Progressive Technologies, Inc., et al., Respondents, vs. David Shupe, Appellant.

Progressive Technologies, Inc., et al., Respondents, vs. David Shupe, Appellant. A04-1110, Court of Appeals Unpublished, April 12, 2005.

This opinion will be unpublished and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

A04-1110

 

Progressive Technologies, Inc., et al.,
Respondents,
 
vs.
 
David Shupe,
Appellant.

 

Filed April 12, 2005

Affirmed

Minge, Judge

 

Hennepin County District Court

File No. CT 03-12829

 

 

James T. Martin, Gislason, Martin & Varpness, P.A., 7600 Parklawn Avenue South, Suite 444, Edina, MN 55435; and

 

Paul A. Lindstrom, Lindstrom Law Offices, 7600 Parklawn Avenue South, Suite 444, Edina, MN 55435 (for respondents)

 

Mark A. Greenman, Ruth Y. Ostrom, Greenman & Ostrom, 270 Grain Exchange North, 301 Fourth Avenue South, Suite 270, Minneapolis, MN 55415 (for appellant)

 

            Considered and decided by Randall, Presiding Judge; Minge, Judge; and Wright, Judge.

U N P U B L I S H E D  O P I N I O N

 

MINGE, Judge

            Appellant challenges the district court's grant of summary judgment to respondents on their breach of contract and unjust enrichment claims and its grant of summary judgment dismissing appellant's counterclaim for damages.  We affirm.

FACTS

Appellant David Shupe is a telemarketer who sells telecommunication equipment.  Until May 2000, appellant worked at Norstan Communications (Norstan), a telecommunications-marketing firm, where he earned approximately $180,000 per year and had a customer database of about 1,700 to 2,000 names.  At that time, appellant changed jobs and began working for Progressive Technologies, Inc. (Progressive), a telecommunications-marketing firm owned and managed by respondent Joseph Morton.  Appellant worked at Progressive until January 20, 2003, when appellant resigned and began working at another telecommunications marketer.         

            Before appellant started working at Progressive, he and Morton discussed the terms of his potential employment at Progressive.  Appellant claims that Morton told him the following: he could expect to make a comparable income to what he made at Norstan within 60 to 90 days; he could expect to work with up to 1,700 or more customers from a database exceeding 20,000 names; and that gross margins at Progressive were 40 to 60%.  Appellant asserts that when he expressed concern about his income needs and his fear that initially his earnings would be inadequate, Morton told him he would be given $10,000 a month until things "ramped up" and he did not need it anymore.  Appellant recognizes that the statements regarding earning prospects were "hopes" or "expectations" for what he might earn at Progressive.

Shortly after appellant started working at Progressive, he signed a draw agreement and a confidentiality agreement.  The draw agreement designates appellant as an "Account Executive" and states that:

Account Executive agrees that commission draws received are advance payments of unearned commissions.

Draws will reduce the payment of calculated commissions earned.

            . . . .

 

In the event of employment separation, draws in excess of commissions earned will be repaid to the Company upon final accounting of the Account executive's pending deals.

            . . . .

 

Draw A periodic advance payment on unearned commissions.  Draws are not base pay or salary. 

  

            During the time that appellant worked at Progressive he received $10,000 a month, part of which was a draw.  The parties agree that appellant was paid $114,701 in excess of earned commissions and by the terms of the draw agreement, he owes Progressive that amount.  Appellant claims that the $10,000 per month was intended to be a minimum monthly salary and that he assumed that the terms of his employment were consistent with his perception of Morton's offer.  At no time during his employment did appellant object to, seek to clarify, or renegotiate the draw agreement. 

The district court granted the motion of Progressive and Morton for summary judgment for breach of contract and, in the alternative, unjust enrichment.  The district court also granted the motion of Progressive and Morton to dismiss appellant's counterclaims for fraudulent inducement to contract and fraudulent inducement to begin employment under Minn. Stat. §181.64 (2004).  This appeal follows.

D E C I S I O N

 

"On an appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the [district court] erred in [its] application of the law."  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  When reviewing the decision of the lower court, "the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted."  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  There is no genuine issue of material fact when the record on the whole "could not lead a rational trier of fact to find for the non moving party."  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quotation omitted).  To resist summary judgment, a party must produce more than mere averments, and the party must establish that there is a genuine issue of fact where reasonable persons can draw different conclusions.  Id.at 69-71.  When summary judgment is granted based on the application of a statute to undisputed facts, the result is a legal conclusion, reviewed de novo.  Lefto v. Hoggsbreath Enters. Inc., 581 N.W.2d 855, 856 (Minn. 1998).

I.

The first issue is whether the district court erred in granting summary judgment to enforce the draw agreement.  Appellant asserts that the written draw agreement is inconsistent with his verbal agreement and raises four defenses: lack of consideration, impossibility, unclean hands, and fraudulent inducement.  We note that the commission draw agreement clearly states that draws are advances on unearned commissions and that draws in excess of earned commission must be repaid.  The written agreement is clear and unambiguous.  The claim that the $10,000 per month was not an advance on future commissions, but rather salary, relates to a prior discussion of the parties and is in direct conflict with the commission draw agreement.

A. Consideration 

Appellant argues that the agreement is not enforceable due to a lack of consideration because he began his employment with Progressive under an oral contract prior to signing the draw agreement.  Courts have required consideration in addition to continued employment when a non-competition covenant is signed after employment begins.  Nat'l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982).  Non-competition covenants are looked upon with particular disfavor and are carefully scrutinized because they partially restrain trade.  Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626, 630 (Minn. 1983); Nat'l Recruiters, 323 N.W.2d at 740-41.  In other areas, courts have concluded that "[p]arties may by mutual consent modify existing employment contracts without consideration."  Freeman, 334 N.W.2d at 630; see Olson v. Penkert, 252 Minn. 334, 347, 90 N.W.2d 193, 203 (1958).  In cases in which an employer alters the terms of an employment contract for an at-will employee after employment begins and the employee has knowledge of the changed terms, the courts have found that continued employment is sufficient consideration for the new contract.  Pine River State Bank v. Mettille, 333 N.W.2d 622, 627 (Minn. 1983).  This rule has been applied in a variety of situations including when the employer imposed a new disciplinary policy, set compulsory retirement age, and eliminated a promised bonus.  Id. at 630-31; Stream v. Cont'l Machs., Inc., 261 Minn. 289, 292-93, 111 N.W.2d 785, 788 (1961); Hartung v. Billmeier, 243 Minn. 148, 154-55, 66 N.W.2d 784, 789-90 (1958).

            By signing the commission draw agreement appellant agreed that the payments to him were advances on unearned commission and not salary.  This was an at-will employment situation where either appellant or Progressive could terminate the employment at any time.  Appellant was not without leverage.  He had just changed jobs and could do so again.  Absent coercion or bad faith, the parties should be able to alter the terms of a contract by a bilateral agreement at any time.  See Freeman, 334 N.W.2d at 630; Olson, 252 Minn. at 343, 90 N.W.2d at 203.  Even if Progressive changed the employment terms unilaterally, if appellant knew of the changes and continued working, the continued employment provides the necessary consideration.  See Pine River State Bank, 333 N.W.2d at 627.  Appellant knew of the alleged changes, agreed to them by signing the commission draw agreement, continued his employment, and accepted monthly draws totaling $114,701.  This constitutes sufficient consideration. 

B.  Impossibility

            Appellant argues that because Progressive limited his access to customers, it hindered and made impossible his ability to earn commissions of $10,000, and that he should be excused from repaying the amounts by which his draws exceeded his commissions. 

            "Generally, contract performance is excused when it is hindered or rendered impossible by the other party."  Zobel & Dahl Constr. v. Crotty, 356 N.W.2d 42, 45 (Minn. 1984).  It must be the case that the prevented performance would have occurred absent the hindrance or prevention.  Nodland v. Chirpich, 307 Minn. 360, 366-67, 240 N.W.2d 513, 516 (1976).  "[E]very contract contains an implied condition that each party will not unjustifiably hinder the other from performing."  Zobel & Dahl Constr., 356 N.W.2d at 45.

            Courts have set aside contractual obligations in situations in which one party tried to escape its own duty or to frustrate the others performance.  See, e.g., Zobel & Dahl Constr., 356 N.W.2d at 45-46; Nodland, 307 Minn. at 366-67, 240 N.W.2d at 516.  In Zobel & Dahl Constr., a homeowner withheld final payment to a construction company after refusing to allow the company to repair the defects in a home unless it waived its lien rights.  356 N.W.2d at 46.  By this action, the homeowner unjustifiably frustrated the construction company's performance.  Id.  Similarly, in Nodland, a group of co-owners of property represented that they had the right to speak for an absent co-owner in selling the property and then convinced that co-owner to reject the offer that they had accepted.  307 Minn. at 367, 240 N.W.2d at 517.  The Nodland court held that the other co-owners were not able to assert the absent co-owner's rejection of the offer as a defense to the sale of the property.  Id.  

            Appellant claims that Progressive made it impossible for him to earn the $10,000 he received each month.[1]  Viewing the evidence in the light most favorable to appellant, the actions of Progressive consisted of limiting appellant's access to a single database of customer contacts, only providing him access to a list of 50 contacts every two weeks, and allowing other sales personnel to remove names that were already their customers or leads.  Although these limits may seem significant, appellant's deposition testimony does not indicate that he was unfairly or significantly prejudiced by these limits.  Appellant felt that the other databases contained better prospects, but also admits that no one ever told him that the database he was working from was inferior in terms of number or quality of customers.  Appellant admits he was treated the same as most other Progressive employees.  Even if a few salespeople were given access to a preferred database, this is not evidence that Progressive wrongly hindered appellant's ability to make sales.  Since Progressive profited from the sales made by appellant, it had no incentive to frustrate his sales.  He actively sought potential customers from other sources and appears to have had success.  Appellant vaguely estimated that he had between 1,300 and 1,400 accounts by the time he left.  Morton, Progressive's president, stated with greater clarity that Progressive's records showed that appellant had 2,224 accounts.  Even when we limit our conclusion to appellant's evidence (as we should in reviewing summary judgment against him), the record indicates he was able to successfully make sales and build a client base.

C.  Unclean Hands 

            Appellant claims that under the doctrine of unclean hands, Progressive should not be able to enforce agreement provisions requiring repayment of draws in excess of earned commissions because Progressive withheld material information from him and failed to provide him access to an adequate customer base. 

            Unclean hands is an equitable defense that restricts the availability of equitable remedies to parties who are guilty of unconscionable conduct.  Fred O. Watson Co. v. U.S. Life Ins. Co., 258 N.W.2d 776, 778 (Minn. 1977).  For a successful unclean hands defense, a party's conduct must be unconscionable by reason of a bad motive or because the result brought about by the conduct would be unconscionable.  Creative Communications Consultants, Inc. v. Gaylord, 403 N.W.2d 654, 658 (Minn. App. 1987).  The decision to grant equitable relief is within the discretion of the court and will not be reversed unless there is a clear abuse of that discretion.  Medtronic, Inc. v. Advanced Bionics Corp., 630 N.W.2d 438, 450 (Minn. App. 2001). 

             To the extent Progressive's underlying claim is contractual, it is not a claim for equitable relief.  Thus, unclean hands is not a defense to the contractual claim.  However, the district court also granted summary judgment to Progressive on a theory of the equitable claim of unjust enrichment.  This we consider appellant's defense of unclean hands for this limited purpose. 

            Appellant furnished no evidence that Progressive limited his access to potential customer lists because of either a bad motive or unconscionability.  As previously noted, Progressive profited from appellant's sales; it had no reason to impede his ability to sell products to customers.  In fact, by the time appellant left, he had by his own estimate 1,300 accounts.  This is not indicative of unconscionable treatment.  Possible misrepresentations involve the ability of appellant to earn greater sums of money.  However, appellant recognized that these statements were predictions, not promises.  The district court did not err in concluding that Progressive's conduct did not constitute unconscionable behavior.       

D.  Fraudulent Inducement to Contract

            Appellant claims that he was fraudulently induced to enter into the contract and that for this reason the draw agreement is unenforceable.  The law on fraudulent inducement has been summarized as follows: 

To establish a claim for fraud, a plaintiff must show: (1)  A false representation of a material past or present fact susceptible of knowledge; (2)  The defendant either knew it to be false or asserted it as his own knowledge without knowing whether it is true or false; (3)  The defendant intended the plaintiff to act on his representation; (4) The plaintiff was induced to act in reliance on the representation; and (5) The plaintiff suffered damages which were the proximate cause of the representation.

 

Rognlien v. Carter, 443 N.W.2d 217, 220 (Minn. App. 1989), review denied (Minn. Sept. 21, 1989).  An expectation will not support an action for fraud.  Belisle v. Southdale Realty Co., 283 Minn. 537, 539-40, 168 N.W.2d 361, 363 (1969).  A representation known to be false can be the basis for fraud.  Carpenter v. Vreeman, 409 N.W.2d 258, 261 (Minn. app. 1987). 

To establish that he was fraudulently induced to enter into the contract, appellant relies on statements regarding the possibility that he could equal or surpass his salary at Norstan within 60 to 90 days, that he could expect to work with up to 1,700 customers from a database of 20,000 customers and that the gross margins at Progressive were 40-50%.  Appellant admits that he did not view these statements by Morton as promises.  The statement regarding his potential income at Progressive represents a prediction.  Likewise the statement that appellant could expect to work with up to 1,700 customers also represents a prediction.  This prediction was not completely wrong; appellant had, by his rough estimate, 1,300 to 1,400 customers at the time he left the company.  Appellant has provided no evidence of the size of the database from which he took contact information.  He has not made a prima facia case that the 50 per week limit on his access to new names, or the prior "cherry picking" by other sales personnel from the list, or the limited size of this database or the limits on access to other databases were misrepresentations.  Appellant has also presented no evidence that gross margins at Progressive were less than 40-50% when he started.  He estimated that gross margins were ultimately 20-30%, but acknowledges that competition has driven prices down.  We conclude that there is not an evidentiary basis for a finding of fraudulent inducement to contract and the district court did not err in dismissing this defense on summary judgment.

II.

            The second issue is whether the district court erred in granting summary judgment dismissing appellant's counterclaim for damages under Minn. Stat. § 181.64. (2004).

A.  Minn. Stat. § 181.64

 

The statute prohibiting the use of false statements as an inducement to enter employment states in relevant part:

It shall be unlawful for any person, partnership, company, corporation, association, or organization of any kind, doing business in this state, directly or through any agent or attorney, to induce, influence, persuade, or engage any person to change from one place to another in this state . . . through or by any means of knowingly false representations . . . concerning the kind or character of such work, the compensation therefore . . . .

 

Minn. Stat. § 181.64.

Appellant relies on the same factual claims that he presented and we just considered in connection with his defense that he was falsely induced to enter into the contract with Progressive.  Because all of these alleged representations either concern expectations of future events or allegations where appellant has not presented evidence indicating their falsity, this claim fails for the same reasons.

            Appellant also asserts that a false promise was made to provide him with $10,000 per month until his commissions exceeded that amount and that this violated the statute.  In the context of this case, without any evidence other than appellant's bare assertion that he would receive a salary, summary judgment against appellant was proper.  See DLH, 566 N.W.2d at 69-71.

 

B.  Statute of Limitations

In the alternative, Progressive and Morton argue, and the district court found, that appellant's fraudulent inducement and Minn. Stat. § 181.64 claims are barred by the two-year statute of limitations.  Appellant claims that because he is seeking as damages the difference between what he earned at Progressive and what he earned at his previous employer, his claims are subject to the six-year statute of limitations for fraud rather than the two-year limitation for actions seeking recovery of wages.

Minn. Stat. § 541.07(5) (2004) states that the following actions must be commenced within two years:

for the recovery of wages or overtime or damages, fees or penalties accruing under any federal or state law respecting the payment of wages or overtime or damages, fees or penalties . . . (The term "wages" means all remuneration for services or employment, including commissions and bonuses and the cash value of all remuneration in any medium other than cash, where the relationship of master and servant exists and the term "damages" means single, double, or treble damages, accorded by any statutory cause of action whatsoever and whether or not the relationship of master and servant exists);

 

Minn. Stat. § 541.05, subd. 1(6) (2004) provides for a six-year statute of limitations for relief on the ground of fraud.         

This court has held that in a suit for fraudulent inducement to contract where a party was wrongfully discharged, the two-year statute of limitations under Minn. Stat. § 541.07(5) applied.  Stowman v. Carlson Co., Inc., 430 N.W.2d 490 (Minn. App. 1988), review denied (Minn. Jan. 13, 1989); see Bd. of Regents v. Reid, 522 N.W.2d 344, 348 (Minn. App. 1994), review denied (Minn. Oct. 27, 1994) (recognizing that for fraudulent inducement to begin employment claims Minn. Stat. § 541.07(5) applies).  A claim under Minn. Stat. § 181.64 (2004) is basically an employment claim.  The damages that appellant seeks in this case are essentially lost wages based on his decision to leave Norstan. The Minnesota Supreme Court has recognized that distinctions between wages and lost income do not alter the nature of a charge and both are covered by Minn. Stat. § 541.07(5).  Portlance v. Golden Valley State Bank, 405 N.W.2d 240, 243 (Minn. 1987).  Therefore, it appears that both of appellant's claims have a two-year statute of limitations.

  The statute of limitations begins to run when the party knew or should have known of the alleged fraud.  Barry v. Barry, 78 F.3d 375, 379-80 (8th Cir. 1996).  Appellant started working at Progressive in May 2000.  His complaint and arguments show that he became aware of or should have become aware of the alleged fraud soon after beginning employment.  He certainly should have known of any fraud before April 2001, more than two years before this case was initiated.  Therefore, appellant's actions for fraudulent inducement to contract and Minn. Stat. § 181.64 are time barred.

            Affirmed.

[1] We note that appellant could have reduced the size of his draw at any point so appellant is arguing that respondents hindered his ability to earn the amount that appellant himself decided to take.