Filed October 9, 2001.
Appeal from the District Court, Hennepin County, File No. 98-17973.
David E. Wandling, Christopher W. Fowlkes, (for appellant)
Ann E. Kennedy, and Randy G. Gullickson, Janel M. Dressen, (for respondent)
Considered and decided by Peterson, Presiding Judge, Amundson, Judge, and Anderson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
After being terminated from respondent company, appellant sued to recover damages based on stock ownership. He prevailed and was awarded damages of $10,000. Appellant contends the district court erred in limiting his damages to the value of the stock ownership on the date he was forced from the company; in denying his motion to compel discovery as to the current value of his ownership; in denying his request for a continuance for discovery; in denying his request for specific performance; and in dismissing his breach of contract claim based on lack of consideration. We affirm.
Appellant, Cory Wandling, is a software developer. During April and May 1997, Wandling worked as an independent contractor for Bridge Internet Technologies (Bridge) when he and two other independent contractors also working at Bridge, Kevin Lynch and Rick Crosby, held a general discussion about working together and forming their own company. Wandling testified that prior to leaving Bridge, they all agreed to receive a salary and ownership in the new company, but they did not discuss specifics.
On May 15, 1997, Wandling, Crosby, and Lynch began work on TransView Corporation (TransView) by developing software in Lynch's basement. On June 20, 1997, Lynch incorporated the new company. Lynch testified that he was then the sole shareholder because he alone contributed funds used to capitalize the company. Wandling, who disputes this testimony, claimed that he purchased computer equipment for the company in the amount of $13,000.
Sometime either shortly before or after the incorporation, Lynch, Wandling, and Crosby negotiated the ownership of the company. They agreed that all three would receive an eight percent ownership stake in the corporation. Wandling and Crosby both claim that the issues of vesting and voting had not been discussed prior to the June 1997 stock agreement, although Lynch claimed they had been. Additionally, prior to the incorporation of the company, Wandling, Crosby, and Lynch all agreed to forgo salary payments until cash flow was adequate; they specifically agreed to forgo salary payments until August of 1997. Wandling later agreed to forgo his salary for the months of September and October. Wandling began getting paid on October 28, 1997.
Wandling claims that he requested documentation about his ownership stake in TransView several times. In November 1997, he received a written stock grant offer for an eight percent ownership interest in the company. However, he was offered Class B shares that vested over a two-year period, whereas Lynch had received Class A voting stock. Wandling did not sign the offer, objecting to the terms that, he asserts, were not part of the original agreement. According to Wandling, Lynch then assured him that the two-year vesting provision would be removed from the written contract.
In December of 1997, Lynch proposed a second stock agreement. This proposal was a "Restricted Stock Grant Agreement" (restricted stock agreement). That agreement still contained the two-year vesting period and the Class B nonvoting shares. It also contained a provision that allowed the TransView board of directors to demand that Wandling relinquish his stock, even if vested, if TransView determined that Wandling had taken any action contrary to the interests of TransView. The restricted stock agreement also provided that
the Corporation shall have an option to purchase at the price set forth in Section 4 hereof, all of the common shares of the Corporation which are the subject of the Triggering Event from that Shareholder.
A "Triggering Event" included "a Shareholder's termination of employment, voluntarily or involuntarily, with the Corporation." The buy-out price of $.90 per share was set in the restricted stock agreement. Wandling again expressed concern over that agreement and did not sign it. On March 4, 1998, Transview terminated Wandling's employment due to disruptive conduct. Wandling never received shares in TransView.
Wandling filed a complaint against TransView and Lynch alleging breach of contract, promissory estoppel, fraudulent misrepresentation, retaliatory discharge, defamation, and wrongful withholding of compensation. During discovery, TransView objected to providing financial information for the period after the date Wandling was terminated. Wandling then moved to compel discovery of this financial information, arguing that the information was necessary to calculate the company's value for damages. The district court denied Wandling's discovery motion, concluding that the date the damages were set was the date of Wandling's termination.
Wandling moved the court several times to reconsider this order. Shortly before trial, the district court denied Wandling's requests for reconsideration of the discovery order and dismissed Wandling's fraud and breach of contract claims on summary judgment.
The parties argued various pretrial motions in limine, including a reconsideration of the limitation on damages, other damages issues, and a continuance of the trial. The district court denied Wandling's requests for specific performance, reconsideration of the original discovery order, and a trial continuance.
After a trial, the jury found that Wandling was entitled to stock under the promissory estoppel claim and awarded damages of $10,000. The court entered a judgment for $14,825.55 for that award, which included interest. This appeal followed.
We are not bound by and need not give deference to a trial court's decision on purely legal issues. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). We review de novo the application of law to stipulated facts. Morton Bldgs., Inc. v. Commissioner of Revenue, 488 N.W.2d 254, 257 (Minn. 1992).
Wandling first contends the district court erred when it ordered that damages be computed by determining the value of TransView's stock on the date of his termination. Wandling argues that the appropriate measure of damages would be calculated by assuming that he had retained the stock through the date of trial. TransView, however, claims that had Wandling been issued shares, it would have bought out those shares shortly after his termination because either (1) TransView would have enforced the buy-back provision of the shareholder redemption agreement or (2) TransView would have initiated a legal proceeding under which it would have bought out Wandling's stock, a "freeze out merger."
Wandling was awarded damages under a promissory estoppel claim. Damages in promissory estoppel claims are limited to the damages available in breach of contract actions. Deli v. University of Minn., 578 N.W.2d 779, 782 (Minn.App. 1998), review denied (Minn. July 16, 1998). Minnesota law provides no general rule for setting the date of damages in contract actions. Generally, however, contract damages are calculated to place plaintiffs where they would have been had the contract been performed. Sprangers v. Interactive Technologies, Inc., 394 N.W.2d 498, 503-04 (Minn.App. 1998), review denied (Minn. Nov. 19, 1986). But damages that are remote and speculative cannot be awarded. Jackson v. Reiling, 311 Minn. 562, 563, 249 N.W.2d 896, 897 (1977). There is no general test of remote and speculative damages, and deciding which damages are remote and speculative is usually left to the judgment of the district court. Id. Further, in promissory estoppel claims, "[t]he remedy granted for breach may be limited as justice requires." Cowen v. Cowles Media Co., 479 N.W.2d 387, 392 (Minn. 1992) (quotation omitted).
Here, the district court concluded that it would be too speculative to determine whether Wandling would have retained the stock until trial and, accordingly, ordered that damages be calculated as of the date of Wandling's termination. Decisions in other areas of Minnesota law support this conclusion. In cases of tortious conversion, for example, Minnesota has adopted the New York rule, which provides that the proper measure of damages for the conversion of stock is the highest value reached by the stock within a reasonable time after discovery of the conversion. Hornblower Weeks-Hemphill Noyes v. Lazere, 301 Minn. 462, 473, 222 N.W.2d 799, 806 (1974); Fawcett v. Heimbach, 591 N.W.2d 516, 519 (Minn.App. 1999). The rationale behind this rule is that the general measure of damages for conversion is the market value of the property at the time of conversion. Fawcett, 591 N.W.2d at 520. But when converted goods, such as stock, have a fluctuating value, courts supplement that general rule to provide a more equitable remedy to the injured party. Id. In that situation, damages are measured by "the highest intermediate value of the stock between the time of its conversion and a reasonable time after the owner has received notice of it to enable him to replace the stock." Id. (quotation omitted).
Similarly, in an action for a breach of warranty of authority to contract, our supreme court has held that the measure of a non-breaching purchaser's damages includes not only the difference between the property's contract price and market value on the day of the sale, but also any increase in the value of the property up until the time the purchaser learned that the agent lacked authority to contract for its sale and knew it had to find replacement property. Wolfson v. Beris, 295 N.W.2d 562, 567 (Minn. 1980). Thus, the date the damages were assessed in Wolfson was the date the injured party discovered the breach. Id.
We agree with the district court that damages in this case are to be limited to the damages computed at the approximate date of termination. Wandling alleged an equitable contract. Undisputed evidence showed that other shareholders situated similarly to Wandling signed the shareholder redemption agreement as a condition to receiving their shares. Under that agreement, "any shareholder" agreed to give TransView the option to purchase the shares of stockholders upon termination for a buy-out price of $.90 per share. That price was basically the equivalent of the market price at that time as, shortly after Wandling's termination, an investor purchased shares for $.924 per share. At trial, Wandling was permitted to enter evidence of both the buy-out price under the shareholder redemption agreement, and the price at which the private investor purchased shares shortly after Wandling's termination. TransView pointed out that had Wandling been issued shares, he would have had to sign the shareholder redemption agreement as a condition to receiving those shares.
Furthermore, TransView's officers offered testimony that if the buy-back argument had been unsuccessful, TransView would have initiated a legal proceeding soon after Wandling's termination, under which it would have bought out Wandling's stock (a "freeze out merger"). Therefore, it does not appear to have been inequitable or an incorrect legal conclusion for the district court to have limited damages and financial discovery up to the date of Wandling's termination. We agree with the district court that it would be speculative to hold that Wandling would have held on to the shares for two-and-a-half years after his termination.
We note that this case involves stock in a privately held corporation and that such stock cannot be freely purchased on the open market. But the supreme court in Wolfsonlimited recovery to the date the non-breaching party learned of the breach even though the dispute involved real estate, which is generally not considered fungible. See Wolfson, 295 N.W.2d at 567.
Wandling points to Sprangers, 394 N.W.2d at 505 to support his view that damages should be calculated as if he held the stock on the date of trial. In that case, the jury found that the oral agreement to sell stock in a private company was valid and awarded Sprangers damages for the stock as valued at the time of trial (five years after the contract), assuming, apparently, that he still would have owned it. Id. at 500. We vacated the award and awarded specific performance by delivery of the shares instead. In Sprangers, however, no agreement existed that would have allowed the company to force a sale of the stock, and the court did not make a specific determination that damages should be based on the stock value at the time of trial.
Wandling also contends that he is entitled to lost profits. In Minnesota, damages in the form of lost profits may be assessed in breach of contract cases
where they are shown to be the natural and probable consequences of the act or omission complained of and their amount is shown with a reasonable degree of certainty and exactness. This means that the nature of the business or venture upon which the anticipated profits are claimed must be such as to support an inference of definite profits grounded upon a reasonably sure basis of facts. * * * This rule does not call for absolute certainty.
Cardinal Consulting v. Circo Resorts, Inc., 297 N.W.2d 260, 266 (Minn. 1980) (citations omitted). But, speculative, remote, or conjectural damages are not recoverable. Id. Who can say when Wandling would have sold the stock, or been forced to sell the stock by TransView, had he been issued it in the first place?
TransView's argument that Wandling is barred from raising the damages issue on appeal because Wandling failed to raise it in a motion for a new trial is unpersuasive. The general rule is that
in order to preserve for appellate review issues arising during the course of the trial, counsel * * * must move the trial court for a new trial.
Sauter v. Wasemiller, 389 N.W.2d 200, 202 (Minn. 1986) (emphasis added). The purpose of a motion for a new trial is
to focus the trial court's attention on the specifics of an objection which, though properly framed during trial, might not have been fully explained or the impact of which might not have been understood during trial. The trial court is given time for reflection and the opportunity to consider the context in which the alleged error occurred and the effect it might have had upon the outcome of the litigation.
Id. at 201-02.
Here, the evidence of damages was excluded in a motion in limine. It was not an issue that arose during the course of the trial, and thus no motion for a new trial need have been made to preserve the issue for appeal. Furthermore, the district court made the decision after oral argument and after considering the issue in chambers. Thus, the district court had a full opportunity to examine the issue, obviating the underlying rationale for granting a motion for a new trial.
Wandling next argues that the district court erred by denying his motion to compel discovery of documents that would evidence TransView's value after his termination date. We will not reverse discovery decisions unless the district court "abused its discretion, exercised its discretion in an arbitrary or capricious manner, or based its ruling on an erroneous view of the law." Montgomery Ward Co. v. County of Hennepin, 450 N.W.2d 299, 306 (Minn. 1990) (citations omitted). In making a determination on a discovery question, the court takes into account the needs of the case and the importance of the proposed discovery in resolving the issues. Minn.R.Civ.P. 26.02(a). Here, the district court properly excluded evidence of TransView's current value because it ruled that damages, as a matter of law, were based on the value of the stock at the time of termination. Discovery on TransView's financial circumstances after that date would have served no purpose, and its exclusion was not an abuse of discretion.
Similarly, Wandling's argument that the district court erred by denying his request for a trial continuance, the week before trial, to pursue discovery of TransView's current value must also fail. Because the discovery motion was correctly denied and Wandling based the motion for a continuance on that discovery question, the district court had a valid reason for denying the motion. See Dunshee v. Douglas, 255 N.W.2d 42, 45 (Minn. 1977) (granting or denial of request for continuance is within the district court's discretion and will not be reversed absent clear abuse of discretion).
Wandling next contends that the district court improperly precluded an award of specific performance of TransView shares and that because valuation of a closely held company is difficult, specific performance is appropriate. TransView argues that specific performance is not appropriate here where the stock has a determinable value.
Specific performance is an equitable remedy that rests within the sound discretion of the district court. Lilyerd v. Carlson, 499 N.W.2d 803, 811 (Minn. 1993). A party does not have the automatic right to obtain specific performance as a remedy for breach of contract. Dakota County HRA v. Blackwell, 602 N.W.2d 243, 244 (Minn. 1999). In determining whether specific performance is appropriate, the district court is required to balance the equities of the case. Id.
Here, the district court declined to order specific performance, reasoning that the value of the stock at either the date of termination or on the date of trial could be measured. The district court also concluded that, given the history of the parties' relationship, if Wandling were granted an ownership stake, he might very well be disruptive to the functioning of the corporation. The district court's decision does not constitute an abuse of discretion. Wandling was to be fully compensated for his loss, but the corporation was to be spared from a potentially disruptive partial owner. Although specific performance may be an appropriate remedy in a case such as this one, it does not constitute an abuse of discretion to deny the remedy where there are adequate reasons to do so.
Lastly, Wandling contends that the district court erred by dismissing his breach of contract claim by summary judgment. TransView alleges that the dismissal was proper and, if not, that the error was harmless. The district court dismissed Wandling's breach of contract claim because the contract was unsupported by consideration and therefore unenforceable.
Promissory estoppel claims are based on an implied contract and are creatures of contract law. Deli, 578 N.W.2d at 781-82. Damages in such claims are the same as those available in breach of contract actions. Id. at 782-83. Here, because the available recovery for damages under the promissory estoppel and breach of contract claims are identical, and the jury found for Wandling on the promissory estoppel claim, any error in dismissing the breach of contract claim by summary judgment was harmless. See In re Welfare of D.T.N., 508 N.W.2d 790, 797 (Minn.App. 1993) ("A reviewing court will not reverse a trial court for an error that it can see did not change the result."), review denied (Minn. Jan. 14, 1994).