Kennard E. Moe, Respondent, vs. Maxine L. Moe, Appellant.

Kennard E. Moe, Respondent, vs. Maxine L. Moe, Appellant. A04-953, Court of Appeals Unpublished, February 15, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-953

 

Kennard E. Moe,
Respondent,
 
vs.
 
Maxine L. Moe,
Appellant.

 

Filed February 15, 2005

Affirmed

Wright, Judge

Dissenting, Lansing, Judge

 

Beltrami County District Court

File No. C1-02-001647

 

Stephen R. Young, Drahos Young & Kieson, P.A., 1005 Paul Bunyan Drive Northwest, Bemidji, MN  56601 (for appellant)

 

Duane Kragness, Kragness Law Office, 922 Dakota Avenue, Wahpeton, ND  58075 (for respondent)

 

            Considered and decided by Kalitowski, Presiding Judge; Lansing, Judge; and Wright, Judge.

U N P U B L I S H E D  O P I N I O N

 

WRIGHT, Judge

 

Respondent former-husband sued appellant former-wife, alleging fraud and seeking as damages an interest in a parcel of land owned by appellant.  The district court concluded that appellant had committed fraud and ordered the parcel sold and the proceeds divided between the parties.  Appellant now argues that (1) the record does not support several of the district court's findings; and (2) the district court misapplied the law of damages, compensating respondent in excess of his out-of-pocket costs.  We affirm.  

FACTS

 

Appellant and respondent were married in 1981.  In September 1995, after agreeing to dissolve their marriage, the parties executed and filed a marital termination agreement that divided their marital assets.  Respondent retained counsel; appellant did not.  The agreement awarded appellant legal title to the "forty-acre parcel" and awarded respondent the "Lakewood parcel" and a mobile home.  Respondent immediately conveyed his interest in the forty-acre parcel to appellant. 

A short time later, the parties reconciled and resumed living together on the Lakewood parcel, where they had resided during the marriage.  In late October 1995 at a meeting with two attorneys shortly after the death of appellant's adult son, respondent heard one attorney advise appellant that the divorce could be undone.  In early November, appellant received a copy of the final divorce decree mailed to her at her father's home.  Respondent's attorney drafted a letter to respondent dated November 2, 1995, attached the final divorce decree, and mailed it to respondent at the Lakewood property.  Respondent testified that he never saw the letter.  Shortly after the Christmas following the death, respondent asked appellant about the dissolution papers.  Appellant told respondent that "she had burned them."  She then stated that "everything had been taken care of."  Although judgment had been entered, respondent believed that the dissolution action had been terminated and that he and appellant remained married. 

The parties' relationship continued as if they were married.  In 1996, the parties moved onto the forty-acre parcel and began improving the property.  Because neither the divorce decree nor the accompanying deed was recorded until 2001, property tax statements continued to show appellant and respondent as co-owners of the forty-acre parcel.  In July 1997, the parties sold the Lakewood parcel, executing the deed as husband and wife.  Respondent testified that he used the $19,000 in proceeds from the sale of the Lakewood parcel to improve the forty-acre parcel, contributing at least $14,258.  At the time of trial, the forty-acre parcel with improvements was valued at $58,260.

The parties filed joint income tax returns representing that they were married for the 1997, 1998, and 1999 tax years.  And appellant never told her neighbors or respondent's co-worker that she and respondent had divorced.  The parties lived together until mid-2000 when respondent decided to initiate dissolution proceedings.  Appellant then informed him that their marriage had already been dissolved.

Respondent sued appellant, alleging fraud and unjust enrichment.  Respondent sought a decree awarding him the forty-acre parcel.  Respondent alleged that appellant misrepresented that their dissolution had been cancelled, causing him to sell his property (the Lakewood parcel) and use the proceeds to improve appellant's property (the forty-acre parcel).  As a result of the fraud, respondent alleged, he was left with no land.  The matter proceeded to trial, after which the district court concluded that appellant fraudulently misrepresented that the dissolution had been terminated.  The district court ordered the sale of the forty-acre parcel and division of the proceeds equally between the parties.  Appellant moved for amended findings, or in the alternative, a new trial.  The district court denied the motion.  This appeal followed.  

D E C I S I O N

 

I.

 

Appellant challenges several of the district court's factual findings.  On review, we view the record in the light most favorable to the findings to determine whether they are clearly erroneous.  Minn. R. Civ. P. 52.01; Johnson Bldg. Co. v. River Bluff Dev. Co., 374 N.W.2d 187, 195 (Minn. App. 1985), review denied (Minn. Nov. 18, 1985).  The findings will be sustained absent a firm conviction that a mistake has been made.  Vangsness v. Vangsness, 607 N.W.2d 468, 472 (Minn. App. 2000).  As such, the district court's findings will not be disturbed as long as the record reasonably supports them.  Hubbard v. United Press Int'l, 330 N.W.2d 428, 441 (Minn. 1983).  Furthermore, we neither weigh or reconcile conflicting evidence, nor do we decide issues of witness credibility.    Porch v. Gen. Motors Acceptance Corp., 642 N.W.2d 473, 477 (Minn. App. 2002), review denied (Minn. June 26, 2002); see also Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988) (stating that appellate courts shall defer to district court credibility determinations).  These matters are exclusively the province of the fact-finder.  Porch, 642 N.W.2d at 477.  Moreover, an error that does not affect the substantial rights of the party cannot serve as the basis for reversal.  Minn. R. Civ. P. 61.

To establish fraud, a plaintiff must demonstrate

that [the] 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 [and] (10) that the plaintiff suffered damages (11) attributable to the misrepresentation.

 

Heidbreder v. Carton, 645 N.W.2d 355, 367 (Minn. 2002) (emphasis added).  Appellant challenges fivespecific factual findings supporting the district court's conclusion that appellant committed fraud.[1]

A.

            Appellant first challenges the district court's finding that "[she] informed [respondent] that she had terminated the dissolution action."  A fraudulent representation is an affirmative statement, not merely an inference from surrounding circumstances.  Id.; see also Northwestern State Bank of Luverne v. Gangestad, 289 N.W.2d 449, 453 (Minn. 1979) (finding no representation when bank never stated it would continue to finance defendant).

Appellant denied making any comment about the status of the dissolution documents.  But respondent testified that when he asked appellant about the dissolution papers, appellant responded, "[I] burned them and . . . everything ha[s] been taken care of."  This response clearly is an affirmative statement that the dissolution papers were destroyed.  And when considered in light of respondent's understanding that the divorce could be "undone," appellant's response that "everything ha[s] been taken care of" plainly indicated to respondent that appellant had terminated the dissolution action.  Indeed, there is conflicting evidence as to appellant's statement, and the lawyer's statement is not a beacon of clarity.  But when viewing the evidence in the light most favorable to the findings and affording deference to the district court's credibility determinations when resolving such conflicting evidence, we conclude that the district court did not clearly err in finding that "[appellant] informed [respondent] that she had terminated the dissolution."  See Sefkow, 427 N.W.2d at 210.[2] 

B.

Appellant next challenges the district court's finding that "[respondent] reasonably believed that the dissolution action had been terminated and that the parties were still married."  In doing so, appellant contends that the evidence is insufficient to establish reasonable reliance.  Appellant does not contest that respondent relied on her statement.  Rather, she argues that respondent should have consulted his divorce lawyer to obtain his marital status and, because he did not, his reliance on appellant's representation was not reasonable.

To establish fraud, the plaintiff must demonstrate reasonable reliance on a representation, which resulted in damages.  Simplex Supplies, Inc. v. Abhe & Svoboda, 586 N.W.2d 797, 803 (Minn. App. 1998), review denied (Minn. Feb. 24, 1999).  Whether such reliance is reasonable ordinarily is a question of fact, Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995), judged under a subjective standard of "a person of the capacity and experience of the [plaintiff]," Berg v. Xerxes-Southdale Office Bldg. Co., 290 N.W.2d 612, 616 (Minn. 1980).   The nature of the relationship between the parties is relevant to assessing whether reliance is reasonable.  For instance, it is reasonable to rely on statements made by a party that the plaintiff trusts, based on a relationship or pattern of fair dealing.  See Spiess v. Brandt, 230 Minn. 246, 254, 41 N.W.2d 561, 566-67 (1950) (reasoning the added factor of special trust in the perception of a genuine friendship bolstered justifiable reliance finding); Lampert Lumber Co. v. Ram Constr., 413 N.W.2d 878, 882 (Minn. App. 1987) (finding justifiable reliance when supplier trusted statement by long-standing customer because he did not want to threaten the relationship); see also Burns v. Valene, 298 Minn. 257, 263, 214 N.W.2d 686, 690 (1974) (noting that receiving assurances from one believed to be dishonest serves as inadequate basis for justifiable reliance). 

A party may be justified in relying on a representation of fact, even though that party might have ascertained its falsity upon investigation.  City of Coon Rapids v. Suburban Eng'g, Inc., 283 Minn. 151, 156-57, 167 N.W.2d 493, 496 (1969); Erickson v. Midgarden, 226 Minn. 55, 57, 31 N.W.2d 918, 919 (1948).  But if ordinary prudence would have prevented the deception, a fraud claim should fail.  See Morrill v. Madden, 35 Minn. 493, 495, 29 N.W. 193, 194 (1886) (holding that it was unreasonable for a creditor to rely on representations of a debtor, a hostile and interested party, when it was easy to investigate the validity of the debtor's statements).  That a person could have verified the falsity of a representation from a readily accessible source does not mandate such verification if verification was deemed unnecessary based on statements made by the defendant.  Redding v. Wright, 49 Minn. 322, 330, 51 N.W. 1056, 1056 (1892); Olson v. Orton, 28 Minn. 36, 37, 8 N.W. 878, 878-79 (1881). 

When viewed in the light most favorable to the district court's findings, the record supports the district court's factual determination that respondent reasonably relied on appellant's representation.  Perhaps if respondent had consulted his attorney before asking appellant about the dissolution papers, it would defy common sense to rely on a summary assertion by one's non-lawyer spouse.  Cobb v. Wright,43 Minn. 83, 86, 44 N.W. 662, 663 (1890) (stating that when party previously received legal advice, reasonable reliance on representations of adversely interested party cannot be established).  But that is not the record before us.  Indeed, the record demonstrates that respondent heard an attorney advise appellant that she could undo the dissolution.  At that time, the parties had already reconciled and were living together.  A few months later, when respondent inquired about the dissolution, appellant told him that she had burned the dissolution papers and that everything "had been taken care of."  Given that appellant and respondent were in an intimate relationship of trust and confidence, as putative husband and wife, it was reasonable for respondent to believe appellant when she told him that she had terminated the dissolution action.  See Spiess, 230 Minn. at 253-54, 41 N.W.2d at 566-67.  That respondent failed to ask his attorney about the status of the dissolution does not render his reliance unreasonable when, based on his relationship with appellant and the factual nature of appellant's representation, he did not deem it necessary to inquire further.  See Redding, 49 Minn. at 330, 51 N.W. at 1056. 

Accordingly, the record supports the district court's finding and the evidence is sufficient to establish that respondent's reliance on appellant's representation was reasonable.   

C.

            Appellant next challenges the district court's finding that "there was no evidence presented that [respondent], at any time from 1995 to 2001, should have been aware of the dissolution of marriage."  Although appellant introduced evidence tending to establish that respondent was aware of the divorce, an appellate court may not supplant the district court's determinations regarding the weight and credibility of the evidence on controverted issues of fact.  See Sefkow, 427 N.W.2d at 210. 

            Respondent testified that he did not know that the parties were divorced until 2001.  He believed he and appellant were still married when they resumed living together in late 1995, when he sold the Lakewood parcel, when he contributed money to improve the forty-acre parcel, and when the parties filed joint tax returns for the 1997, 1998, and 1999 tax years.  Because neither the divorce decree nor the deed for the forty-acre parcel was recorded until 2001, property tax statements showed both appellant and respondent as owners of the forty-acre parcel, giving respondent no reason to believe the marriage had been dissolved.  Moreover, in July 1997, when the parties sold the Lakewood parcel, they executed the deed as husband and wife. 

Appellant testified to the contrary, claiming that respondent was well aware of the divorce, that he saw the final divorce decree, and that he warned her not to tell anyone about it.  Appellant also testified that respondent suggested they go to Las Vegas to get married.  Although this testimony, if credible, could demonstrate that respondent was aware or should have been aware of the divorce, the district court resolved the credibility of each party's contentions in favor of respondent.  And we will not interfere with such determinations.  See Sefkow, 427 N.W.2d at 210.  Because the findings demonstrate that the district court discredited appellant's testimony, it was not clear error for the district court to find no credible evidence that respondent should have been aware of the divorce.

D.

            Appellant further challenges the finding that "the proceeds of the [Lakewood] sale were primarily, if not exclusively, used to improve [the forty-acre parcel]" and that "[t]here was no evidence that [respondent] financially gained personally from the sale of [the Lakewood parcel]."  These findings are also reasonably supported by the record. 

            Respondent testified that he sold the Lakewood property for $19,000 in July 1997 and that he spent approximately $14,258 improving the forty-acre parcel.  Respondent also generally asserted that he spent the proceeds from the Lakewood sale to improve the forty-acre parcel.  Although respondent may not have spent the entire $19,000 on improvements, he also testified that any additional income from the sale was spent on groceries and other living expenses.  Because respondent and appellant were living together during this time and appellant was not earning a significant income, the record reasonably supports the district court's finding that respondent did not personally gain from the Lakewood sale.  Rather, he spent the proceeds primarily on improvements to the forty-acre parcel. 

E.

            Appellant also challenges the district court's finding that "the parties filed joint tax returns as husband and wife from 1995 to 2000."  The record lacks evidence to support this finding.  Respondent introduced documentary and testimonial evidence that the parties filed joint tax returns for the 1997, 1998, and 1999 tax years, but respondent neither testified nor introduced any other evidence establishing that the parties filed joint tax returns in 1995 and 1996.  Although this finding is clearly erroneous, it does not require reversal because the finding is not dispositive of any legal issue.  See Minn. R. Civ. P. 61 (stating that courts must disregard an error that does not affect the substantial rights of the parties).

            Thus, we conclude that not one of appellant's challenges to the district court's findings is availing.

II.

Appellant also contends that the district court erred in its measure of damages.  Appellant argues that respondent's damages should be limited to his out-of-pocket expenses for the improvements to the forty-acre parcel rather than determined under principles of equity.  Respondent counters that the out-of-pocket rule is not the only applicable measure of damages to remedy a fraud and that this case warrants additional compensation to make respondent whole. 

We may set aside a damages award only if the award is manifestly contrary to the evidence when viewed in the light most favorable to the district court's conclusion.  Imperial Devs., Inc. v. Seaboard Sur. Co., 518 N.W.2d 623, 626 (Minn. App. 1994), review denied (Minn. Aug. 24, 1994).  Whether the district court correctly applied the rule by which misrepresentation damages are measured is a question of law, which we review de novo.  Strouth v. Wilkison, 302 Minn. 297, 300, 224 N.W.2d 511, 514 (1974).   

As a general rule, misrepresentation damages should be measured by the plaintiff's out-of-pocket loss.  Lewis v. Citizens Agency of Madelia, Inc., 306 Minn. 194, 199-200, 235 N.W.2d 831, 835 (1975).  A plaintiff's out-of-pocket loss ordinarily is determined by measuring the difference between the value of the property received and the price paid, along with special damages proximately caused by the fraud.  B.F. Goodrich Co. v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988).  The difficulty with the out-of-pocket rule is that it assumes that the plaintiff received something from the defendant and that it was less than what the plaintiff anticipated receiving.  Autrey v. Trkla, 350 N.W.2d 409, 412 (Minn. App. 1984).  This rule, therefore, works best when the plaintiff has received property in reliance on the misrepresentation and the property serves as the reference point for measuring damages.  B.F. Goodrich Co., 430 N.W.2d at 183.

Minnesota law recognizes that there are instances when a strict application of the out-of-pocket rule will not return the plaintiff to the status quo, requiring flexibility in the means of measuring damages to ensure a just result.  Jensen v. Peterson, 264 N.W.2d 139, 143 (Minn. 1978); see also Commercial Prop. Invs., Inc. v. Quality Inns Int'l, Inc., 61 F.3d 639, 647 (8th Cir. 1995) ("Minnesota courts have . . . taken a broad view of what constitutes out-of-pocket losses, holding that the rule permits the recovery of consequential damages proximately caused by the misrepresentation."). Often this is the case when a plaintiff is "led to believe by the misrepresentation that [the plaintiff] had something [the plaintiff] did not have" or when the misrepresentation prevents the plaintiff from protecting the value of property the plaintiff already owns.  Radel v. Bloom Lake Farms, 553 N.W.2d 109, 112 (Minn. App. 1996) (quoting B.F. Goodrich Co., 430 N.W.2d at 183), review denied (Minn. Oct. 29, 1996); cf. Commercial Prop. Invs., 61 F.3d at 647-48 (discussing compensability of consequential damages in Lewis, 306 Minn. 194, 235 N.W.2d 381, and concluding that "[t]he rule crafted by the Minnesota courts thus lies somewhere between a strict application of the out-of-pocket rule and the more liberal benefit-of-the-bargain rule"). 

In Lewis, for example, the plaintiff relied on an insurance agent's misrepresentation that she had a life insurance policy on her husband's life.  306 Minn. at 196, 235 N.W.2d at 833.  After her husband became ill and uninsurable, she discovered that her policy was only an annuity.  Id. at 197, 235 N.W.2d at 833.  While one measure of damages would have only recognized the plaintiff's loss as her out-of-pocket expense for the annuity premiums, the Lewis court observed that the plaintiff could not be made whole by the mere return of the premium costs.  Id. at 200-01, 235 N.W.2d at 835.  Consequently, the plaintiff could recover the amount of life insurance proceeds the premiums would have purchased. Id. at 201, 235 N.W.2d at 835-36.  The Minnesota Supreme Court declined to strictly apply the out-of-pocket rule when it would not restore the plaintiff to her former position.  Id.; see also Sports Page, Inc. v. First Union Mgmt., Inc., 438 N.W.2d 428, 433 (Minn. App. 1989) (finding that limiting plaintiff's recovery to costs spent on improvements would not return it to status quo when before the misrepresentation plaintiff was a profitable business, and now it is bankrupt).  In such a case, the plaintiff may recover for any economic injury that is the direct and natural consequence of having acted in reliance on the misrepresentation.  See Lewis, 306 Minn. at 201, 235 N.W.2d at 836. 

Here, respondent did not receive goods of a lesser value based on a misrepresentation of the nature of the item sold.  Rather, like the plaintiff in Lewis, respondent relied on appellant's misrepresentations, which caused him to believe that he had an interest in property that he did not have.  Rather than protecting the value of the property he owned, respondent was induced to relinquish the property itself and most of its value on the false belief that he would benefit from improvements to jointly owned property in which, in reality, he held no interest.  As in Lewis and Sports Page, Inc., limiting respondent's recovery to his out-of-pocket lossesthe amount spent on improvementswould not adequately compensate respondent for property that he sold in reliance on the fraudulent representation that the parties never divorced.  Respondent cannot be made whole by a mere return of the amount spent on improvements because that sum cannot replace the property he sold in reliance on the fraud.  It is, therefore, proper to apply a flexible rule of damages to restore respondent to his former position and compensate him for his economic loss.  See Jensen, 264 N.W.2d at 143.

The district court found that, because respondent used the proceeds from the sale of his property to improve appellant's property, respondent "ha[d] an equitable right to his financial contributions to [appellant]'s property" and "the fair result would be the equal division of the remaining property."  Accordingly, the district court ordered appellant's property sold and the proceeds distributed equally between the parties. 

In view of the facts presented, the district court did not err in concluding that the natural and proximate loss suffered by respondent was the value of the property he improved and expected to receive, believing that he and appellant shared a joint interest in the land.  Sale of the property with a division of the proceeds between the parties adequately compensates respondent by awarding him the value of what he would have received had the parties in fact been married in 1997 (when the property was sold) and divorced in 2001.  The district court's measure of damages returns the parties to their pre-fraud status, awarding respondent the pecuniary loss he suffered as a consequence of reliance on the fraudulent misrepresentation.  Cf. Lewis, 306 Minn. at 201, 235 N.W.2d at 836 ("In cases of fraud or deceit, . . . plaintiff may recover for an injury which is the direct and natural consequence of . . . acting on the faith of defendant's representations." (quotation omitted)).

Because a strict application of the out-of-pocket rule would have failed to make respondent whole, the district court did not err in awarding respondent damages in excess of his out-of-pocket expenses for improvements to the forty-acre parcel.

Affirmed.  

 

 

LANSING,Judge (dissenting)

I respectfully dissent for three reasons.  First, the claimed misrepresentation is one of law and consequently is not actionable.  Second, the record is inadequate to establish elements necessary to prove fraud.  Third, the district court applied an incorrect measure of damages.

I

As a preliminary matter, I disagree with the majority's conclusion that it is not within the scope of this appeal to consider whether the claimed misrepresentation is legally actionable.  In the statement of the case on appeal, Maxine Moe lists the specific issues to be raised:  (A) the court made findings which were not supported by evidence introduced at trial, (B) the findings, as made by the court, did not support a claim of fraud, and (C) the court misapplied the law of damages.  In her appellate brief, Maxine Moe consolidates issues (A) and (B).  The six-page argument section devotes three pages to this consolidated argument, with approximately two pages directed to the legal issue of whether the evidence, assuming all contradicted testimony is resolved in Kennard Moe's favor, is sufficient to support a conclusion of fraud.

On one page, Maxine Moe argues that no evidence exists to support a conclusion that the disputed statement about burning the papers could reasonably mean that the parties were still married.  On another page, Maxine Moe argues that the court must make findings that all elements of the claim have been proved.  The brief supports the arguments with legal citation, including a discussion of the holding in Cobb v. Wright, 43 Minn. 83, 44 N.W. 662 (1890).  In this case, the Minnesota Supreme Court discussed claims of legal misrepresentation, holding that a grantee's misrepresentation about the grantor's own title was insufficient to establish fraud because both parties had equal access to information about the title's legal status.  Id. at 85, 44 N.W. at 663.  Consistent with her argument on legal sufficiency, Maxine Moe identifies the standard for review of "purely legal" issues.  She cites supporting cases and states that "[a] trial court's conclusions of law are not binding on the appellate court," that "a reviewing court need not defer to the ultimate conclusion drawn by the trial court," and that "[a] reviewing court is not bound by and need not give deference to a trial court's decision on a purely legal issue." 

The issue of legal sufficiency was also squarely raised in the district court, during opening and closing argument as well as in Maxine Moe's answer to Kennard Moe's complaint, when Maxine Moe argued that Kennard Moe could not recover for the claimed misrepresentation because he had access to the information on the legal status of the dissolution he initiated.  Clearly, this appeal is not limited to factual findings.

II

It is undisputed that Kennard and Maxine Moe negotiated and signed a marital-termination agreement that dissolved their marriage and divided their property.  Kennard Moe acknowledges that the Moes signed the marital-termination agreement, that the agreement was filed, and that he executed a quitclaim deed disclaiming any interest in Maxine Moe's "forty-acre parcel."  Nonetheless, he asserts that he is entitled to a one-half interest in that property because, during a conversation "after Christmas, that would be 2001, probably in January," he asked her "where the papers were on that[,] [a]nd she stated that she had burned them, that everything had been taken care of."  This statement, which Maxine Moe disputes, is the sole representation that Kennard Moe's allegation in his complaint that Maxine Moe "voided the dissolution proceedings" and the sole statement that supports the district court's findings that Maxine Moe "fraudulently misrepresented the parties' marital status to [Kennard Moe]."

Kennard Moe's claim that Maxine Moe's statement caused him to believe that they were still married is fundamentally a claim that Maxine Moe misrepresented the law by telling him that burning the papers terminated their dissolution action.  See Miller v. Osterlund, 154 Minn. 495, 496, 191 N.W. 919, 919 (1923) (providing examples of legal misrepresentations, including representations about legal effect of contract language, liability on stock certificate, or legal effect of endorsement).  At trial he buttressed his claim with testimony that, after the dissolution, they reconciled and represented themselves as married in their interactions with friends and neighbors, in filing three joint tax returns with the Internal Revenue Service, and in a deed that allowed him to convey property he received under the marital-termination agreement.

A misrepresentation of law is not actionable.  Northernaire Prods., Inc. v. County of Crow Wing, 309 Minn. 386, 388-89, 244 N.W.2d 279, 281 (1976).  This rule is based on sound public policy, "for the law is presumed to be equally within the knowledge of both parties."  Miller, 154 Minn. at 496, 191 N.W. at 919.  And "[o]rdinary vigilance will disclose the truth or falsehood of representations as to matters of law" to the complaining party.  State v. Edwards, 178 Minn. 446, 448, 227 N.W. 495, 495 (1929).

This general rule of nonactionability has two exceptions:  it does not apply when the person who misrepresents the law "is learned in the field and has taken advantage of the solicited confidence of the party defrauded" or when the misrepresenting party "stands with reference to the person imposed upon in a fiduciary or other similar relation of trust and confidence."  Northernaire Prods., 309 Minn. at 389, 244 N.W.2d at 281-81 (quoting Stark v. Equitable Life Assurance Soc'y, 205 Minn. 138, 143, 285 N.W. 466, 469 (1939)).  The first exception does not apply because the record contains no indication that Maxine Moe is "learned" in the law.  The second exception is also inapplicable because the evidence does not establish that Maxine Moe was acting in a fiduciary capacity in communicating information to Kennard Moe about the status of their dissolution.

"A fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other."  Stark, 205 Minn. at 145, 285 N.W. at 470 (quotation omitted).  Simply reposing faith and confidence in a person does not create a fiduciary duty.  Id.  The record indisputably shows that Kennard Moe initiated the Moes' separation and retained an attorney for the purpose of obtaining the dissolution.  Maxine Moe proceeded without an attorney.  Kennard Moe testified that, after their dissolution and the death of Maxine Moe's son, he assisted her in obtaining a different attorney to pursue a wrongful-death action.  The record establishes that Kennard Moe has owned and operated a profitable, small business for at least the past five years, that he managed the sale of the property that he received under the marital-termination agreement, and that he also managed the Moes' finances after consolidating their households on Maxine Moe's forty-acre parcel.  The record provides no evidence that Maxine Moe had superior knowledge or influence that would give rise to a fiduciary relationship with respect to Kennard Moe; the evidence is, in fact, to the contrary.

Numerous jurisdictions have concluded that a claim of fraud cannot be sustained when a spouse or purported spouse claims a misrepresentation of law against the other but no evidence demonstrates that the complaining spouse was disadvantaged or dependent on the other.  See Spolnik v. Guardian Life Ins. Co., 94 F. Supp. 2d 998, 1003-04 (S.D. Ind. 2000) (concluding that claim for fraud was not actionable when misrepresentation was one of law and, "despite their marriage relationship, there is no evidence of the requisite special relationship of trust and confidence" or that complainant was dependent spouse); Kienitz v. Sager, 40 Haw. 1, 22 (1953) (Stainback, J., Concurring in part and dissenting in part) (denying complainant affirmative relief in action for fraud against his purported spouse when complainant's marriage was invalid because his spouse's former marriage had not been properly dissolved, stating "the least he could do was see that her divorce was legal" when he "aided and abetted" her in obtaining divorce for purpose of marrying him); Loringer v. Kaplan, 137 N.W.2d 716, 719 (Neb. 1965) (stating that "[i]t would be against public policy to hold that [complainant] could claim lack of knowledge of the contents and legal effect of a[n] [interlocutory divorce decree] which she herself sought," and therefore complainant could not sustain action for fraud against her purported spouse when he misrepresented legal effect of decree); Simms v. Simms, 221 N.Y.S.2d 1020, 1023 (N.Y. Sup. Ct. 1961) (stating no action for fraud could be established between purported spouses when "exploration of the subject as to the legal effect of the [prior,] incestuous marriage [of one of the parties] was equally available to both [parties]").

The status of the dissolution proceedings is a legal representation equally within the knowledge of both Kennard and Maxine Moe.  Maxine Moe had no special knowledge of the law or superior fiduciary position that would permit Kennard Moe to maintain an action for fraudulent misrepresentation of their marital status.  The district court erred in awarding Kennard Moe damages on the basis of a claim that is not actionable.

III

The record fails to provide evidence to satisfy the elements necessary to prove fraud.  To establish fraud, a plaintiff must demonstrate reasonable reliance on the representation that resulted in damages.  Cohen v. Appert, 463 N.W.2d 787, 789 (Minn. App. 1990), review denied (Minn. Jan. 24, 1991).  The district court found that Kennard Moe "reasonably believed that the dissolution action had been terminated and that the parties were still married" both because, when asked by Kennard Moe "where the papers were," Maxine Moe replied that she "had burned them" and that "everything had been taken care of" and because Maxine Moe "intercepted the notice sent to [Kennard Moe] notifying him of the finalization of the dissolution."  The court also noted that, after the dissolution, the parties lived as husband and wife, signed joint tax returns, and signed a warranty deed as husband and wife as evidence of reasonable reliance.

To affirm, however, we must accept this supposed demonstration of reasonable reliance against all of the following evidence: (1) the joint income-tax returns were prepared at Kennard Moe's request and were for his benefitthe income-tax returns were on his income; (2) the warranty deed was also for his benefit as the property sold was property he received under the marital-termination agreement; (3) Kennard Moe retained an attorney for the dissolution proceedings while Maxine Moe was not represented; (4) Kennard Moe, along with Maxine Moe, signed the marital-termination agreement; (5) Kennard Moe acknowledged that the marital-termination agreement was filed; (6) Kennard Moe signed a quitclaim deed divesting himself of any interest in the forty-acre parcel pursuant to the terms of the marital-termination agreement; and (7) a copy of the dissolution judgment was mailed to Kennard Moe's residence, by his attorney, with a cover letter addressed to him that stated, "Please find enclosed for your records a copy of the final Marriage Dissolution Decree that has now been signed by the judge.  This finalizes your Marriage Dissolution."  Given this record, Kennard Moe's claimed reliance is inadequately supported.

Although the failure of reliance is sufficient in itself to require reversal, we note that other elements of fraud are also without support in the record.  Most significantly, the element of fraud that requires that the false misrepresentation must be made "with the intention to induce another to act in reliance thereon."  Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986).  On this element, the district court noted in its memorandum that Maxine Moe "intended [Kennard Moe] to assume that the parties were still married so she would have a place to live and someone to care for her financially."  Nothing in the record supports this finding.

Both Kennard Moe and Maxine Moe testified that, before their reconciliation, Maxine Moe lived with her father.  Although Maxine Moe did not specifically testify about her finances, Kennard Moe testified that Maxine Moe had multiple financial resources, including an inheritance from her father, life-insurance proceeds from her son's death, and a wrongful-death settlement resulting from her son's death.  Maxine Moe testified that she received a bequest from her father consisting of personal items and real property that had previously been owned by her grandfather.  It is also undisputed that Maxine Moe's aunt provided $12,800 to purchase the forty-acre parcel, helped pay the contract for deed on the Lakewood parcel that Kennard Moe received in the dissolution and later sold, and paid $21,000 for the purchase of the mobile home that Kennard Moe also received in the dissolution.  Kennard Moe's lawn-care and tree-service business provided income, but he testified that in the last five years the average annual income was $13,000.  The record's inability to support a finding that Maxine Moe intended to induce Kennard Moe to act in reliance on her alleged misrepresentation further demonstrates that these facts, taken as true, cannot satisfy the necessary threshold for proof of fraud.  See Martens v. Minn. Mining & Mfg. Co., 616 N.W.2d 732, 747 (Minn. 2000) (observing that Minnesota caselaw "establishes a high threshold" for proof of fraud).

Because the record does not support a finding that Kennard Moe reasonably relied on the alleged misrepresentation, the district court's order should be reversed. 

IV

Finally, the district court erred in applying the wrong measure of damages.  The damages, in any event, have questionable support.  Kennard Moe testified that he sold his Lakewood parcel in July 1997, and the deed supports that testimony.  But he also testified that Maxine Moe made her alleged fraudulent statement about burning the papers "after Christmas, that would be 2001, probably in January."  Maxine Moe's attorney suggested that Kennard Moe was mistaken about when he believed that this occurred or that the transcript might be incorrect.  But the fact remains that the only testimony on when this occurred was Kennard Moe's testimony that Maxine Moe said she burned the papers and everything was taken care of "after Christmas" 2001 or "probably in January," which is four years after the sale of the Lakewood property.

In an action for fraud, damages are measured by the complainant's "out-of-pocket" loss.  Hanks v. Hubbard Broad. Inc., 493 N.W.2d 302, 310 (Minn. App. 1992), review denied (Minn. Feb. 12, 1993).  This rule limits recovery to losses naturally and proximately arising from the fraud.  Lewis v. Citizens Agency of Madelia, Inc., 306 Minn. 194, 200, 235 N.W.2d 831, 835 (1975).  It differs from the "benefit-of-the-bargain" rule in that the plaintiff can recover only what he has lost, not the benefit of what he was promised.  B.F. Goodrich Co. v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988).  Out-of-pocket loss is generally measured by the difference between what the defrauded party parted with and what the party received.  Johnson Bldg. Co. v. River Bluff Dev. Co.,374 N.W.2d 187, 195 (Minn. App. 1985), review denied (Minn. Nov. 18, 1985).  Minnesota law recognizes a narrow exception to the out-of-pocket rule and permits recovery of consequential, economic damages when the out-of-pocket rule would not restore the defrauded plaintiff to his position before the fraud.  Id. at 196.

The record shows that Kennard Moe paid for the cost of some of the improvements on Maxine Moe's forty-acre parcel.  The district court did not make an explicit finding of the amount Kennard Moe paid for the improvements, but merely noted that the "parties used the proceeds from the sale of [Kennard Moe's] property to improve [Maxine Moe's] property."  Kennard Moe sold his property for approximately $18,000 to $19,000, but testified to spending only a portion of that amount, $14,258, on improvements to Maxine Moe's property.  In an out-of-pocket calculation of damages, Kennard Moe should have received the difference between what he parted with, $14,258, and anything he received in return.

To determine whether expanded recovery is appropriate, a court must ask whether the out-of-pocket award fully compensates the plaintiff for economic loss.  See Lewis, 306 Minn. at 200, 235 N.W.2d at 835 (awarding greater damages because out-of-pocket rule could not make plaintiff whole).  Taking the best view of the evidence, Kennard Moe invested $14,258 with the expectation that he would share in the increased value of the forty-acre parcel, but instead, he received nothing.  Returning $14,258 plus interest would restore him to the position he was in before the alleged fraud.  This situation is not one in which application of the out-of-pocket rule fails to do substantial justice.  See Jensen v. Peterson, 264 N.W.2d 139, 143 (Minn. 1978) (stating court need not apply out-of-pocket rule if its strict application would fail to do substantial justice); see also B.F. Goodrich Co., 430 N.W.2d at 183 (reasoning that recovery of out-of-pocket losses was inadequate when fraud caused plaintiff to lose his business and plaintiff would otherwise receive nothing).  Under the district court's order, Kennard Moe will receive approximately $15,000 more in damages than his economic loss.  At a minimum, this judgment should be reversed and remanded to the district court for a proper calculation of damages.  The district court's order that the property be sold and the proceeds divided equally is not an appropriate remedy.

 

[1] Our review of the district court's factual findings is limited to those findings challenged on appeal.  Because appellant failed to challenge on appeal the district court's finding as to whether appellant acted with the intent to induce respondent to rely on her representations, we decline to address this issue.  See Scruggs v. State, 484 N.W.2d 21, 24 n.1 (Minn. 1992) (concluding that, because appellant did not raise on appeal issues argued below, issues are waived); Melina v. Chaplin, 327 N.W.2d 19, 20 (Minn. 1982) (holding that issue not argued in appellant's brief is waived).

 

[2] Appellant did not raise a misrepresentation-of-law defense before the district court or on appeal.  Moreover, the record does not support an interpretation of appellant's statements as a nonactionable misrepresentation of law.  The record establishes that, when respondent inquired as to the whereabouts of the dissolution papers, appellant replied, "[I] burned them, . . . everything ha[s] been taken care of."  The record demonstrates that appellant made two distinct, albeit related, representations: (1) that she destroyed the papers and (2) that the dissolution had been "taken care of."  The record neither establishes a sequential or causal connection between appellant's statements, nor supports an interpretation that appellant had "taken care of" the dissolution by burning the papers. 

Moreover, by merely inquiring as to the location of the dissolution papers, respondent was not seeking a legal opinion.  Thus, the record also fails to support an interpretation of appellant's statements as legal advice counseling respondent that the way to terminate a divorce is to burn the divorce decree.  In answering respondent's inquiry, appellant merely explained that the dissolution papers had been destroyed and that she took steps to terminate the dissolution.  Appellant never made statements regarding the legal effect of burning the dissolution papers or of any language in the marital termination agreement.  Appellant's description of her actions constitute factual, not legal, representations. Compare Miller v. Osterlund, 154 Minn. 495, 496, 191 N.W. 919, 919 (1923) (describing misrepresentations of law as representations regarding the legal effect of language in a contract, rights given by a contract, or statements of liability) with Colby v. Life Indem. & Inv. Co., 57 Minn. 510, 516-17, 59 N.W. 539, 542 (1894) (categorizing misrepresentation as one of fact when the statements and actions did not present simple legal proposition, but rather involved elements of fact and law).