Wells Electric, Inc., Appellant, vs. Matthew Schaper, et al., Respondents.

Wells Electric, Inc., Appellant, vs. Matthew Schaper, et al., Respondents. A06-420, Court of Appeals Unpublished, October 3, 2006.

This opinions will be unpublished and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

A06-420

 

Wells Electric, Inc.,

Appellant,

 

vs.

 

Matthew Schaper, et al.,

Respondents.

 

 

Filed October 3, 2006

Reversed

Randall, Judge

 

Faribault County District Court

File No. 22-CV-05-76

 

 

Douglas P. Seaton, Seaton, Beck & Peters, P.A., 7300 Metro Boulevard, Suite 500, Minneapolis, MN 55439 (for appellant)

 

Charles K. Frundt, Frundt & Johnson, Ltd., 117 West 5th Street, P.O. Box 95, Blue Earth, MN 56013 (for respondent)

 

            Considered and decided by Randall, Presiding Judge; Kalitowski, Judge; and Peterson, Judge.

U N P U B L I S H E D   O P I N I O N

RANDALL, Judge

This is an appeal from summary judgment dismissing all claims against respondent Electric Service Company of Blue Earth (ESC).  Appellant Wells Electric, Inc. challenged the grant of summary judgment, arguing that (1) issues of fact remain as to whether ESC tortiously interfered with Wells's existing business contracts and prospective business advantages; (2) as a result, issues of fact also remain on Wells's unfair-competition claim against ESC; (3) fact issues regarding Wells's conversion and trespass-to-chattels claims against Schaper preclude summary judgment on the same claims in favor of ESC;  and (4) because ESC gained some of Wells's business after Schaper left Wells and benefited from Schaper's wrongful acts, ESC was unjustly enriched, and the district court erred by granting summary judgment dismissing Well's unjust-enrichment claim against ESC.  As part of its lawsuit, Wells pleaded multiple counts against Schaper individually.  All counts survived Schaper's motion for summary judgment, except a claim by Wells of misappropriation of trade secrets.  Wells does not appeal the dismissal of that claim; Schaper did not appeal the survival against him of any of the other counts by Wells.  This appeal is confined to the dismissal by summary judgment of all of Wells's claims against ESC. 

Because we conclude there are material facts in dispute between Wells and ESC, we reverse the district court's decision as to ESC and remand for further proceedings. 

FACTS

 

Wells Electric, Inc. (Wells), an electrical contractor, sued respondent Electric Service Company of Blue Earth (ESC), an electrical-services provider, and respondent Matthew Schaper (Schaper), a former Wells employee who went to work for ESC, for tortious interference with contract, intentional interference with prospective business advantage, unfair competition, conversion and trespass to chattel, and unjust enrichment.  Respondent moved for summary judgment.  The district court denied Schaper's motion to dismiss on all counts except the count of misappropriation of trade secrets.  Then the district court granted summary judgment in ESC's favor, dismissing all of Wells's claims against ESC. 

Schaper began his career as an electrician at ESC as an apprentice.  He left ESC with another individual who was beginning his own electrical-contracting company.  This company was sold in 2002 and renamed Wells Electric.  During his time with Wells, Schaper worked as a master electrician.  Each electrical contractor is required to have one master electrician who is allowed to serve as a master electrician for only one contractor at a time. 

Both parties agree that between the 2002 creation of Wells and the events which gave rise to these proceedings, Wells was losing money.  ESC alleges that Schaper was laid off by Wells on May 26, 2004.  Wells claims that Schaper was never laid off, but that he was told his hours would be reduced due to declining business and that he could file for unemployment benefits due to this reduction of hours.  It is acknowledged that Schaper worked for Wells on an "as-needed" basis and not as a full-time employee. 

Schaper testified that customers would often call his personal cell phone to discuss potential projects with him.  On July 6, 2004, Schaper spoke with a personal friend who worked at ESC who informed Schaper that an electrician position was available with ESC.  Between July 6, 2004, and July 9, 2004, Schaper began informing customers and friends whom he saw because of his work on Wells projects that he would soon no longer work for Wells.  Shaper did this informally on his own personal time and used his personal cell phone. 

On July 8, 2004, Schaper met with the owners of ESC and was offered a job to begin immediately.  Schaper accepted.  At the end of the day on July 9, 2004, Schaper informed Wells that he would no longer work for them, turned over his keys and the mobile phone provided him by Wells, locked the shop doors, and left.  ESC and Schaper assert that there was no discussion of Wells's customers or a suggestion or requirement that Schaper bring his Wells customers to ESC. 

Wells alleged five claims against both ESC and Schaper and two claims solely against Schaper.  Against Schaper alone, Wells claimed breach of duty of loyalty and trespass to chattel.  Against Schaper and ESC, Wells claimed misappropriation of trade secrets, unfair competition, tortious interference with contract, intentional interference with prospective business advantage, conversion, and unjust enrichment. 

To support the claims of unfair competition, tortious interference with contract, intentional interference with prospective business advantage, unjust enrichment and misappropriation of trade secrets, Wells alleged that Schaper provided information to ESC regarding clients and ongoing project proposals of Wells.  Additionally, Wells asserted that Schaper took an expensive electrician's tool and a bid proposal from Wells upon his departure and either destroyed them or used them with ESC during the alleged torts against Wells.  The conversion claim against ESC and Schaper and the trespass-to-chattels claim against Schaper allege that Wells has lost the use of their tool and the bid proposal due to the actions of Schaper and ESC.  Wells seeks an unspecified monetary award to redress them for this loss. 

The district court found that Wells failed to establish the existence of questions of fact regarding the misappropriation-of-trade secrets claim against both Schaper and ESC.  The district court also found no questions of fact as to any of the five other claims against ESC.  The district court granted ESC's motion for summary judgment regarding all claims against ESC.  This appeal, confined to the claims by Wells against ESC, followed.

D E C I S I O N

A.        The Grey Affidavit

The district court gave Wells a week to reply to ESC's counter-memorandum.  Within that week, Wells submitted a memorandum and Grey's affidavit.  We understand respondent's argument before our court that a reply memorandum is supposed to be confined to points already raised and should not contain new matters, but the record is clear, and respondent Shaper agrees, that they made no motion to the district court to strike the affidavit. 

This failure to object to the affidavit in a timely fashion is dispositive of this issue.  Minn. R. Evid. 103(a) (2006) specifically requires a timely and specific objection to evidence admitted at the trial-court level.  This court will generally not consider matters not argued and considered in the court below.  Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988).  The district court was not asked to rule on the admissibility of the Grey affidavit.  It was part of the district court file and part of the record on appeal.  We do not know what weight, if any, the district court placed on this affidavit, but we do not have to decide that.  The district court's findings and conclusions are in the record.  We do know that there was no objection by ESC and no statement by the district court that the affidavit would not be received.  As a court of review, we conclude the affidavit is part of the record. 

B.        Summary Judgment Standard of Review

A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law.  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997).  No genuine issue for trial exists "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party."  Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986)).  "[T]he party resisting summary judgment must do more than rest on mere averments."  Id. at 71.  A genuine issue for trial must be established by "substantial evidence."  Id. at 69-70.  On appeal, 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). 

C.        Claims against ESC

 

Each claim against ESC is discussed separately below to address whether there are genuine issues of material fact existing in each claim and, thus, whether summary judgment was properly granted.   

1.  Intentional interference with an existing contract

 

The district court granted ESC's motion for summary judgment on this claim.  In its memorandum of law, the court noted that there was no showing of improper interference with Wells's contracts.

Minnesota Courts have recognized interference with an aggrieved party's economic relations as a tort action for many years.  See, e.g., Heffernan v. Whittlesey, 126 Minn. 163, 148 N.W. 63 (1914); Faunce v. Searles, 122 Minn. 343, 142 N.W. 816 (1913); Mealey v. Bemidji Lumber Co., 118 Minn. 427, 136 N.W. 1090 (1912).  Courts have noted the tort originally embodied two claims, one for "inducing breach of contract," and the other for an "interference with contract."  See Stephenson v. Plastics Corp. of Am., Inc., 276 Minn. 400, 416-17, 150 N.W.2d 668, 679-80 (1967); Royal Realty Co. v. Levin, 244 Minn. 288, 291, 69 N.W.2d 667, 671 (1955).

However, the Minnesota Supreme Court ultimately eliminated the separate claim for "interference with a contract" by holding:  "A cause of action for wrongful interference with a contractual relationship requires: ‘(1) the existence of a contract; (2) the alleged wrongdoer's knowledge of the contract; (3) intentional procurement of its breach; (4) without justification; and (5) damages.'"  Kjesbo v. Ricks, 517 N.W.2d 585, 588 (Minn. 1994) (quotation omitted).  The district court's analysis did not fully address this test

Appellant alleges that an agreement existed between Wells and Home of Your Own (HYO) that was informally composed of two parts, the first of which was finished.  They further contend that Schaper personally worked on this project prior to his departure from Wells and that ESC completed the second portion of the agreement immediately after Schaper's departure from Wells and arrival at ESC.  Finally, appellant alleges that there was no justification for ESC assuming the HYO project and that Wells lost revenue that they expected to receive through completion of this project. 

Respondent counters these arguments by contending that no evidence was ever produced to show an agreement between Wells and HYO, or that ESC ever had knowledge of any alleged contract between Wells and HYO.  Respondent also argues that no evidence of intentional actions by ESC to induce the breach of HYO's contract with Wells has been cited, and argues that appellant has not shown Wells's ability to have finished the HYO project without a master electrician or a clear expectation of profits from this project. 

The last issue raised by respondent warrants specific attention.  If Wells did not have a master electrician after Schaper's departure, no one could point fingers at customers for taking their work elsewhere because the law requires a master electrician on certain jobs.  However, the owner of Wells, through his association with Volk Electric Company, did have a master electrician (and indicates that Shaper certainly knew or should have known about this) and therefore would have been able to complete the jobs.  Respondent's assertion that Wells was not able to finish its contracts because it lacked a master electrician is rejected. 

The parties dispute whether questions of material fact remain regarding the claim of intentional interference with an existing contract.  The record reflects the Grey affidavit specifically raises issues of fact regarding the work ESC provided for HYO and EI Microcircuits (EIM).  The Grey affidavit and other documents in the record note that almost immediately after Schaper's departure from Wells, EIM, HYO, Ron's Plumbing and Heating, Continental Carbonics, and New Fashion Pork took their business to ESC.  There is enough in these allegations to raise a bona fide issue of material fact regarding ESC's role in any disruption of existing contracts between Wells and these businesses.    

2.      Intentional interference with prospective contractual relations or business advantage

 

In moving to dismiss the plaintiff's claim for an intentional interference with a prospective business advantage, respondent argued that appellant failed to properly allege any tortious conduct with a prospective contractual relation or business advantage.

In addition to the tort of interfering with an existing contract, Minnesota recognizes a claim for a tortious interference with prospective contractual relations or advantage.  See, e.g., United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 632 (Minn. 1982); Wild v. Rarig, 302 Minn. 419, 442-43, 234 N.W.2d 775, 790-91 (1975), cert. denied, 424 U.S. 902 (1976); Witte Transp. Co. v. Murphy Motor Freight Lines, Inc., 291
Minn. 461, 465 193 N.W.2d 148, 151 (1971).  The Minnesota Supreme Court adopted the following definition, first propounded in the Restatement (Second) of Torts:

One who intentionally and improperly interferes with another's prospective contractual relation (except a contract to marry) is subject to liability to the other for the pecuniary harm resulting from loss of the benefits of the relations, whether the interference consists of:

     (a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or

     (b) preventing the other from acquiring or continuing the prospective relation.

 

United Wild Rice, 313 N.W.2d at 633 (quoting Restatement (Second) of Torts § 766B (1970). 

            In this appeal, appellant relies heavily on Dalco Corp. v. Dixon, 338 N.W.2d 437 (Minn. 1983), arguing that it establishes that summary judgment was improper in this matter because it also included claims against an employee and his new employer for improper use of price information to interfere with business relations.  Therein, the supreme court reversed summary judgment against the company because the district court also found summary judgment inappropriate against the employee and the holdings were logically inconsistent.  Id. at 441.  Additionally, the supreme court noted that five affidavits tended to support the allegations against the employer and company therein.  Id. 

            As noted above, "the party resisting summary judgment must do more than rest on mere averments."  Russ, 566 N.W.2d at 71.  A genuine issue for trial must be established by "substantial evidence."  Id. at 69-70.  However, on appeal the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted.  Fabio, 504 N.W.2d at 761.  In the present matter, the Grey affidavit and contacts that Schaper made immediately after accepting employment with ESC both lend support to appellant's allegations and present questions of fact that require consideration of appellant's claims by a factfinder.   

3.      The claims of trespass to chattel and conversion against ESC.

 

Appellant charged Schaper and ESC with trespass to chattels and conversion of appellant's property.  The district court granted summary judgment to ESC on this issue and Wells appealed. 

Trespass to chattels and conversion are intentional torts.  Restatement (Second) of Torts § 222 (1965), states:  "One who dispossesses another of a chattel is subject to liability in trespass for the damage done.  If the dispossession seriously interferes with the right of the other to control the chattel, the actor may also be subject to liability for conversion."  Section 222A(1) states:  "Conversion is an intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel."  Restatement (Second) of Torts § 222A (1) (1965).

The district court did not dismiss the claims of trespass to chattels and conversion against Schaper as an individual.  Apparently, the district court determined that there were questions of fact remaining regarding Schaper's dominion or control over the megger and bid proposal.  The district court included in its memorandum of law that the pleadings did not raise questions regarding ESC exercising dominion and control over these items.  Appellant argues that if Schaper took the bid proposal or the megger, they are most likely being used by ESC today.  Wells has properly pleaded this issue and asserted that the megger has been missing since Schaper began his employment with ESC.  ESC purports to have no knowledge of this tool.  This creates a question of fact sufficient for Wells to survive a motion for summary judgment on this claim against ESC. 

4.      The claim of unjust enrichment brought against ESC.

 

Appellant asserts that through the usurpation of its competitive advantage and disruption of its established contracts, respondent was unjustly enriched and should forfeit the benefits received from its actions. To establish a claim for unjust enrichment, the claimant must show that another party knowingly received something of value to which he was not entitled and that the circumstances are such that it would be unjust for that person to retain the benefit.  Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn. App. 2001) (citing ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 306 (Minn. 1996)); see also Acton Constr. Co. v. State, 383 N.W.2d 416, 417 (Minn. App. 1986), review denied (Minn. May 22, 1986).

The analysis of unjust enrichment laid out by this court in Schumacher and earlier cases establish that an unjust-enrichment claim is most often an equity-based theory of quasi-contract wherein one party acts in a way patently unfair or unjust to the other party.  See Schumacher, 627 N.W.2d at 727 (noting the argument that appellant was induced to make improvements to the land through promises that he would retain the land after respondent's death); ServiceMaster of St. Cloud, 544 N.W.2d at 304-05 (showing that the dispute arose out of an apparent agreement that ServiceMaster would be paid regardless of the outcome of the arson investigation); Acton Constr. Co., 383 N.W.2d at 417 (discussing the state's apparent authority to continue incurring reasonable additional expenses that induced the continued expenditures of Acton).  The assertion put forward in this appeal is a different construction of the unjust-enrichment theory.  Appellant asserts that ESC was not entitled to the competitive advantage it exerted over Wells and should compensate Wells for the business ESC obtained with this advantage. 

To satisfy the requirement that ESC "knowingly received something of value to which it was not entitled," appellant argues that ESC "was benefited every time a former Wells client contacted ESC" and that ESC "retained possession of Wells property and used that property as [ESC] interfered with Wells's ongoing and future projects."  The Grey affidavit sets forth a factual basis for the claim that ESC obtained business that was slated to be performed by Wells, specifically the HYO project.  ESC responded that its completion of the HYO project did not arise from any wrongful conduct, rather it arose from Wells's inability to complete the work.  This defense fails because as discussed above, Wells had access to a master electrician and could have completed the HYO project.  Appellant's claim that ESC also may have been unjustly enriched as a result of other Wells projects or clients wrongfully obtained by ESC.  "Whether ESC knowingly
received something of value" is a factual question for which Wells has properly provided sufficient evidence of to require determination by a fact-finder. 

The second requirement for this unjust-enrichment theory is that it would be unjust for ESC to retain the benefit it has received.  Appellant acknowledges that it is not certain of the extent to which ESC has benefited from Wells's competitive advantage and seeks remand for this to be determined by a jury.  This prong of the unjust-enrichment claim obviously cannot be determined without previous determination of the first prong.  A determination by this court regarding the second prong is not necessary. 

Appellant argues generally that Schaper's alleged unjust enrichment, as an agent of ESC, supports an argument that ESC is vicariously liable for Scapher's alleged bad acts.  However, because we find that there are questions of fact regarding whether ESC wrongfully obtained the competitive advantage from Wells, this issue need not be reached. 

5.      The claim of unfair competition against ESC.

 

Wells asserted that ESC engaged in unfair competition and should be liable for this tort.  The district court correctly held that unfair-competition claims are general torts valid only where another claim stands against the charged party.  See Rehabilitation Specialists, Inc. v. Koering, 404 N.W.2d 301, 305-06 (Minn. App. 1987).  Unfair-competition claims are not independent torts, but are a category of tort derived from tortious interference with contractual relations.  United Wild Rice, 313 N.W.2d at 632
(stating there are two ways by which an individual can be guilty of unfair competition: tortious interference with contractual interests and improper use of trade secrets).   

Because the intentional-interference claims discussed above are being remanded for consideration by the district court, the viability of the unfair-competition claim also remains alive.  Appellant correctly argues that because it is asserted that the intentional-interference claims continue to have questions of fact to be decided, summary judgment was inappropriate for the intentional-interference claims and this unfair competition claim.  To support this argument, appellant again relies on Dixon and the supreme court's statement that "[a] claim for unfair competition and unlawful use of confidential information is properly brought against both the former employee and his current employer."  Dixon, 338 N.W.2d at 441.  In Dixon, the supreme court specifically noted five affidavits which "tend to support the allegations."  Id.  The court noted the inconsistency of the district court's two disparate findings on the same facts and accordingly remanded the issue for further consideration.  Id.

In the present matter, the Grey affidavit similarly tends to support the allegations asserted by appellant.  That the district court did not dismiss the claim of unfair competition against Schaper supports this analysis.  Similar to Dixon, where questions of fact remain regarding the actions of the employee, it is only an uncommon instance when questions of fact will not also remain regarding the actions of the current employer. 

C.        Respondeat Superior

"For respondeat superior to lie, there must be, first, an actor personally liable for the tort, and second, the actor must be within the scope of the employment by the employer."  Leaon v. Washington County, 397 N.W.2d 867, 874 (Minn. 1986).  Put differently, an employer may be liable for the actions of its employee if it can be shown that the employee was acting within the scope of his employment when the tort occurred.  Olson v. First Church of Nazarene, 661 N.W.2d 254, 263 (Minn. App. 2003).  In Olson, the supreme court determined that employer liability depended upon a showing that the intentional tort was committed while the employee "was providing ongoing, private spiritual advice, aid, or comfort to [the victim] in his capacity as a cleric."  Id. at 264.

Appellant argues vigorously that under the doctrine of respondeat superior if its claims against Schaper survived a motion for summary judgment, the claims against ESC must also survive a motion.  We do not decide the case on this basis.  Our decision on each issue is for the reasons articulated above. 

Our decision is not a reflection on the merits of either party's case.  The respective burden of proof on each claim remains with the party who brought it.  We find only that Wells's claims against ESC at least survive a motion for summary judgment. 

Reversed and remanded.