Opinion
No. CX-96-795.
Filed November 12, 1996.
Appeal from the District Court, Redwood County, File No. C9-87-244.
Britton D. Weimer, (for Appellants Vesta State Bank, et al.)
J. Patrick McDavitt, Lydia P. Crawford, (for Respondent Independent State Bank of Minnesota)
Considered and decided by Peterson, Presiding Judge, Harten, Judge, and Foley, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1994).
UNPUBLISHED OPINION
The parties appeal, on numerous grounds, from the trial court's order on fraud claims related to the sale of agricultural equipment and a related lease of that equipment. We affirm in part, reverse in part, and remand.
FACTS
Respondent Independent State Bank of Minnesota (ISBM) is a banker's bank created to provide correspondent bank services and expertise to member community banks that lack the personnel of larger banks. To generate increased revenues in the early 1980s, ISBM went beyond the traditional correspondent bank services and turned to fee-income services. ISBM began offering Clayton Management, Inc. (CMI) equipment leases to member banks in approximately 1981. ISBM split an origination fee on each lease it did with CMI, as well as a management fee to cover "ongoing work." ISBM's ongoing work included debiting and crediting lease payments to member banks' accounts. CMI provided most of the documentation used in the leases.
ISBM formalized its leasing relationship with CMI with the formal announcement of Leasebank in 1982. Leasebank was a marketing tool that ISBM used to sell or originate leases.
In November-December 1981, appellants Vesta State Bank of Minnesota and State Bank of Belview (collectively Vesta) jointly agreed to purchase certain agricultural equipment (a combine) and the lessor's interest in an accompanying lease of that equipment. This equipment was originally purchased from Wendell Klockmann Sons, Inc. (KSI), and was then sold to respondent Lease Resources Corporation (LRC). LRC originated the sale of the equipment and the lease, prepared the lease documentation, purchased the equipment, entered into a lease with the lessee KSI, and then sold the equipment and accompanying lease to Vesta. CMI prepared the bill of sale and serviced the lease, collecting lease payments and remitting them to ISBM.
ISBM introduced Vesta to the transaction, transmitted to Vesta the sale and lease documents it received from LRC and CMI, arranged for CMI to manage the lease, and remitted lease payments to Vesta that it received from CMI.
In 1982, KSI defaulted on its lease payments. Vesta commenced an action in California against KSI and Wendell Klockmann for collection of unpaid lease payments, which was ultimately settled. Vesta also brought a successful suit in North Dakota for recovery of the equipment, which was then sold at a foreclosure sale in that state.
On April 16, 1987, during the pendency of the California litigation, Vesta brought this suit against ISBM. The litigation led to a supreme court decision holding that Vesta's contract claims were barred by the U.C.C. statute of limitations, but remanding on the issue of the accrual of Vesta's fraud claims for purposes of the statute of limitations. See Vesta State Bank v. Independent State Bank , 518 N.W.2d 850, 856 (Minn. 1994).
At the beginning of the bench trial on remand, Vesta's motions for default judgment against CMI and LRC were granted. Following the trial, the court held that: (1) ISBM had engaged in common law fraud; (2) ISBM and CMI were engaged in a joint venture; (3) ISBM, CMI, and LRC were jointly and severally liable; and (4) Vesta's fraud claims were not barred by the statute of limitations. The trial court rejected Vesta's statutory fraud claims. Damages were calculated using the "out-of-pocket" (rather than the "benefit-of-the-bargain") measure. Supplemental orders addressed the issues of prejudgment interest and taxable costs and clarified the finding that Vesta's fraud claims did not accrue until it commenced this action on April 16, 1987.
Several appeals from these orders have been consolidated. Vesta appeals the calculation of damages and the rejection of its statutory fraud claims. ISBM, by notice of review, appeals on the statute of limitations issue, the finding of fraud, the finding of joint venture and liability, the inclusion of attorney fees from the out-of-state litigation in Vesta's damages, the award and calculation of prejudgment interest, and the taxation of costs.
DECISION I. Statute of Limitations
By notice of review, ISBM challenges the trial court's conclusion that the applicable statute of limitations on Vesta's fraud claims is the six-year provision in Minn. Stat. § 541.05, subd. 1(6) (1994), arguing that the correct statute is the U.C.C.'s four-year provision enacted by Minn. Stat. § 336.2-725(1) (1994). This is a legal question, which we review de novo. See Hibbing Educ. Ass'n v. Public Employment Relations Bd. , 369 N.W.2d 527, 529 (Minn. 1985) (construction of statute is question of law fully reviewable by appellate court).
The dispute on this point centers around the following language from the supreme court's earlier decision in this case:
Because we find this transaction to be a sale of goods, the U.C.C.'s four-year statute of limitations applies to the contract claims alleged in Vesta's complaint and in the first and second amendments and renders them time barred. However, Vesta's complaint and the amendments also allege claims based on fraud, for which the statute of limitations begins to run only when the aggrieved party discovers the facts constituting the fraud. On this record, we cannot determine whether these claims were made within the statutory period.
Vesta State Bank , 518 N.W.2d at 855 (footnotes omitted) (emphasis added).
Vesta argues that this language is a holding that the U.C.C.'s provision does not apply to fraud-based claims. As support, it cites Buller v. A.O. Harvestore Prods. , 518 N.W.2d 537, 540-43 (Minn. 1994), where the court applied the six-year limitations period to fraud accompanying a U.C.C. transaction.
ISBM argues that the above-quoted language suggests the contrary; that is, that the supreme court viewed the fraud claims as still governed by the U.C.C. statute of limitations. In support of this latter position is the fact that the court also held that the tolling rule applied to "fraud-based causes of action arising in transactions governed by the U.C.C.," without suggesting in any way that a different limitations period applied. Vesta State Bank , 518 N.W.2d at 855 n. 7. Further, ISBM argues that if the supreme court had viewed the six-year limitations period as applicable, no remand would have been necessary because the claim was plainly made within that period.
As ISBM states this proposition,
even assuming that Vesta discovered the facts constituting the alleged fraud immediately upon the [transaction date] in November/December 1981, this lawsuit, commenced in April 1987, would have been within six years.
[I]ssues considered and adjudicated on a first appeal become the law of the case and will not be reexamined or readjudicated on a second appeal of the same case.
Lange v. Nelson-Ryan Flight Serv. , 263 Minn. 152, 155, 116 N.W.2d 266, 269 (1962), cert. denied , 371 U.S. 953, 83 S.Ct. 508 (1963). In sum, ISBM argues that the supreme court decided the issue and it is the law of the case. It rejects Vesta's cite to Buller on the ground that the decision does not discuss the possible application of a different statute of limitations, and itself cites Valley Farmers' Elevator v. Lindsay Bros. , 398 N.W.2d 553, 556-57 (Minn. 1987), overruled in part on other grounds by Hapka v. Paquin Farms , 458 N.W.2d 683 (Minn. 1990), where the supreme court applied the U.C.C. statute of limitations in the context of a case involving joint tort and breach-of-warranty claims.
Although Vesta appears to suggest that the U.C.C. statute of limitations governs the entire action, we do not agree that the case actually so holds, believing the relevant language to be dicta. The U.C.C. provision refers to "[a]n action for breach of any contract for sale." Minn. Stat. § 336.2-725(1). Vesta's fraud-based claims are not such an action, and we see no reason why the general six-year limitations period for fraud claims should be shortened to the four-year U.C.C. period just because the action also involves breach of contract-for-sale-of-goods claims that are subject to that shorter period. We therefore affirm the trial court's ruling that the six-year period applies, and thus that Vesta's fraud-based claims are not time barred.
The trial court found that Vesta's fraud-based claims accrued on April 16, 1987. ISBM appealed this finding, but concedes that the action was commenced within six years of the date of accrual and thus would not be barred by a six-year limitations period. Therefore, we decline to address the issue of the accrual date further.
II. Sufficiency of Evidence of Fraud
ISBM next argues that the evidence in the record is insufficient to establish fraud. Findings of fact will not be set aside unless clearly erroneous. Minn.R.Civ.P. 52.01.
In relation to its argument, ISBM challenges, on hearsay grounds, the trial court's consideration of affidavits by Vesta's now-deceased president, Al E. Schultes. Vesta, in turn, moves to strike that challenge on the ground that ISBM did not move for a new trial and thus the admission of the evidence is not appealable.
In Sauter v. Wasemiller , 389 N.W.2d 200, 201-02 (Minn. 1986), the supreme court affirmed the general rule that a motion for a new trial is required to preserve evidentiary issues for appellate review. ISBM therefore may not challenge the admission of the affidavit on hearsay grounds. We deny, however, Vesta's motion for sanctions against ISBM for its reliance on the hearsay issue in this appeal.
Intentional or reckless misrepresentation, the types of fraud alleged here, require a showing of the following elements:
1. There must be a representation;
2. That representation must be false;
3. It must have to do with a past or present fact;
4. That fact must be material;
5. It must be susceptible to knowledge;
6. The representer must know it to be false [intentional], or in the alternative, must assert it as of his own knowledge without knowing whether it is true or false [reckless];
7. The representer must intend to have the other person induced to act, or justified in acting upon it;
8. That person must be so induced to act or so justified in acting;
9. That person's action must be in reliance upon the representation;
10. That person must suffer damage;
11. That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of the injury.
Florenzano v. Olson , 387 N.W.2d 168, 174 n. 4 (Minn. 1986) (citing Davis v. Re-Trac Mfg. , 276 Minn. 116, 117, 149 N.W.2d 37, 38-39 (1967)). Expert opinions may constitute actionable representations. Kociemba v. G.D. Searle Co. , 707 F. Supp. 1517, 1525 (D.Minn. 1989) (citing Hedin v. Minneapolis Medical Surgical Inst. , 62 Minn. 146, 148, 64 N.W. 158, 159 (1895)).
Although the trial court's findings could be more precise, there is sufficient evidence to establish fraud here. There cannot be much serious dispute that ISBM misrepresented to Vesta that the investment was safe and that the property was located nearby and would fully secure the amount invested. Vesta provided evidence that it would not have made the investment had it known that the fair value of the property was less than it was paying or that the lessee was financially insecure. The trial court's conclusion that ISBM committed fraud in this transaction is not clearly erroneous and we therefore affirm it.
ISBM also argues that any fraud was not attributable to it, but rather to the other defendants. We disagree. The trial court expressly concluded that CMI and ISBM were engaged in a joint venture, based on its numerous findings regarding the structure of the relationship between the parties. It further concluded that
Factors involved in the issue of whether a joint venture exists are: (1) contribution; (2) joint ownership and control; (3) sharing of profits; and (4) contract. Rehnberg v. Minnesota Homes, Inc. , 236 Minn. 230, 235-36, 52 N.W.2d 454, 457 (1952). There are no definite rules on this issue, though, and each case "depends on its own peculiar facts." Id. at 235, 52 N.W.2d at 457.
CMI, ISBM, and LRC jointly misled [Vesta] about numerous material facts, then jointly concealed [Vesta's] claims. The damages caused by their conduct are the same. The defendants are jointly and severally liable to [Vesta].
We hold that the trial court's substantial findings regarding the relationship between the defendants support the imposition of joint liability.
III. Statutory Fraud Claims
Vesta argues that the trial court erred by finding that ISBM did not violate three statutory fraud provisions: the Consumer Fraud Act, Minn. Stat. § 325F.68-.70; the False Statement in Advertisement Act, Minn. Stat. § 325F.67; and the Deceptive Trade Practices Act, Minn. Stat. § 325D.43-.48.
A. Consumer Fraud Act
The Consumer Fraud Act prohibits
[t]he act, use, or employment by any person of any fraud, false pretense, false promise, misrepresentations, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby * * *.
Minn. Stat. § 325F.69, subd. 1 (1994). Minn. Stat. § 8.31, subd. 3a (1994), establishes a private cause of action for persons injured by violations of the Consumer Fraud Act. The scope of this provision is broader than common-law fraud. LeSage v. Norwest Bank Calhoun-Isles , 409 N.W.2d 536, 539 (Minn.App. 1987).
The trial court's order simply states that there was insufficient evidence of a violation of the statute. We disagree. Based on the trial court's findings, as discussed above, ISBM violated the act.
ISBM argues that if the statute was violated, it cannot be held liable because the trial court found that LRC, and not ISBM, sold the lease equipment to Vesta. This argument ignores the trial court's conclusion that the defendants jointly misled Vesta, jointly concealed Vesta's claims, and are jointly and severally liable, as discussed above. We reverse the trial court's conclusion that the Consumer Fraud Act was not violated. As Vesta has recovered its losses through its common law fraud claims, we do not believe that further damages related to this statutory violation are proper. However, we remand to the trial court for a calculation and imposition of reasonable attorney fees as provided for by Minn. Stat. § 8.31, subd. 3a.
B. False Statement in Advertisement Act
The trial court concluded:
24. There was insufficient evidence that ISBM did any advertising of its lease program prior to, or at the time of, the [transaction at issue].
25. There was insufficient evidence that, connected with the [transaction], ISBM published, disseminated, circulated or placed before the public advertising in the form of notices, circulars, letters, pamphlets, lease package documents, seminars, or personal solicitations with material assertions, representations, and statements of fact which were untrue, deceptive, and misleading in violation of [the false advertisement act].
In its argument on this point, Vesta fails to cite to evidence in the record contradicting these findings, which preclude a conclusion that ISBM violated the false advertisement act. We therefore affirm the trial court on this issue.
C. Deceptive Trade Practices Act
The Deceptive Trade Practices Act provides, in pertinent part:
A person engages in a deceptive trade practice when, in the course of business, * * * the person:
* * *
(2) causes likelihood of confusion or of misunderstanding as to the source * * * of goods or services;
* * *
(4) uses deceptive representations or designations of geographic origin in connection with goods or services;
(5) represents that goods or services have * * * characteristics, * * * [or] benefits * * * that they do not have or that a person has a * * * status * * * or connection that the person does not have;
(6) represents that goods are original or new if they are * * * secondhand; [or]
(7) represents that goods or services are of a particular standard, quality, or grade * * * if they are of another.
Minn. Stat. § 325D.44, subd. 1 (1994). The act is "to be liberally construed in favor of protecting consumers." State by Humphrey v. Alpine Air Prods. , 490 N.W.2d 888, 892 (Minn.App. 1992) ("[c]onsumer protection laws * * * were intended to broaden the [common law] cause of action"), aff'd , 500 N.W.2d 788 (Minn. 1993).
The trial court found numerous misrepresentations by ISBM to Vesta related to the Deceptive Trade Practices Act: (1) the lease was personally guaranteed by the lessee's principal; (2) the lessee's principal had sufficient income and assets to make the lease payments; (3) ISBM had carefully reviewed all the documents to ensure that Vesta was protected; and (4) the equipment had a higher market value than it actually did and Vesta was purchasing the equipment at market value. In its conclusions of law, the trial court also implied a finding that ISBM had misrepresented that the equipment was new and was going to remain in North Dakota. These facts are supported by the record and compel us to hold that the trial court erred in concluding that there is insufficient evidence of a violation of the Deceptive Trade Practices Act. We therefore reverse. Again, we do not believe a further damage award is appropriate, but remand to the trial court for consideration of an award of attorney fees under Minn. Stat. § 325D.45, subd. 2 (1994).
IV. Damages
A. Out-of-Pocket v. Benefit-of-the-Bargain
Vesta argues that the trial court incorrectly awarded only out-of-pocket damages rather than benefit-of-the-bargain damages. This is a legal issue, which we review de novo. See Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n , 358 N.W.2d 639, 642 (Minn. 1984) (reviewing court need not defer to trial court's decision on purely legal question).
The general measure of damages arising from fraud and misrepresentation is the plaintiff's out-of-pocket loss. B.F. Goodrich Co. v. Mesabi Tire Co. , 430 N.W.2d 180, 182 (Minn. 1988). A limited exception may apply, allowing the plaintiff to recover the difference between the value of the property received and the value it would have had if the representation had been true, if out-of-pocket damages will not make the party whole. Id. at 182-83. See, e.g., B.F. Goodrich , 430 N.W.2d at 182-83 (where plaintiff's entire tire business lost because of misrepresentations, benefit-of-the-bargain damages proper); Lewis v. Citizens Agency of Madelia, Inc. , 306 Minn. 194, 200-01, 235 N.W.2d 831, 835-36 (1975) (where insurance agent misrepresented that plaintiff had life insurance policy rather than annuity, plaintiff recovered what the value of proceeds would have been rather than just the premiums; Hanks v. Hubbard Broadcasting, Inc. , 493 N.W.2d 302, 310-11 (Minn.App. 1992) (where misrepresentations caused news anchor to forego other business opportunities, damaging her career beyond any out-of-pocket losses, benefit-of-the-bargain damages were proper), cert. denied (Minn. Feb. 12, 1993); Brooks v. Doherty, Rumble Butler , 481 N.W.2d 120, 128-29 (Minn.App. 1992) (attorney whose career damaged beyond out-of-pocket losses by misrepresentations entitled to benefit-of-the-bargain damages), review denied (Minn. Apr. 29, 1992).
Vesta's argument is that because it was required to invest its depositors' money and would not have conducted this transaction absent the fraud, it is entitled to receive all the money it expected from the transaction. We disagree. The primary damages in the above cases were sweeping and general, such that out-of-pocket damages would have failed entirely to compensate the plaintiffs. Here, though, the out-of-pocket damages are a substantial portion of the claimed loss and are fairly easily calculated. There is no evidence of more general damage to Vesta's business resulting from ISBM's fraud. We affirm the trial court's measure of damages.
B. Inclusion of Attorney Fees in Damage Award
The trial court added Vesta's attorney fees from the California and North Dakota actions as consequential damages. ISBM claims that they are not "consequential" in that its fraud did not proximately cause the damages; it suggests that the trial court improperly included them under a "but for" causation analysis. It argues that to recover the attorney fees at issue, Vesta would have had to prove that they were contemplated by ISBM at the time the fraud occurred.
We disagree. ISBM may not have actually contemplated that Vesta would incur these attorney fees as a result of its fraud, but it is reasonable to hold that it should have.
V. Prejudgment Interest
A. Generally
The trial court awarded Vesta prejudgment interest on its out-of-pocket losses. ISBM argues that this was improper because Vesta's damages were not "readily ascertainable" during the pendency of the case.
Traditionally, a prejudgment interest award required that the damages be liquidated or readily ascertainable. Potter v. Hartzell Propeller, Inc. , 291 Minn. 513, 518, 189 N.W.2d 499, 504 (1971). In 1984, though, the legislature amended Minn. Stat. § 549.09, covering prejudgment interest,
to allow pre-verdict interest irrespective of a defendant's ability to ascertain the amount of damages for which he might be held liable.
Lienhard v. State , 431 N.W.2d 861, 865 (Minn. 1988).
ISBM argues that the "readily ascertainable" rule still applies, but fails to distinguish Lienhard . We affirm the trial court's decision on prejudgment interest.
B. Prejudgment Interest on Attorney Fees
The trial court declined to award prejudgment interest on attorney fees generated by the California and North Dakota litigation, based on Minn. Stat. § 549.09, subd. 1(b)(5) (1994), which provides that prejudgment interest shall not be awarded on
that portion of any verdict, award, or report which is founded upon * * * attorney fees, or other similar items added by the court * * *.
(Emphasis added.) Vesta argues that the attorney fees from the California and North Dakota litigation were not "items added by the court," but were rather an item of damage themselves and thus were subject to prejudgment interest.
Although no cases directly on point are cited, there are some that do support Vesta's position. See, e.g., Gaughan v. Gaughan , 450 N.W.2d 338, 344 (Minn.App. 1990) (Minn. Stat. § 549.09 does not bar prejudgment interest on attorney fees in action by law firm to recover fees from client), review denied (Minn. Mar. 16, 1990); Seaway Port Auth. of Duluth v. Midland Ins. Co. , 430 N.W.2d 242, 252 (Minn.App. 1988) (prejudgment interest on attorney fees proper where they are part of judgment to compensate for insurers' breach of insurance policies because such fees are "subject matter of the judgment itself," rather than items "added by the court").
We have already determined that the attorney fees at issue are "consequential damages" under the circumstances of this case. As the fees are part and parcel of the damage being compensated, rather than additional awards to Vesta "added by the court," we reverse the trial court and hold that prejudgment interest should be awarded on them as well.
VI. Taxation of Costs for Expert Report and Deposition Not Used at Trial
ISBM argues that the trial court improperly assessed costs against it for an expert report and a deposition prepared for Vesta but not used at trial. We disagree.
"The fact that a deposition was not used at trial does not bar deposition costs." Johnson v. Southern Minn. Mach. Sales , 460 N.W.2d 68, 73 (Minn.App. 1990), review denied (Minn. Sept. 21, 1989). Similarly, expert fees taxable include compensation for trial preparation. Quade Sons Refrigeration v. Minnesota Mining Mfg. , 510 N.W.2d 256, 261 (Minn.App. 1994), review denied (Minn. Mar. 15, 1994).
ISBM argues that the deposition was cumulative, but as the trial court noted, it was taken by Vesta because ISBM objected to an earlier deposition of the same witness for lack of foundation. The expert report was used to reach a stipulation on an issue in the case and would otherwise have likely been introduced at trial. We affirm the trial court's taxation of these items.