Scott Whitehead, et al., Respondents, vs. Arthur K. Hagen, Inc., et al., Appellants.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-5

Scott Whitehead, et al.,

Respondents,

vs.

Arthur K. Hagen, Inc., et al.,

Appellants.

Filed December 2, 2003

Affirmed in part and reversed in part

Robert H. Schumacher, Judge

Ramsey County District Court

File No. C1009600

Roger D. Anderson, 2314 Firstar Center, 101 East Fifth Street, St. Paul, MN 55101 (for respondents)

John L. Tambornino, 10285 Yellow Circle Drive, Minnetonka, MN 55343 (for appellants)

            Considered and decided by Randall, Presiding Judge; Schumacher, Judge; and Shumaker, Judge.

U N P U B L I S H E D   O P I N I O N

ROBERT H. SCHUMACHER, Judge

            Arthur K. Hagen, Inc., Arthur K. Hagen, and Michael Hagen (collectively Hagen) appeal from the district court judgment finding Hagen breached a settlement agreement with respondents Scott Whitehead and Renee Leinbach-Whitehead, ordering relief, and imposing sanctions.  We affirm in part and reverse in part.

The Whiteheads contracted with Hagen to construct an addition to their home.  During the course of the building project, the Whiteheads learned that several subcontractors had gone unpaid, refused to continue work, and had placed mechanics liens against the property.  The Whiteheads sued Hagen, alleging breach of contract, fraud, and theft.  The parties entered into a settlement agreement and stipulated to the details of the agreement in open court.

Under the settlement, the Whiteheads agreed to pay Hagen $8,000.  Hagen agreed the $8,000 would be held in trust and "used only" to negotiate discharges of mechanics liens in favor of Sue Builders, J & R Painters, and Pat Walsh Drywall.  The liens totaled approximately $20,000.  Hagen stipulated that it would probably need to augment the $8,000 in order to successfully discharge the three liens.  Hagen further agreed to perform and complete negotiations within 120-days of receiving the $8,000 payment.  If Hagen could not successfully negotiate lien discharges, it agreed to expeditiously commence litigation to remove the liens at no cost to the Whiteheads.  Finally, Hagen agreed to discharge its own lien at no cost to the Whiteheads.

The Whiteheads delivered $8,000 to Hagen on July 29, 2002.  Hagen discharged its own lien on August 20, 2002, but did not record it.  The 120-day period to negotiate with the three lien holders expired on November 26, 2002.  On December 17, 2002, after finding the mechanics liens remained unsatisfied and no litigation between Hagen and the three lien holders, the Whiteheads served a motion to enforce the settlement agreement.

On December 18, 2002, Hagen signed a summons and complaint against Sue Builders.  Litigation against Sue Builders began with personal service on January 2, 2003.  J & R Painters (also known as J. R. Kruger) and Pat Walsh discharged their liens on January 2 and 14, 2003 in exchange for payments totaling $3,678.  Thus, by January 14, $4,322 of the $8,000 payment remained unused.  Sue Builders's answer, dated January 22, 2003, stated that it was willing to accept the remaining $4,300 in return for a discharge of its lien but that Hagen had refused this offer. 

The district court considered the Whiteheads' motion after receiving affidavits with supporting exhibits from both parties and oral argument.  The court found Hagen breached the settlement agreement and ordered relief and sanctions.

1.         Hagen argues the district court erred in construing the terms of the settlement agreement without holding an evidentiary hearing.  This court generally will not consider matters not raised below.  Theile v. Stich, 425 N.W.2d 580, 582 (Minn. 1988).  Hagen did not request an evidentiary hearing, did not request testimony by witnesses, and did not argue to the district court that an evidentiary hearing was required by law or otherwise necessary and within the district court's discretion.  As such, Hagen is precluded from raising this issue on appeal.

2.         Hagen argues the district court erred in finding Hagen breached the settlement agreement.  "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous . . . ."  Minn. R. Civ. P. 52.01.  It is not the province of the appellate courts "to reconcile conflicting evidence.  On appeal, a trial court's findings of fact are given great deference, and shall not be set aside unless clearly erroneous. . . .  If there is reasonable evidence to support the trial court's findings of fact, a reviewing court" will not disturb those findings.  Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999) (citations omitted).

In this case, only one of the four liens was discharged within the 120-day period as required under the settlement agreement.  Two liens were discharged by negotiations after the 120-day period but only after Hagen received the Whiteheads' motion to enforce.  Thus, the district court's finding that Hagen breached the settlement agreement is reasonably supported by the evidence.

3.         Hagen argues the district court's order directing Hagen to return the unused portion of the $8,000 to the Whiteheads violates the terms of the settlement.  Hagen misreads the district court's order.  The district court did not interpret the settlement agreement to require recovery of any unused portion of the $8,000 settlement amount.  Rather, the district court ordered the return of the remaining funds as a remedy for Hagen's breach of the settlement agreement.

A settlement agreement is essentially a contract, subject to contractual rules of interpretation and enforcement.  Theis v. Theis, 271 Minn. 199, 204, 135 N.W.2d 740, 744 (1965).  Where one party repudiates or breaches a substantial part of the contract, the aggrieved party may recover the reasonable value of his performance.  Dunkley Surfacing Co. v. George Madsen Const. Co., 285 Minn. 415, 417, 173 N.W.2d 420, 422 (1970); Stark v. Magnuson, 212 Minn. 167, 169, 2 N.W.2d 814, 815 (1942).  The measure of recovery is the value of the non-breaching party's performance less the value of anything received under the contract by the non-breaching party and not returned.  Tompkins v. Sandeen, 243 Minn. 256, 259, 67 N.W.2d 405, 408 (1954).  "Granting equitable relief is within the sound discretion of the trial court.  Only a clear abuse of that discretion will result in reversal."  Nadeau v. County of Ramsey, 277 N.W.2d 520, 524 (Minn. 1979).

The district court properly found Hagen breached the settlement agreement.  The court's order amounted to rescission of the contract; it relieved Hagen from its duties under the agreement and returned the unused settlement funds to the Whiteheads.  Thus, the Whiteheads recovered the reasonable value of their performance less the value of Hagen's part performance.  This amounts to equitable relief and is properly within the discretion of the district court.

4.         The parties agree that there is no contractual right to sanctions under the settlement agreement.  Without a contractual basis for awarding sanctions, Hagen argues the district court may not award attorney fees without making a specific finding of bad faith pursuant to either Minn. Stat. § 549.211 (2002) or Minn. R. Civ. P. 11.  We agree.

Whether to award fees and costs under Minn. Stat. § 549.211 and rule 11 is within the district court's discretion.  Radloff v. First Am. Nat'l Bank, 470 N.W.2d 154, 156 (Minn. App. 1991), review denied (Minn. July 24, 1991).  Both Minn. Stat. § 549.211 and rule 11 require the district court to describe the conduct determined to constitute a violation of the section/rule and explain the basis for the sanction imposed.  Minn. Stat. § 549.211, subd. 5©; Minn. R. Civ. P. 11.03(c).

In this case, the district court ordered Hagen to pay the Whiteheads $500 in attorney fees.  The court's findings are void of any conduct it may have considered a violation of either section 549.211 or rule 11.  We accordingly reverse the award of attorney fees.

Affirmed in part, reversed in part.