Minnesota Valley Alfalfa Producers Cooperative, Appellant, vs. Midwest Alfalfa Company, Respondent.

This opinion will be unpublished and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

A03-166

 

 

Minnesota Valley Alfalfa Producers Cooperative,

Appellant,

 

vs.

 

 

Midwest Alfalfa Company,

Respondent.

 

 

Filed October 21, 2003

Affirmed in part, reversed in part, and remanded;

Motion granted

Toussaint, Chief Judge

 

Kandiyohi County District Court

File No. C9-02-343

 

 

Jonathan C. Miesen, Lindquist & Vennum, P.L.L.P., 4200 IDS Center, 80 South 8th Street, Minneapolis, MN 55402 (for appellant)

 

Stephen F. Rufer, Pemberton, Sorlie, Rufer & Kershner, P.L.L.P., Law Office Building, 110 North Mill Street, Fergus Falls, MN 56538-0866 (for respondent)

 

 

Considered and decided by Lansing, Presiding Judge; Toussaint, Chief Judge; and Schumacher, Judge.

UNPUBLISHED OPINION

TOUSSAINT, Chief Judge

Appellant purchased an alfalfa-processing facility from respondent in 1996.  After the Minnesota Pollution Control Agency discovered permit violations and required appellant to install pollution control equipment, appellant sued respondent for breach of contract, negligent misrepresentation, and fraud.  Appellant claims the trial court erred in (a) granting a directed verdict dismissing its breach-of-contract claim; (b) granting summary judgment on its negligent-misrepresentation and fraud claims; and (c) excluding evidence at trial relating to the facility prior to 1988.  Because there was sufficient evidence in the record to present a fact question to the jury as to appellant's breach-of-contract claim, and there were genuine issues of material fact regarding appellant's fraud claim, we reverse the trial court's directed verdict as to the breach-of-contract claim and grant of summary judgment as to the fraud claim.  But because respondent owed no duty of care to appellant, we affirm the trial court's grant of summary judgment as to the negligent-misrepresentation claim.  We find no clear abuse of discretion in the trial court's evidentiary rulings. 

FACTS

In 1996, appellant Minnesota Valley Alfalfa Producers Cooperative (MnVAP) purchased an alfalfa-processing facility (facility) from respondent Midwest Alfalfa Company (MAC).  The parties entered into an "Asset Purchase Agreement" (Agreement) where MAC warranted that its facilities, structures, and equipment conformed to all governmental health, safety, and environmental requirements.

The facility operated under an air emission facility permit issued by the Minnesota Pollution Control Agency (MPCA) in 1988.  The 1988 permit required, among other things: (1) that the facility's main stack be 80-feet high; (2) that the alfalfa shredder be controlled by a baghouse filter, a closed door on the load-out building, and a baghouse filter for the regrind mill.  After the MPCA issued the permit and before the 1996 sale of the facility, the MPCA inspected the facility two times and found no permit violations.

Problems began to arise during the MPCA's next inspection in December 1998.  The MPCA found the alfalfa shredder was no longer controlled by a baghouse system, in violation of the 1988 permit.  Subsequent MPCA inspections also revealed that the facility was missing a baghouse filter for the regrind mill, pressure-monitoring instrumentation on the baghouses, and doors on the load-out building.  Additionally, the MPCA learned that while the 1988 permit required that the main stack be 80-feet high, it had been lowered by 30-40 feet after the permit was granted.  Because of the dust emitted due to continuing violations, the MPCA required MnVAP to shut down the facility.

In September 2002, MnVAP filed a lawsuit against MAC and Francis Liebl, its owner and principal, alleging breach of contract, fraud and negligent misrepresentation.  The trial court granted summary judgment dismissing MnVAP's negligent misrepresentation claim and parts of the fraud claim.  Later, during the pre-trial conference, the trial court granted summary judgment and dismissed MnVAP's remaining fraud claim. 

On January 27, 2003, trial commenced for the breach-of-contract claim.  The record indicates that Liebl made several admissions at trial about MAC's failure to fully follow the MPCA's requirements. These admissions were reinforced by the testimony of Shawn Malvin, a former MAC employee, who testified that MAC had not installed a baghouse filter for the regrind mill, and that it lowered the facility's main stack by 30-40 feet. 

Nonetheless, at the close of MnVAP's case, the trial court granted a directed verdict on the breach-of-contract claim.  The court held that because MAC received no notice of any permit violation from the MPCA prior to the 1996 sale, it did not, as a matter of law, breach any warranty contained in the Asset Purchase Agreement.

MnVAP filed a motion for a new trial, which was denied.  This appeal followed, and after briefing was complete, MnVAP filed a motion to strike certain exhibits from MAC's appendix as well as the references to those exhibits.

D E C I S I O N

I.

Directed Verdict

 

This court reviews an appeal from a directed verdict by making an independent determination of whether the evidence was sufficient to present a fact question to the jury, reviewing the evidence in the light most favorable to the nonmoving party.  Boone v. Martinez, 567 N.W.2d 508, 510 (Minn. 1997).

MnVAP claims that the trial court erred in granting a directed verdict dismissing its breach-of-contract claim.  The court ruled that because MAC had not received any notice of violation of the 1988 permit from the Minnesota Pollution Control Agency prior to the 1996 sale of the facility, it did not breach any warranty contained in the Asset Purchase Agreement as a matter of law.  The trial court based its determination on the letters sent by the MPCA after its pre-sale inspections of the facility. 

But evidence was also introduced at trial indicating that in spite of the MPCA's letters, Liebl knew at the time of sale that the facility was not in compliance with the regulatory standards.  During trial, Liebl described the manner of the inspections as "a joke."  Liebl admitted at trial that he knew the 1988 permit required MAC to install doors on the load-out building, but that MAC never satisfied this requirement.  Liebl also admitted that the baghouse attached to the shredder was removed because he did not believe the shredder needed the baghouse.  Moreover, Shawn Malvin, a former MAC employee, testified that on the date of sale, MAC had not installed a baghouse filter for the regrind mill, and that MAC lowered the main stack by 30-40 feet in 1991, even though Liebl knew that the MPCA required the stack to be 80 feet high. 

MAC claims that any modifications it may have made were done with the oral permission of the MPCA, but this claim was disputed at trial.  J. Michael Valentine, the former Director of Air Quality for the MPCA at the time MAC operated the facility, testified that the MPCA would never have given oral permission to remove or not install equipment required by the MPCA permit without a proper application, which did not occur here.

This testimony, when viewed in the light most favorable to MnVAP, was sufficient to present a question of fact for the jury as to whether unbeknownst to the MPCA, MAC had altered the facility in a manner that did not comply with the 1988 permit, and thus, breached its warranties regarding the facility's past and present compliance with the environmental rules.  Thus, directed verdict was improper.

II.

Summary Judgment

A motion for summary judgment should be granted when the pleadings, depositions, answers to interrogatories, admissions on file, and any affidavits show that there is no genuine issue of material fact and that either party is entitled to judgment as a matter of law.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  On appeal from summary judgment, we ask (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).  The reviewing court views the evidence in the light most favorable to the party against whom judgment was granted. Fabio, 504 N.W.2d at 761. 

            A.         Negligent Misrepresentation

First, MnVAP claims the trial court erred in granting summary judgment on its negligent-misrepresentation claim.  The court dismissed MnVAP's negligent misrepresentation claim on the grounds that MAC did not owe MnVAP a duty of care.  A person making a representation is negligent when he or she has not communicated certain information that the ordinary person in his or her position would have discovered or communicated.  Safeco Ins. Co. of America, v. Dain Bosworth Inc., 531 N.W.2d 867, 870 (Minn. App. 1995), review denied (Minn. Jul. 20, 1995); see also Bonhiver v. Graff, 311 Minn. 111, 122, 248 N.W.2d 291, 298-99 (Minn. 1976) (establishing "due care" as one of the essential elements of a negligent misrepresentation claim).  This duty, however, does not extend to sophisticated parties who are negotiating a commercial transaction.  Safeco, 531 N.W.2d at 872.  "In these situations, the injured party's remedy is to sue either in contract or . . . for intentional misrepresentation."  Id. at 871. 

Here, MAC was not giving MnVAP guidance or advice.  Rather, both MAC and MnVAP were "sophisticated equals" involved in an "arms-length" commercial transaction.  Each was knowledgeable of the alfalfa-processing industry.  Because MAC did not owe a duty of care to MnVAP, it would not be able to prove one of the essential elements of its negligent-misrepresentation claim, and therefore, the trial court did not err in granting summary judgment as to this issue.

B.         Fraud

Next, MnVAP challenges the trial court's grant of summary judgment on its fraud claim.  In order to establish fraud, the plaintiff must show the following elements: 

(1)              there was a false representation by a party of a past or existing material fact susceptible of knowledge;
(2)       made with knowledge of the falsity of the representation or made as of the party's own knowledge without knowing whether it was true or false;
(3)       with the intention to induce another to act in reliance thereon;
(4)       that the representation caused the other party to act in reliance thereon; and

(5)       that the party suffer pecuniary damage as a result of the reliance.

 

Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986). 

In granting summary judgment the trial court explained that MnVAP would be unable to establish fraud because the MPCA's letters indicated that no violations existed at the facility, and therefore, Liebl "reasonably relied on the truth and validity of the information received" when making warranties regarding the condition of the facility.  The trial court also explained that because there was evidence that Rollie Ammerman, MnVAP's agent, had actual knowledge of prior complaints by neighbors, MnVAP could not reasonably rely on the representations. 

            However, MnVAP submitted evidence to dispute these facts.  As noted earlier, there was testimony in the record indicating that alterations were made to the facility throughout the years preceding the sale that Liebl knew violated the 1988 permit and the air quality rules.  Viewed in the light most favorable to MnVAP, this evidence was sufficient to raise an issue of material fact as to whether, in spite of the MPCA's form letters to the contrary, MAC knowingly made false representations of the facility's compliance with the environmental rules before the sale.  

Furthermore, while the trial court concluded that MnVAP could not have relied on MAC's representations because Ammerman's deposition testimony suggests that MnVAP had knowledge of the dust problem, MnVAP introduced evidence to rebut that testimony.  The record contained deposition testimony by Richard Jepsen, MnVAP's former board chairman who handled most of the sale negotiations, that he directly asked Liebl about prior environmental problems with the facility and that Liebl responded that there had been no problems with dust, odors, or the permit.  Jepsen's testimony, at a minimum, indicates that there is a genuine issue of material fact regarding whether, assuming MAC knowingly made a fraudulent representation, MnVAP could have reasonably relied on it. 

            Finally, there was evidence in the record in support of the last two elements of fraudintent and pecuniary damage.  Because Liebl admitted that alterations were made to the facility before its sale that were contrary to the MPCA's requirements, MnVAP submitted sufficient evidence to raise a genuine issue of material fact regarding MAC's intent to induce.  See Florenzano v. Olson, 387 N.W.2d 168, 173 (Minn. 1986) (stating that "[t]here is no doubt of fraudulent intent when the misrepresenter knows or believes the matter is not as he or she represents it to be").  In addition, MnVAP submitted evidence that it incurred $687,094.31 in damages due to the installation of the missing equipment and the lost production and profits caused by the shutdown of the plant.

            Because the evidence in the record, viewed in the light most favorable to MnVAP, was sufficient to raise genuine issues of material fact as to each of the elements of MnVAP's fraud claim, the court erred in granting summary judgment as to this issue.

III.

Exclusion of Evidence

The trial court's evidentiary ruling rests within its sound discretion and will not be reversed absent a clear abuse of that discretion.  State v. Amos, 658 N.W.2d 201, 203 (Minn. 2003).

MnVAP claims that the trial court erred in excluding the following evidence: (1) the 1981 Installation Permit, (2) a 1979 letter the MPCA sent Liebl indicating that that no changes should be made to the facility without an installation permit, and (3) the facility's history of non-compliance before 1988.  The trial court concluded that the 1981 Installation Permit and the 1979 letter were not relevant, and that the facility's history of non-compliance before 1988 was too remote in time.  The trial court did not abuse its discretion in excluding this evidence.

IV.               

Motion to Strike

Generally, an appellate court may not base its decision on matters outside the record on appeal and may not consider matters not produced and received in evidence below.  Thiele v. Stich, 425 N.W.2d 580, 582-83 (Minn. 1988).  The record on appeal consists of "[t]he papers filed in the trial court, the exhibits, and the transcript of the proceedings."  Minn. R. Civ. App. P. 110.01.  "[This] court will strike documents included in a party's brief that are not part of the appellate record."  Fabio v. Bellomo, 489 N.W.2d 241, 246 (Minn. App. 1992), aff'd, 504 N.W.2d 758 (Minn. 1993).

MnVAP moves to strike three exhibits and references to those exhibits from MAC's appellate brief and appendix:  (1) exhibit D-106, a letter sent by James Friedman, a consultant, to MnVAP, regarding recommendations to control dust emissions;  (2) exhibit D-153, a MnVAP subscription agreement; and (3) exhibit D-175, a corporate certificate.  Because exhibits D-106, D-153, and D-175 were never submitted to the trial court as evidence, they are not part of the record on appeal, and therefore, the exhibits, as well as all portions of MAC's brief relying on those exhibits must be stricken.

Affirmed in part, reversed in part and remanded; motion granted.