent voted in favor of the proposed Solar-spin.
Respondent testified that after the Solar-spin took effect, Carlsen put respondent through the "worst year of [his] life." Carlsen criticized respondent about matters that had not been issues of concern before the Solar-spin. Carlsen's actions confused respondent, and he believed Carlsen was putting him in no-win situations. The two discussed various proposals to try to smooth out their differences, including moving respondent to another division, but the two could not agree. On February 11, 1997, Carlsen informed respondent that he was prepared to terminate him because of an impaired working relationship and management differences. Carlsen first offered respondent the opportunity to quit voluntarily and proposed two severance packages, but respondent refused both offers. Respondent was then terminated on March 31, 1997, and appellants later paid him book value for his stock in the amount of $1,601,145.
Following his termination, respondent commenced suit against Carlsen and UMI. Respondent raised eight issues, but, before trial, respondent voluntarily dismissed two of his claims, and the district court granted summary judgment in appellants' favor on two other claims. Accordingly, at trial, only four claims remained: a claim that UMI treated respondent in an unfairly prejudicial manner under Minn. Stat. § 302A.751, a claim against UMI and Carlsen that each breached their fiduciary duties they owed to respondent, a claim against UMI and Carlsen for fraudulent misrepresentation, and a claim against Carlsen for tortious interference with a contract. The latter two issues were tried to a jury, whereas the former claims were tried to the court. The district court, however, did not bifurcate the trial. Instead, the court used the jury in an advisory capacity for the claims tried to the district court. At trial, the premise of respondent's argument was that appellants had impermissibly induced him to give up his rights under section 16 and Minn. Stat. § 302A.751 and to a derivative action by making representations calculated to convince respondent to vote in favor of the Solar-spin instead of pursing his rights. Much of the evidence focused on the events leading up to the Solar-spin, the interaction between Carlsen and respondent after the Solar-spin took effect, appellants' assertion that section 16 only allows the shareholders to receive book value for their shares, and respondent's assertion that section 16 allows the shareholders to receive fair value for their shares. The parties also provided expert testimony regarding how fair value should be calculated. The jury found for respondent on the misrepresentation claim and determined that respondent is entitled to $3,357,090 as fair value for his shares. The jury also found for respondent on the tortious interference claim and determined that respondent was entitled to $820,000 in damages.
Following the jury trial, UMI's minority shareholders moved to intervene. The district court denied their request, the shareholders appealed to this court, and this court affirmed the district court's decision. Swanson v. Upper Midwest Industries, Inc., No. C8-00-1501, 2001 WL 290460 (Minn.App. Mar. 27, 2001). In November 2000, the district court issued its order on the remainder of respondent's claims. The court determined that appellants had breached the fiduciary duty they owed to respondent and that UMI had treated respondent in an unfairly prejudicial manner under Minn. Stat. § 302A.751. As a result, the court concluded that respondent was entitled to fair value in the amount of $3,357,090. The court also awarded respondent $17,700.61 for prejudgment interest under Minn. Stat. § 549.09 (2000); $326,643.98 for attorney fees under Minn. Stat. § 302A.751, subd. 4; and $89,654.32 for costs and disbursements. After subtracting the amount appellants already paid respondent for his shares, respondent's award totaled $2,189,943.91. Following posttrial motions, the court denied appellants' motions for a judgment notwithstanding the verdict, amended findings and conclusions, and a new trial. The court also awarded respondent $12,058 for mediation costs and fees. Appellants each filed appeals, which are now consolidated, challenging the district court's decision. Respondent, by notice of review, challenges the district court's prejudgment-interest award.
DECISION
A reviewing court is not bound by and need not give deference to a district court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minn. Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). The district court's findings of fact, however, shall not be set aside unless clearly erroneous, and the reviewing court shall give due regard to the district court's opportunity to judge the credibility of the witnesses. Minn.R.Civ.P. 52.01.
I. Section 16
The overarching issue in this case revolves around section 16 of the parties' SPA. Section 16 provides:
Liquidation or Division . If the Corporation is to be liquidated or divided up under Internal Revenue Code Section 355 or any successor section and such liquidation or division involves more than twenty-five percent (25%) of the Corporation's assets, then, unless a new mutually satisfactory stock purchase agreement is entered into between the Shareholder and the successors to the Corporation, the Shareholder will have right prior to such liquidation or division to sell all his Shares to the Corporation for a 100% cash payment.
The SPA contains a number of triggering events that allow UMI to buy out a shareholder's stock. Under section one, if the shareholder decides to sell, the shareholder must first offer the shares to the company (right of first refusal). Under section two, if the shareholder's employment is terminated for reasons other than retirement, disability, or death, the shareholder must sell his shares back to UMI, and, if UMI cannot lawfully buy all the shares, the shareholder must offer to sell them to another shareholder. Section three discusses the buy-out options when the shareholder's employment is terminated due to retirement or disability. Section four addresses the buy-out options when the shareholder's employment is terminated due to death. According to the SPA, if UMI buys a shareholder's shares due to any of these triggering events, the price is calculated according to the "specified value." Paragraph 5.1 of the SPA defines the specified value as the book value of each share as of the valuation date. Paragraph 5.3 defines the valuation dates for each of the triggering events listed above. The SPA further provides that the company will give the shareholder a down payment and that in most instances the remaining balance will be paid with interest in annual equal installments over a five-year period. A promissory note would be executed to govern the installment payments. In contrast to the triggering events and the correlating valuation dates discussed above, section 16 does not provide a means to calculate the price for the shares bought by UMI under that section.
Appellants argue that the district court erred in determining that section 16 was ambiguous and interpreting the section to allow respondent to receive fair value for his shares. Appellants maintain that section 16's silence on a valuation method is logical because the parties only intended section 16 to be a timing provision that would allow shareholders to sell their shares and receive the proceeds in one lump sum rather than over the five-year period that applied to the triggering events discussed in the rest of the SPA. Appellants contend that, as with the other buy out provisions, valuation of the shares under section 16 is governed by the specified value provision.
The purpose of contract construction is to allow the parties' intent to prevail. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). To determine the parties' intent, a reviewing court must place itself "in the position of the parties at the time the agreement was negotiated and executed." Midway Ctr. Assocs. v. Midway Ctr, Inc., 306 Minn. 352, 356, 237 N.W.2d 76, 78 (1975) (citation omitted). To the extent that a written agreement specifically states the terms of the parties' bargain, it should be honored. Gunderson v. Alliance of Computer Prof'ls, Inc., 628 N.W.2d 173, 186 (Minn.App. 2001), review granted (Minn. July 24, 2001) and appeal dismissed (Minn. Aug. 17, 2001).
Whether a contract is ambiguous, meaning it is reasonably susceptible to more than one construction, is a question of law, and the district court's determination is given no deference. Blackburn, Nickels Smith, Inc. v. Erickson, 366 N.W.2d 640, 643-44 (Minn.App. 1985), review denied (Minn. June 24, 1985). A court must construe unambiguous contract language according to its plain and ordinary meaning. Bob Useldinger Sons, Inc. v. Hangsleben, 505 N.W.2d 323, 328 (Minn. 1993). If no ambiguity exists, interpretation of a contract is a question of law. City of Virginia v. Northland Office Props. Ltd. P'ship., 465 N.W.2d 424, 427 (Minn.App. 1991), review denied (Minn. Apr. 18, 1991). If, however, the reviewing court determines that a contract is ambiguous, its meaning is a question of fact and the court may consider extrinsic evidence. Id. It is axiomatic that if ambiguous terms exist or the parties' intent is doubtful, the contract must be construed against the drafter. Turner, 276 N.W.2d at 66.
Here, the parties agree that the language in section 16 itself does not provide a means to calculate the stock price if the section's buy-out provision is triggered. Accordingly, section 16 is ambiguous because it can be interpreted in different ways. First, as appellants suggest, one could interpret section 16 as merely a timing provision for payment. Another interpretation appellants offer is that, even if section 16 is more than a timing provision, the specified value provision applies to section 16, meaning shares are priced at book value at a certain valuation date. Conversely, respondent argues that section 16 should be interpreted to allow shareholders to receive fair value for their shares.
Carlsen testified that section 16 was enacted as a timing provision that would allow the shareholders to receive 100% payment for their shares upfront if UMI liquidates more than 25% its assets and the shareholders decided to sell their shares to UMI. This timing provision differs from the other timing provision provided in the SPA, which allows UMI to give the shareholders a down payment and pay the balance with interest over a five-year period. One of UMI's minority shareholders, Bob Roseborough, was one of the people that initially raised concerns about the payment provision in the SPA. He was concerned that, if UMI liquidated a significant portion of its assets, UMI's future might be uncertain and if the shareholders sold their shares to UMI, the promissory note executed by UMI could be in jeopardy. According to Carlsen, to give shareholders more security in their stock investment, section 16 was executed. Thus, shareholders could receive 100% payment up front rather than a down payment and an unsecured promissory note. Appellants presented evidence at trial that Roseborough believed section 16 provided an immediate cash buy out at book value. Appellants suggest that respondent acquiesced to Roseborough's interpretation by not voicing any objections or otherwise correcting Roseborough on his interpretation. Appellants testified that everyone at UMI, including respondent, understood that all shareholders would "buy at book and sell at book."
Respondent counters that it would be illogical to value shares at book value if section 16 was invoked. He testified that if the majority of UMI's assets were liquidated, the resulting "pie" would have to be split up proportionally. Respondent also testified that it was impossible to calculate the price of the stock at the "specified value" because the SPA did not provide a valuation date for the liquidation triggering event. Accordingly, one could not determine the correct book value because such a value could change depending on the valuation date utilized.
Although we understand appellants' argument, we agree with respondent. We are guided by the canon of construction expressio unius est exclusio alterius, which means "that to express or include one thing implies the exclusion of the other." Black's Law Dictionary 602 (7th ed. 1999). The SPA provides that specified value should be calculated by book value on a given valuation date for all triggering events except for the one outlined in section 16. The language of the SPA implies that the valuation method was meant to be excluded for the triggering event under section 16 because the language is so specific for the other triggering events and is conspicuously absent from section 16. The record reflects conflicting testimony regarding the parties' intent for section 16. Because the language is ambiguous and the parties' intent is doubtful, it is proper to construe the language against the drafter, who, in this case, was Carlson on behalf of UMI.
We conclude that section 16 is not a mere timing provision and does not require shares valued under its triggering event to be determined at book value. There are business reasons why book value is not presumed when a company liquidates or has a massive spin-off. Either can severely impact "book value" of a going concern, for better or worse. Book value in these two instances may be less relevant than what portion of the pie is left to be paid to shareholders. It was not error for the district court to value respondent's shares at fair value.
II. Misrepresentation, Minn. Stat. § 302A.751, and Breach of Fiduciary Duty
Appellants do not challenge the district court's or the jury's underlying factual findings. Instead, appellants argue the factual findings are not enough to demonstrate respondent's misrepresentation, unfairly prejudicial treatment, and breach of fiduciary duty claims. The same fact scenario applies to each of these claims. Essentially, the case came down to a credibility determination between Carlsen's and respondent's versions of the events that occurred just before the Solar-spin. It is the fact-finder's role to evaluate witnesses' credibility. See Sefkow v. Sefkow , 427 N.W.2d 203, 210 (Minn. 1988) (stating deference must be given to district court's opportunity to assess witnesses' credibility); Melina v. Chaplin , 327 N.W.2d 19, 20 (Minn. 1982) (stating that determining credibility of witnesses is jury's function). Appellate courts afford great deference to the fact-finder's determination of weight and credibility of witnesses. Hasnudeen v. Onan Corp. , 552 N.W.2d 555, 557 (Minn. 1996).
The underlying facts for the misrepresentation, unfairly prejudicial treatment, and breach of fiduciary duty claims are:
Respondent had various concerns about the proposed Solar-spin soon after Carslen presented him with the proposal. Numerous discussions ensued between Carlsen and respondent. During one of the meetings between Carlsen and respondent just before the Solar-spin, Carlsen informed respondent that he had a right to vote as he wished on the Solar-spin proposal. Carlsen told respondent that he did not know if respondent could continue to work for UMI if he sold his shares because company policy required principle officers to own stock in order to maintain their employment. The two also strongly disagreed about whether respondent was entitled to fair value under section 16. Carlsen made it clear that respondent would face "World War III," which included respondent's loss of employment, if he sought fair value for his stock. In addition Carlsen suggested that respondent voluntarily retire, but then Carlsen told respondent at the meeting that he would be pleased if respondent decided to stay with the company and Carlsen would welcome his continued long-term involvement in the management and ownership of the company.
Around the same time this meeting took place, Carlsen took the precaution to obtain advice from an employment specialist in his attorneys' firm, and the advise was that it was not advisable to terminate an employee for voting against the proposed reorganization or to terminate an employee for attempting to exercise his legal rights. Carlsen also discussed with his attorneys whether section 16 dealt with fair value or book value and whether respondent could still work for UMI if he sold his shares.
Respondent feared the prospect of losing his job if he exercised his rights. After deliberating for several days about his decision, respondent contacted Carlsen to acquire assurances that their relationship had not been harmed irreparably and that respondent's employment would remain intact if he forfeited his rights and voted for the proposed reorganization. During a brief telephone conversation on January 2, 1996, just before the shareholders were scheduled to vote on the proposal, respondent informed Carlsen that he was inclined to stay with UMI and forfeit his rights if he received assurances that their relationship had not been damaged beyond repair. Respondent told Carlsen that he believed no irreparable harm had been done to their relationship and asked Carlsen if he believed any irreparable harm had occurred, to which Carlsen replied, "No." Respondent then asked Carlsen if they could bury the hatchet, and Carlsen replied affirmatively. Carlsen informed respondent that he was pleased with respondent's inclination to stay with the company and that he wanted respondent "to do whatever makes [him] happy." Based on this conversation, respondent was satisfied that his employment at UMI was secure, so he relinquished his rights and voted in favor of the Solar-spin.
The record reflects that as soon as the Solar-spin took effect, the relationship between Carlsen and respondent deteriorated. The district court found that Carlsen had determined before the Solar-spin vote that he would terminate respondent's employment after waiting a "graceful interval." About 13 months after the Solar-spin, Carlsen terminated respondent's employment, claiming an impaired working relationship and management differences. We find sufficient evidence in the record to support respondent's prevailing on his misrepresentation, unfair prejudicial treatment, and breach of fiduciary duty claims.
A. Misrepresentation
A fraudulent misrepresentation claim requires a plaintiff to demonstrate that a defendant:
(1) made a representation (2) that was false (3) having to do with a past or present fact (4) that is material (5) and susceptible of knowledge (6) that the representor knows to be false or is asserted without knowing whether the fact is true or false (7) with the intent to induce the other person to act (8) and the person in fact is induced to act (9) in reliance on the representation (10) that the plaintiff suffered damages (11) attributable to the misrepresentation.M.H. v. Caritas Family Servs., 488 N.W.2d 282, 289 (Minn. 1992) (citation omitted). A person can make a misrepresentation either
(1) by an affirmative statement that is itself false or (2) by concealing or not disclosing certain facts that render the facts that are disclosed misleading.Id. Fraudulent misrepresentation claims are questions of fact. Henning Nelson Constr. Co. v. Fireman's Fund Am. Life Ins. Co., 383 N.W.2d 645, 654 (Minn. 1986). Statements or opinions that are general and indefinite are not representations of fact. Martens v. Minn. Mining Mfg. Co., 616 N.W.2d 732, 747 (Minn. 2000). Further, when a representation addresses a future event, it must affirmatively appear that "the promisor had no intention to perform at the time the promise was made." Id. (quotation omitted).
The misrepresentation claim was presented to the jury to decide. An appellate court must view the evidence in the light most favorable to the jury's verdict, and the court "will overturn a jury verdict only if no reasonable mind could find as the jury did." Reedon of Faribault, Inc. v. Fidelity Guar. Ins. Underwriters, Inc., 418 N.W.2d 488, 491 (Minn. 1988) (citation omitted). An appellate court begins with the premise that some evidence must exist to support the jury's verdict, but the court will reverse if the jury's verdict is "perverse and palpably contrary to the evidence." Id. (citations omitted).
Appellants argue that, even if section 16 would have allowed respondent to receive fair value for his shares, Carlsen's statements referenced above do not amount to intentional or fraudulent misrepresentations. Specifically, appellants assert that Carlsen's statements do not amount to past or present facts and that Carlsen was merely expressing his opinion.
Appellants ask the court to focus on the literal interpretation of Carlsen's statements while giving little regard to the conversation's context. By examining the conversation's context, we conclude there were sufficient facts for the jury to rely on in coming to the conclusion that Carlsen's statements constituted fraudulent misrepresentation. Carlsen knew that respondent was struggling with his decision regarding whether to exercise his rights in relation to the Solar-spin and knew that respondent was worried about his future employment with UMI. He knew that respondent was seeking assurances from him that his employment would no longer be in jeopardy if he voted for the proposed reorganization. He realized that respondent's decision heavily depended on his response to respondent's questions. Based on Carlsen's conversations with his attorneys just before his January 2nd conversation with respondent, the jury could have determined that Carlsen already had made up his mind not to terminate respondent immediately (to avoid exposure to a lawsuit for wrongful termination) but to do it after a sufficient amount of time had elapsed to negate the inference that it had been planned all along. Accordingly, although the literal interpretation of Carlsen's responses to respondent's questions on January 2nd could be construed as mere opinion regarding future events, when viewed in context of the entire interaction between the two men, the jury could have determined that Carlsen provided respondent with assurances that respondent's status at the company was intact even though Carlsen knew the assurances were untrue because he had already made up his mind to terminate respondent. Respondent testified that he relied on Carlsen's assurances, gave up his rights, and voted for the Solar-spin. We conclude a reasonable mind could find as the jury did, and that its verdict was not palpably contrary to the evidence.
B. Unfairly Prejudicial Treatment
A court may grant equitable relief it deems just and reasonable to a shareholder of a closely held corporation if the shareholder establishes that the directors or those in control of the corporation have acted fraudulently, illegally, or in an unfairly prejudicial manner toward one or more shareholders. Minn. Stat. § 302A.751, subd. 1(b)(2), (3) (2000). The court may, upon the shareholder's motion, order the sale of the shareholder's shares if the court determines that such action would be fair and equitable. Id. at subd. 2 (2000). The purchase price of the shares shall be fair value. Id. In determining whether to order equitable relief the court shall take into consideration the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation and the reasonable expectations of all shareholders as they exist at the inception and develop during the course of the shareholders' relationship with the corporation and with each other. For purposes of this section, any written agreements, including * * * buy-sell agreements, * * * between or among one or more shareholders and the corporation are presumed to reflect the parties' reasonable expectations concerning matters dealt with in the agreements. Id. at subd. 3a (200); Berreman v. West Publ'g. Co., 615 N.W.2d 362, 373 (Minn.App. 2000) (applying Minn. Stat. § 302A.751), review denied (Minn. Sept. 26, 2000).
The court found that Carlsen's false representations and omissions of material facts in his communications with [respondent] on January 2, 1996 caused the latter to relinquish his legal rights in reliance thereon to his personal detriment. The primary right relinquished was the direct right to receive fair value for his stock pursuant to § 16 of the SPA. This was fraudulent and unfairly prejudicial to [respondent]. In addition, in reliance on * * * Carlsen's misrepresentation, [respondent] was deprived of the right to pursue derivative claims concerning his view that the Solar spin was unfairly prejudicial to the minority shareholders constituting a violation of [Minn. Stat. § 302A.751] and a breach of fiduciary duty.
The court also noted that respondent forfeited any rights he had to bring a derivative action.
The court's findings support its conclusion that Carlsen did not treat respondent in a fair, honest, and reasonable manner. After evaluating Carlsen's and respondent's credibility, the court determined that Carlsen had made up his mind to terminate respondent, and then deceitfully gave respondent assurances that his future was not in jeopardy. Specifically, the court found:
Carlsen had decided prior to the January 2, 1996 telephone call to terminate [respondent]; Carlsen consciously made false representations and assurances to [respondent] in that telephone call that no irreparable harm had been done to their relationship or [respondent's] future with UMI; Carlsen made the false representations and assurances for the purpose of inducing [respondent] to drop his demand to be paid fair value for his shares and pursue other legal remedies.
The court also found:
[T]he conduct engaged in by Carlsen thereafter, culminating with and inducing [respondent's] termination, was all part of a plan by Carlsen first to encourage [respondent] to resign and then, being unsuccessful at that, to fire him after passage of a graceful interval and thereby avoid paying him fair value for his shares.
Given the parties' testimony and the deference a reviewing court affords to a district court's credibility determinations, we conclude the district court's determination was proper and supported by the record.
C. Breach of Fiduciary Duty
In a closely held corporation, the relationship among shareholders is analogous to that of a partnership, and the shareholders owe one another a fiduciary duty. Pedro v. Pedro, 489 N.W.2d 798, 801 (Minn.App. 1992) ( Pedro II), review denied (Minn. Oct. 20, 1992). A fiduciary duty imposes upon shareholders "the highest standards of integrity and good faith in their dealings with each other." Id. (quotation omitted). This includes dealing "openly, honestly and fairly with other shareholders." Id. (quotation omitted). Generally, whether a shareholder has breached his fiduciary duty is a question of fact. Miller Waste Mills, Inc. v. Mackay, 520 N.W.2d 490, 496 (Minn.App. 1994), review denied (Minn. Oct. 14, 1994).
The standard shareholders are required to uphold under their fiduciary duties is similar to the standard under Minn. Stat. § 302A.751. Accordingly, the court relied on its findings on respondent's unfairly prejudicial treatment claim to support its determination that Carlsen breached the fiduciary duty he owed to respondent. The district court stated that "[t]he same conduct that establishes [appellants'] violation of [section] 751 also fulfills the elements of the breach of fiduciary duty claim." The court found that Carlsen's conduct with regard to deceiving [respondent] into forfeiting the opportunity to exercise legal rights * * * to obtain fair value for his shares and to pursue derivative claims failed to comport with the obligation of honesty, integrity, good faith and fair dealing. [Appellants'] conduct also unjustifiably interfered with [respondent's] relationship with UMI and frustrated and defeated his reasonable expectations with the company.
Based on the court's findings, the court did not err in determining that appellants' breached the fiduciary duty they owed to respondent.
III. Tortious Interference
The district court found that respondent was an at-will employee. In Minnesota, an at-will employee may bring a tortious interference claim in limited circumstances. Nordling v. N. States Power Co., 478 N.W.2d 498, 505-06 (Minn. 1991). For instance, a corporate officer might be liable for tortious interference if the officer acts outside the scope of the officer's duties (" i.e., when he is engaged in a personal vendetta or excursion"). Id. at 506. An officer is privileged to interfere with an employment contract if the officer acts in good faith and believes that his actions are furthering the company's business. Id. at 507. The officer's privilege may be lost, however, if the officer's "actions are predominately motivated by malice and bad faith, that is, by personal ill-will, spite, hostility, or a deliberate intent to harm the * * * employee." Id. (citation omitted).
As with the misrepresentation claim, the tortious interference claim was for the jury to decide. Accordingly, the same standard of review applies. An appellate court must view the evidence in the light most favorable to the jury's verdict, and the court "will overturn a jury verdict only if no reasonable mind could find as the jury did." Reedon, 418 N.W.2d at 491 (citation omitted). An appellate court begins with the premise that some evidence must exist to support the jury's verdict, but the court will reverse if the jury's verdict is "perverse and palpably contrary to the evidence." Id. (citations omitted).
Respondent testified that Carlsen "got madder and madder" as respondent's opposition to the Solar-spin continued. Carlsen told respondent that he could continue his involvement with the company long-term, yet Carlsen consulted with an attorney on the very same day about whether he could terminate respondent's employment. After the Solar-spin, Carlsen treated respondent horribly and issued respondent conflicting "no win" directives even though respondent's division delivered an all-time record financial performance. Respondent testified that it was the worst year of his life.
It is a close question, as determinations of "intent" and "motivation" often are, but we find enough evidence to support the jury's determination that Carlsen's conduct was motivated by bad faith, personal ill-will, spite, or hostility. A reasonable mind could find as the jury did.
IV. Advisory Jury
Appellants argue that the district court erred in not bifurcating the trial and, instead, allowed the jury to sit as an advisory jury for respondent's unfair prejudicial treatment and breach of fiduciary duty claims. Appellants contend that the district court compounded its error by "rubber stamping" the jury's determination on these issues. Appellants also argue that the district court should not have exposed the jury to evidence regarding "fair value" because it is a legal principle and because it unfairly confused the jury.
Claims under Minn. Stat. § 302A.751 and breach of fiduciary duty claims are for the courts, not a jury, to decide. Pedro v. Pedro, 463 N.W.2d 285, 288 (Minn.App. 1990) ( Pedro I), review denied (Minn. Jan. 24, 1991). But the district court may exercise its discretion and impanel an advisory jury as long as the jury's findings are used only to reinforce the court's decision rather than supplant it. Id. The court is still obligated to make its own findings. Id.; see also Minn.R.Civ.P. 52.01 (stating in action heard by advisory jury, court required to "find the facts specially").
Based on Minnesota case law, the district court properly exercised its discretion in impaneling an advisory jury. The court made 75 findings of fact of its own in this case. As previously discussed, many of the court's findings focused on the court's determination that Carlsen made false representations and omissions of material facts in his communications with respondent just before the Solar-spin. The court relied on these facts to conclude that Carlsen's actions were fraudulent, unfairly prejudicial, and a breach of the fiduciary duty he owed respondent. The court made detailed findings that were supported by the record and did not rely on the jury's findings. Contrary to appellants' assertion, the court did not "rubber stamp" the jury's findings.
We conclude that the jury's exposure to fair value evidence did not prejudice appellants. The district court specifically stated that it made its findings independent of the jury. The district court made a thoughtful and thorough analysis. We are not willing to reverse on this issue.
V. Jury Instructions
Appellants argue that the district court erred in (1) allowing the jury to hear evidence regarding fair value because the concept is too complex for a layperson to comprehend, (2) giving the jury breach of fiduciary duty instructions, and (3) instructing the jury that the business judgment rule did not apply.
The issues for the jury to decide were the misrepresentation and tortious interference with a contract claims. Respondent was awarded $3,357,090 for his misrepresentation claim, which the jury calculated according to fair value. The court awarded respondent the same amount for his unfairly prejudicial treatment and breach of fiduciary duty claims based on the court's independent findings. These claims, which were properly within the court's province to determine, provided an independent basis for the fair-value award. The court's lengthy and thorough findings adequately demonstrate that the court made its decision independent from the jury. The jury's findings on fair value are advisory only, and allowing the jury to hear evidence regarding fair value was not abuse of discretion. We reach the same conclusion for appellants' argument that the court improperly gave the jury instructions on fiduciary duties.
Regarding the business judgment rule, the court focused the case on whether appellants induced respondent into giving up his right to receive fair value in relation to the Solar-spin and pursue other claims, such as a derivative action. Although the business judgment rule would have come into play had respondent pursued a derivative claim, the jury was not asked to determine whether such a claim would have been successful. Instead the jury heard testimony that respondent gave up the right to pursue such a claim for the benefit of the corporation. The district court did not err in telling the jury that the business judgment rule was inapplicable to this case.
Finally, appellants argue that, although the district court instructed the jury on each of the misrepresentation elements, the court erred in not asking the jury about each of the misrepresentation elements in the special verdict form.
The district court has broad discretion in framing special verdict questions and writing jury instructions. Dang v. St. Paul Ramsey Med. Ctr. Inc., 490 N.W.2d 653, 658 (Minn.App. 1992), review denied (Minn. Dec. 15, 1992). It is also within the district court's discretion to decide whether to submit purely factual or ultimate fact questions to the jury. Hill v. Okay Const. Co., Inc., 312 Minn. 324, 340, 252 N.W.2d 107, 118 (1977). For instance, the supreme court has determined that the district court properly exercised its discretion in asking the jury an ultimate fact question of whether a defendant acted negligently when there was sufficient evidence presented on the individual fact issues to enable the jury to make a negligence determination. Id. at 342, 252 N.W.2d at 119.
Here respondent presented sufficient evidence for the jury to determine each of the underlying elements of misrepresentation. Further, the court instructed the jury that, in order to answer affirmatively the question of whether appellants made any misrepresentation of any material fact to respondent in relation to the Solar-spin, it must find that all elements of misrepresentation have been proven. The court's instructions to the jury on these elements were:
One, * * * Carlsen falsely represented a past or present material fact to [respondent].
A fact is material if it would have influenced the person's judgment or decision had he known about it. The fact must be something that is knowable. This means it must be possible to discover the fact.
* * * Carlsen and [respondent] as fellow shareholders in a closely held corporation had a duty to disclose material facts pertaining to the corporation to one another. Failure to do so constitutes a misrepresentation.
A material misrepresentation is one that influenced a party's judgment or decision. An omission of a material fact constitutes fraudulent misrepresentation if one party has special access to the facts and the other does not, and omitting the fact in question is misleading.
Two, at the time the false misrepresentations were made, * * * Carlsen knew the representations were false.
Three, the false representations were made by * * * Carlsen intending that [respondent] would rely on them.
Four, [respondent] relied and acted on the false representations.
Five, [respondent] was harmed as a direct result of relying on the false representations.
The court also informed the jury that if respondent failed to prove any of these elements, then it should answer the question in the negative.
The question in the special verdict form simply asked the jury the ultimate fact question of whether Carlsen's actions amounted to a misrepresentation rather than asking the jury about the individual misrepresentation elements. The jury instructions informed the jury that all elements had to be met in order for the jury to find that Carlsen's actions constituted an intentional misrepresentation. Although the question could have been phrased to ask the jury if Carlsen's actions constituted a "fraudulent misrepresentation" rather than a "misrepresentation of any material fact," given the court's instructions to the jury, we conclude the jury was provided enough information to realize the purpose of the question was to ascertain whether respondent met his burden of proof on each of the misrepresentation elements. Given the discretion a district court has in framing special verdict questions, the questions to this jury were appropriate.
VI. Minority Shareholders
Appellants argue that the district court erred in not allowing UMI's minority shareholders to intervene and testify to the effect a fair-value award would have on their interests. Several of the intervenors, however, already had testified at trial. In addition, the district court stated on the record that it read the shareholders' affidavits and took them into account in reaching its decision. Further, this court previously decided this issue on direct appeal from the minority shareholders. Swanson v. Upper Midwest Industries, Inc., No. C8-00-1501, 2001 WL 290460 (Minn.App. Mar. 27, 2001). There, this court concluded that the district court did not err in determining intervention was unnecessary because the shareholders' interests were fully represented by UMI and Carlsen. Id. at *3. Based on that previous decision, the issue is moot.
VII. Attorney Fees
A court, in its discretion, may award reasonable expenses, including attorney fees, if the court finds that a party to a proceeding brought under Minn. Stat. § 302A.751 "has acted arbitrarily, vexatiously, or otherwise not in good faith." Minn. Stat. § 302A.751, subd. 4.
The district court found that Carlsen defrauded respondent by making misrepresentations and omissions that respondent relied on in forfeiting his right to pursue fair value for his stock. The court concluded that Carlsen's conduct "meets the statutory requirement that [appellants] `acted arbitrarily, vexatiously, or otherwise not in good faith.'"
Appellants argue that a court can only award attorney fees if a party acted arbitrarily, vexatiously, or otherwise not in good faith in connection with court proceedings. Appellants assert that the court cannot rely on the events that occurred before respondent filed his suit (i.e., Carlsen's misrepresentations to respondent in late 1995 and early 1996) as a basis for an award of attorney fees under Minn. Stat. § 302A.751, subd. 4.
The object of statutory construction and interpretation is to ascertain and effectuate the legislature's intent. Minn. Stat. § 645.16 (2000). "Every law shall be construed, if possible, to give effect to all its provisions." Id. When a statute's words are not explicit, the legislature's intent may be ascertained by considering a variety of factors, including the occasion and necessity for the law, the object to be attained, other laws addressing the same or similar subjects, contemporaneous legislative history, and legislative and administrative interpretations of the statute. Id.
In Pedro II, this court upheld the district court's award of attorney fees under Minn. Stat. § 302A.751, subd. 4. Pedro II, 489 N.W.2d at 804. The district court in Pedro II awarded attorney fees under Minn. Stat. § 302A.751, subd. 4, based on the court's finding that the defendants had acted in a manner that was "arbitrary, vexatious and otherwise not in good faith * * * prior to and during [the] action." Id. at 801 (emphasis added). This court concluded that, once the district court made specific findings, the court could exercise its discretion to award attorney fees and the court's decision would not be disturbed absent an abuse of discretion. Id. at 804.
Appellants argue, however, that this court, in a later unpublished opinion, clarified its decision in Pedro II by stating that a court may grant attorney fees "if a party has acted arbitrarily, vexatiously, or otherwise not in good faith in a section 302A proceeding." Powell v. Anderson, No. C5-99-1755, 2000 WL 943842, at *5 (Minn.App. July 11, 2000) (emphasis added) review denied (Minn. Sept. 27, 2000). But the court also pointed out in its brief analysis that the district court found "no evidence that [defendants] acted maliciously or fraudulently in relation to Powell and the formation of [the corporation]." Id. As a result, this court concluded that the district court did not abuse its discretion in denying plaintiff's motion for attorney fees. Id. According to this court's language, the district court focused on actions that occurred before the plaintiff commenced suit. Accordingly, Powell does not support appellants' argument.
We conclude the district court did not err in awarding attorney fees to respondent. Pedro II supports the district court's reliance on Carlsen's conduct as a basis for attorney fees under Minn. Stat. § 302A. 751, subd. 4.
VIII. Prejudgment Interest
Respondent argues that the district court erred in awarding him only $17,700 in prejudgment interest.
Respondent contends that the district court misinterpreted Minn. Stat. § 302A.571, subd. 2 by concluding it did not have authority to issue the award because respondent failed to request a buy-back of his stock under the statute. See Minn. Stat. § 302A.751, subd. 2 (stating upon shareholder's motion, court shall order buy-out of shareholder's shares if it would be fair and equitable to all parties, and court "may allow interest" provided in Minn. Stat. § 302A.473, subd. 1 (2000)). We need not decide the precise scope of Minn. Stat. § 302A.473, subd. 1, because even if we interpret the statute broadly as respondent asserts, any interest awarded is governed by Minn. Stat. § 302A.473, subd. 1, which states that interest is calculated at the rate provided in Minn. Stat. § 549.09 (2000).
Minn. Stat. § 549.09, subd. 1(b) provides that damages "shall be computed * * * from the time of the commencement of the action * * * except as provided herein." But one exception "is the offer-counteroffer provision" which compares the winning party or losing party's offers to the amount awarded. Hodder v. Goodyear Tire Rubber Co., 426 N.W.2d 826, 839 (Minn. 1988). The provision allowing prejudgment interest to be cut off applies whenever one party serves a valid offer. If the other party fails to respond or the response is invalid, the valid offer by default is closer to the judgment. * * * If the purpose of the statute is to promote settlements, this is best accomplished by penalizing the party who fails to respond to a settlement overture or who makes an invalid offer.
Id. at 841 n. 17. To constitute a valid offer, it must be in writing and must be clear and definite. Id. at 840.
Respondent asserts the court erred in concluding respondent's settlement counteroffer was not sufficiently clear and definite to entitle him to prejudgment interest under Minn. Stat. § 549.09. We disagree. Here, appellants made a settlement offer of almost $200,000. Respondent sent appellants a counteroffer, offering to settle the claim for "the sum of two million dollars plus the value of [respondent's] stock." The district court concluded that the letter's terms were too indefinite and uncertain. From the face of the letter, it is impossible to ascertain whether [respondent's] counsel was offering to settle for $2 Million plus the book or fair value of his stock.
Respondent did not define value in the letter. Respondent asserts that "the value of his stock" could only mean book value. But this is inconsistent with respondent's unwaivering assertion that "value" means "fair value." Because "value" is subject to several different interpretations, we conclude the district court did not err by awarding respondent prejudgment interest based on appellants' original offer.
By notice of review, respondent also challenges the district court's orders limiting the scope of respondent's breach of fiduciary duty and section 302A.751 claims. Respondent, however, noted that we need not address this issue if the appeal is rejected. Because we are affirming, we do not address this issue.