Chester Creek Technologies, Inc., Appellant, vs. George H. Kessler, Respondent.

Chester Creek Technologies, Inc., Appellant, vs. George H. Kessler, Respondent. A06-505, Court of Appeals Unpublished, January 2, 2007.

This opinion will be unpublished and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

A06-505

 

Chester Creek Technologies, Inc.,

Appellant,

 

vs.

 

George H. Kessler,

Respondent.

 

Filed January 2, 2007

Affirmed in part and reversed in part Hudson, Judge

 

St. Louis County District Court

File No. 69-C3-04-601344

 

Michael E. Orman, Orman Nord Spott & Hurd Law Offices, 1301 Miller Trunk Highway, Suite 400, Duluth, Minnesota 55811 (for appellant)

 

Sonia M. Sturdevant, Stacy E. Johnston, Reyelts Leighton Bateman Hylden & Sturdevant, Ltd., 332 West Superior Street, 700 Providence Building, Duluth, Minnesota 55802-1801 (for respondent)

 

            Considered and decided by Toussaint, Chief Judge; Minge, Judge; and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N

HUDSON, Judge

            This appeal is from a judgment and order denying posttrial motions in a case involving an insolvent corporation and its two primary shareholders.  Appellant argues that there was insufficient evidence to support respondent's claims of (1) promissory estoppel; (2) interference with prospective advantage; and (3) unjust enrichment.  Appellant also claims that (4) respondent obtained double recovery for the same harm when he was awarded damages for both interference with prospective advantage and promissory estoppel; and (5) the jury instructions were erroneous.  We affirm in part and reverse in part.

FACTS

 

In 1997, respondent George Kessler started a company called Secret Seven, which began developing small computer mice for children's keyboards.  Eventually, Secret Seven needed additional capital, and in 2001, Kessler approached James Gustafson, among others, about investing in his company.  Gustafson agreed to do so.  Secret Seven had also received a loan from Wells Fargo.  Nevertheless, Secret Seven continued to experience serious financial difficulty and by January 2004, owed Wells Fargo approximately $258,000.  As a result, in 2004, Secret Seven entered into a voluntary surrender-of-collateral agreement with Wells Fargo in which Wells Fargo took control of Secret Seven's assets to satisfy the loan balance. 

To facilitate liquidation of Secret Seven's assets (and thus reduce Kessler's and Gustafson's debt to Wells Fargo, for which they were personally liable), Gustafson founded Chester Creek Technologies, LLC (Chester Creek) in late December 2003 or early January 2004.  Chester Creek signed a liquidation agreement with Wells Fargo in February 2004 to act as liquidating agents for the assets of Secret Seven.  The one-year agreement provided that Chester Creek would take a 19% commission on whatever product it liquidated.  Around this same time, Chester Creek and Kessler began a relationship whereby both Chester Creek and Kessler were to work together to sell the assets of Secret Seven in order to pay off the loan debt.  Various e-mails between the parties indicate that the parties also attempted to negotiate payment for Kessler's services.  But apparently Kessler was never paid for his services.

            E-mails were exchanged between Gustafson and Kessler discussing the logistics of the liquidation, which included informing businesses that had previously worked with Secret Seven that it was defunct and that Chester Creek now existed.  In addition, Kessler wanted his company back and indicated to Gustafson and the other investors that he wanted to form his own company to buy Secret Seven's assets that were then held by Wells Fargo.  In a February 2004 e-mail, Kessler laid out several different options, as he saw them, for going forward.  One of those options included developing his own company to sell the Secret Seven assets.  Eventually, Kessler did form his own company, Technology for Learning, and in February 2004, began manufacturing and selling children's keyboards.  Likewise, in March 2004, Chester Creek began manufacturing and selling children's keyboards using a tooling owned by Secret Seven.  At that time, Kessler was working for both businesses.  In March 2004, two purchase orders came into Chester Creek.  The purchase orders were never filled and the parties dispute whether Kessler concealed these purchase orders from Gustafson. 

            In April 2004, Kessler notified Gustafson that he had made a written offer of $195,000 to Wells Fargo to buy Secret Seven's assets.  Unbeknownst to Kessler, Chester Creek had recently purchased all of Secret Seven's assets from Wells Fargo for a nominal price$10,000effectively thwarting Kessler's plan to purchase Secret Seven's assets.  Eventually, Gustafson became suspicious that Kessler was trying to undermine Chester Creek and filed a complaint and requested a temporary restraining order (TRO) against Kessler to prevent him from contacting Chester Creek's customers.  The TRO was granted on June 7, 2004 and dissolved on August 25, 2004. 

            In its complaint filed on June 3, 2004, Chester Creek made eight claims against Kessler: (1) breach of contract; (2) tortious interference with contractual relations; (3) interference with prospective contractual relations; (4) misappropriation of trade secrets; (5) deceptive trade practice product disparagement; (6) defamation business organization; (7) breach of fiduciary duty; and (8) unfair competition.  On November 11, 2005, Kessler filed an amended answer and counterclaim in which he claimed: (1) breach of contract/agreement; (2) defamation; (3) product disparagement; (4) interference with prospective advantage; (5) unfair competition; (6) fraud and misrepresentation; (7) promissory estoppel; and (8) unjust enrichment.  Counts 2 and 3 of Kessler's counterclaim were dismissed by the district court. 

            A jury trial began on November 8, 2005.  After several days of trial, the district court presented the jury with a 35-question special-verdict form.  The jury returned its verdict on November 15, 2005.  On Chester Creek's claims, the jury returned the following verdicts: (1) $12,383 for breach of contract; (2) $0 for interference with prospective advantage; (3) $0 for breach of fiduciary duty; and (4) $0 for unfair competition.  The jury's verdicts on Kessler's claims were: (1) $0 for breach of contract; (2) $42,000 for promissory estoppel; (3) $42,240 for interference with prospective advantage; (4) $12,000 for unjust enrichment; and (5) $0 for unfair competition.  On November 22, 2005, the district court issued an order entering judgment on behalf of Kessler in the amount of $83,857 plus costs and disbursements. 

            On December 14, 2005, Chester Creek filed a motion for JNOV or in the alternative a new trial.  The district court denied Chester Creek's motion by order dated January 26, 2006.  This appeal follows.

D E C I S I O N

I

 

Promissory Estoppel

            Chester Creek claims that there was insufficient evidence to support the jury's verdict on Kessler's promissory-estoppel claim.  Specifically, Chester Creek argues that (1) there was no clear and definite promise; (2) there was insufficient evidence of foreseeability to support promissory estoppel; (3) there was no evidence of damages caused by respondent's reliance on a promise; (4) expectation damages of anticipated profits are not a proper measure of damages for promissory estoppel; and (5) enforcing the alleged promise is not necessary to prevent injustice.  

            "Promissory estoppel implies a contract in law where no contract exists in fact."  Deli v. Univ. of Minn., 578 N.W.2d 779, 781 (Minn. App. 1998), review denied (Minn. July 16, 1998).  The elements of a promissory estoppel claim are (1) a clear and definite promise; (2) intent to induce reliance on part of promisor and actual reliance by the promisee to his or her detriment; and (3) that enforcement of the promise is required to prevent injustice.  Cohen v. Cowles Media Co., 479 N.W.2d 387, 391 (Minn. 1992).  On appeal, this court reviews the evidence in the light most favorable to the jury's verdict.  Reedon of Faribault, Inc. v. Fidelity & Guar. Ins. Underwriters, Inc., 418 N.W.2d 488, 491 (Minn. 1988) (citing Flom v. Flom, 291 N.W.2d 914, 916 (Minn. 1980)).  This court will overturn a jury verdict "only if no reasonable mind could find as the jury did."  Id. 

            As a preliminary matter, Chester Creek argues that the correct standard of review for this issue is de novo.  Chester Creek relies on Martens v. Minn. Mining & Mfg. Co., 616 N.W.2d 732 (Minn. 2000), for the proposition that the determination of whether a statement is a clear and definite promise is a matter of law.  Martens provides that "[w]here the facts are not in dispute . . . whether they rise to the level of promissory estoppel presents a question of law."  Id. at 746.  In this case, however, numerous facts were in dispute, and the matter was properly submitted to the jury in the special-verdict form.  Answers to special-verdict questions will only be set aside if they are "perversely and palpably contrary to the evidence."  Reedon of Faribault, 418 N.W.2d at 491. 

            A.        Clear and definite promise

Kessler claims that Chester Creek promised not to interfere with his effort to purchase the Secret Seven assets from Wells Fargo.  Chester Creek counters, claiming that no "clear and definite" promise existed.  We conclude that, based on the evidence in the record, the jury could reasonably find that Chester Creek made a clear and definite promise to Kessler.  The jury heard extensive testimony about e-mails and conversations between Kessler and Gustafson, one of Chester Creek's principal shareholders, and received numerous exhibits that detailed conversations between the parties.  Taken separately, the individual e-mails and conversations may not have been sufficient to support the jury's verdict.  However, in the aggregate, we conclude that there is sufficient evidence to support the jury's conclusion that Chester Creek made a "clear and definite" promise not to interfere with Kessler's attempt to purchase the Secret Seven assets from Wells Fargo.

B.        Foreseeability

Chester Creek also argues that there was insufficient evidence to show that it expected Kessler to rely upon the alleged promise.  Again, looking at the evidence in the light most favorable to the jury's verdict, we conclude that the record contains sufficient evidence to support such a finding.  For example, Kessler testified that based on his communications with Gustafson, he believed that he "had his blessing" and that Gustafson "would do whatever he could to facilitate" Kessler's pursuit to regain the Secret Seven assets.  Kessler also testified that he had made no secret of the fact that he wanted to start his own company and had actually told Gustafson he was creating a company so that he could sell Secret Seven's assets.  Based upon the entire record that was before it, the jury could reasonably conclude that Chester Creek knew Kessler was developing his own company and relied on Chester Creek's promises not to interfere with his attempt to purchase Secret Seven's assets from Wells Fargo.

            C.        Reliance

            Chester Creek argues that there was insufficient evidence of Kessler's actual reliance on the alleged promise.  Kessler testified about the actions he took in reliance on Gustafson's promise and stated that he proceeded with trying to buy the assets held by Wells Fargo because he believed that "[Gustafson] just wanted to get all the Secret Seven mess behind him.  I was willing to assume the risk.  I was willing to assume the debt because I wanted my company back."  Based on this testimony, the jury could reasonably conclude that Kessler pushed forward with obtaining funds to purchase the Secret Seven assets believing that Gustafson would assist him in any way he could and, therefore, its verdict is not palpably contrary to the evidence.   

D.        Damages

Chester Creek next argues that damages are limited to reliance damages under a promissory-estoppel theoryi.e. expectation damages of anticipated profits are not a proper measure of damages under a promissory-estoppel claim.  In support of its position, Chester Creek cites Olson v. Synergistic Tech. Bus. Sys., Inc., 628 N.W.2d 142, 14952 (Minn. 2001), for the proposition that promissory estoppel is an equitable remedy for which breach-of-contract remedies are not appropriate.  But the district court concluded that damages for promissory estoppel may include more than just reliance damages.  Relying on Grouse v. Group Health Plan, Inc., 306 N.W.2d 114 (Minn. 1981), the district court noted that damages in actions based on promissory estoppel "may be limited to out-of-pocket expenses but not necessarily just those expenses."  Moreover, we note that the Restatement of Contracts suggests that remedies available in contract law are also available under the doctrine of promissory estoppel:

A promise binding under this section is a contract, and full-scale enforcement by normal remedies is often appropriate.  But the same factors which bear on whether any relief should be granted also bear on the character and extent of the remedy.  In particular, relief may sometimes be limited to restitution or to damages or specific relief measured by the extent of the promisee's reliance rather than by the terms of the promise.  Unless there is unjust enrichment of the promisor, damages should not put the promisee in a better position than performance of the promise would have put him.

 

Restatement (Second) of Contracts § 90 cmt. d (1981) (citation omitted).  The Restatement also provides a helpful illustration:

8. A applies to B, a distributor of radios manufactured by C for a "dealer franchise" to sell C's products.  Such franchises are revocable at will.  B erroneously informs A that C has accepted the application and will soon award the franchise, that A can proceed to employ salesmen and solicit orders, and that A will receive an initial delivery of at least 30 radios.  A expends $1,150 in preparing to do business, but does not receive the franchise or any radios.  B is liable to A for the $1,150 but not for the lost profit on 30 radios.

 

9. The facts being otherwise as stated in Illustration 8, B gives A the erroneous information deliberately and with C's approval and requires A to buy the assets of a deceased former dealer and thus discharge C's "moral obligation" to the widow.  C is liable to A not only for A's expenses but also for the lost profit on 30 radios.

 

Id. (citation omitted).  Implicit in these Restatement illustrations is the conclusion that expectation damages are a permissible remedy in promissory-estoppel claims.  Thus, we conclude that, in this case, expectation damages in the form of lost profits are an appropriate measure of damages on a claim of promissory estoppel.

            E.        Prevention of injustice

            Chester Creek contends that enforcing the alleged promise is not necessary to prevent injustice.  Because it involves a policy question, whether a promise must be enforced to prevent injustice is a legal question for the district court to decide.  Cohen,479 N.W.2d at 391.  There are many factors that a court can consider when determining whether a promise must be enforced to prevent injustice, "including the reasonableness of a promisee's reliance and a weighing of public policies in favor of both enforcing bargains and preventing unjust enrichment."  Faimon v. Winona State Univ., 540 N.W.2d 879, 883 (Minn. App. 1995), review denied (Minn. Feb. 9, 1996).  This court reviews legal questions de novo.  Commercial Assocs., Inc. v. Work Connection, Inc., 712 N.W.2d 772, 778 (Minn. App. 2006).  Chester Creek cites no legal authority to support its assertion that the district court's decision on this issue is erroneous.  Taking as true the jury's determinations that Chester Creek made a clear and definite promise; that Chester Creek intended for Kessler to rely on it; and that Kessler did in fact rely on it, we conclude that the district court did not err when it concluded that enforcement of the promise was necessary to prevent injustice.

II

 

Interference with Prospective Advantage

Chester Creek claims that the evidence was insufficient to support the jury's verdict in favor of Kessler on his claim of interference with prospective advantage. 

One who intentionally and improperly interferes with another's prospective contractual relation . . . 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. 

 

R.A., Inc., v. Anheuser-Busch, Inc., 556 N.W.2d 567, 57071 (Minn. App. 1996), review denied (Minn. Jan. 29, 1997) (emphasis omitted). 

On appeal, this court reviews the evidence in the light most favorable to the jury's verdict and will overturn a jury verdict "only if no reasonable mind could find as the jury did."  Reedon, 418 N.W.2d at 491.  However, when determining whether there was sufficient evidence to reasonably sustain the jury's verdict, this court may not "weigh the evidence or judge the credibility of witnesses."  Conroy v. Book Automation, Inc., 398 N.W.2d 657, 662 (Minn. App. 1987). 

The jury awarded Kessler $42,240 for interference with prospective advantage after hearing testimony that Kessler was planning to buy the assets that were formerly Secret Seven's back from Wells Fargo to use to fulfill an order and that before he could do that, Chester Creek bought those same assets from Wells Fargo for far less than what Kessler would have had to pay.  The jury also heard Kessler testify about the amount of money he believed he lost as a result of Chester Creek's interference.  Based on the testimony and exhibits presented to the jury, and looking at the evidence in the light most favorable to the jury's verdict, we conclude that it was reasonable for the jury to determine that Chester Creek interfered with Kessler's prospective advantage. 

III

Unjust Enrichment

Chester Creek claims that the evidence was insufficient to support the jury's verdict on Kessler's claim of unjust enrichment.  In order to establish a claim of unjust enrichment, the party bringing the claim must show that another party knowingly received something of value to which he was not entitled and that it would be unjust for that other party to retain the benefit.  ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 306 (Minn. 1996).  "An unjust enrichment claim does not lie merely because one party benefits from another's efforts or obligations; rather it must be shown that a party was unjustly enriched in the sense that the term could mean illegally or unlawfully."  Custom Design Studio v. Chloe, Inc., 584 N.W.2d 430, 433 (Minn. App. 1998) (quotation omitted), review denied (Minn. Nov. 24, 1998).  Unjust enrichment may be based on fraud, failure of consideration, mistake, or "situations where it would be morally wrong for one party to enrich himself at the expense of another."  Mon-Ray, Inc. v. Granite Re, Inc., 677 N.W.2d 434, 440 (Minn. App. 2004) (quotations omitted). 

Here, the jury heard considerable testimony about the work Kessler performed for Chester Creek while trying to liquidate Secret Seven's assets as well as testimony by Kessler that he was never paid for that work.  The district court instructed the jury that

[a]n action for unjust enrichment may be based on failure of consideration, mistake, and situations where it would be morally wrong for one party to enrich himself at the expense of another.  Damages for unjust enrichment include the value of the services rendered by George H. Kessler on behalf of Chester Creek Technologies between December 31, 2003 and May 17, 2004.

 

Granted, the relationship between Kessler and Chester Creek was not clear.  Kessler alleged that he was a consultant; Chester Creek alleged that Kessler was an agent at times and a competitor at other times.  Be that as it may, based on the evidence in the record, and viewing it in the light most favorable to the jury's verdict, we conclude that the jury could have reasonably concluded that Chester Creek gained some benefit from Kessler's assistance and that the benefit constituted unjust enrichment.  

IV

Double Recovery

            Chester Creek also argues that Kessler's recovery of $42,000 for promissory estoppel and his recovery of $42,240 for interference with prospective advantage constitutes double recovery because the harm in both was the same:  lost anticipated profits.  We agree.

            "[A] special verdict form is to be liberally construed to give effect to the intention of the jury and on appellate review it is the court's responsibility to harmonize all findings if at all possible."  Kelly v. City of Minneapolis, 598 N.W.2d 657, 662 (Minn. 1999).  The test is "whether the answers to the special verdict questions can be reconciled in any reasonable manner consistent with the evidence and its fair inferences."  Buttz v. Bergeson, 392 N.W.2d 917, 920 (Minn. App. 1986).  Answers to special-verdict questions will only be set aside "when perverse and palpably contrary to the evidence."  Id.   

"Double recovery occurs when separate theories of liability are premised on the same harm."  Bradley v. Hubbard Broad., Inc., 471 N.W.2d 670, 677 (Minn. App. 1991), review denied (Minn. Aug. 2, 1991).  Recovery for two theories of liability may be allowed even when the harms for those theories are "factually intertwined" so long as "the harms are sequential and sufficiently discrete to support separate compensatory awards."  Id. (footnote omitted).

            Here, the district court instructed the jury on the damages allowed for interference with prospective advantage and promissory estoppel.  On the claim of interference with prospective advantage, the jury was instructed that the damages may include "the loss of benefits of the contract or the prospective relationship, and other losses that were directly caused by the interference, and emotional distress or actual harm to reputation, if these factors can . . . reasonably be expected to result from the interference."  Based on this instruction, the jury's award of $42,240 could have included damages for lost profits, emotional distress, actual harm to reputation, and/or "other losses."    

On the claims of promissory estoppel and breach of contract, the district court instructed the jury that any damages it awarded

should put a party in the position he or it would have been in if the contract had not been breached by the other party.  Damages may be awarded for losses that the parties, when they entered the contract, could foresee would probably result if the contract was breached.  Damages in the form of lost profits may be recovered where they are shown to be the natural and probable consequences of the act or omission complained of and their amount is shown with a reasonable degree of certainty and exactness.  This means that the nature of the business or venture upon which the anticipated profits are claimed must be such as to support an inference of definite profits grounded upon a reasonably sure basis of facts.

 

The jury determined that Kessler was entitled to $42,000 in damages on his promissory-estoppel claim. 

We start our analysis by first noting that the record in this case is voluminous, confusing, and, at some points, contradictory, making it difficult to reconcile the jury's damage awards with the evidence.  In addition, some of the jury instructions appear to be inconsistent.  For example, part D, question 13, on the special-verdict form asked the jurors to determine whether "Chester Creek Technologies interfere[d] with a prospective contractual advantage between George H. Kessler and a customer, a prospective customer or Wells Fargo Bank, by inducing or causing a customer or a prospective customer not to enter or continue in a business relationship with George H. Kessler?"  The jurors answered this question in the affirmative.  However, they answered "no" to part H, question 27: "Did Chester Creek Technologies have a duty not to unfairly compete with George H. Kessler for purchase orders?"  These answers seem contradictory.

Despite these limitations, we were able to parse out for review Kessler's claim of emotional distress.  Chester Creek argues that the evidence was insufficient to support Kessler's claim of emotional distress.  We agree.  The only evidence submitted to the jury on the issue of emotional damages was Kessler's own testimony describing his depression and treatment by a psychiatrist.  He offered no medical records or the name of any health-care provider, including the psychologist or psychiatrist he alleged had treated him.  Similarly, he offered no testimony of any expert or lay witness as to the alleged depression.  Kessler's testimony alone was insufficient to support an award of damages for emotional distress.  See Potthoff v. Jefferson Lines, Inc., 363 N.W.2d 771, 777 (Minn. App. 1985) (finding trial court erred in submitting issue of damage for emotional distress when there was no evidence showing that plaintiff had been treated by a psychologist or physician). 

The bulk of the remaining evidence addressed Kessler's lost profits; there was very little evidence regarding any other type of harmreliance or otherwisesuffered by Kessler.  To her credit, Kessler's counsel conceded as much at oral argument.  Accordingly, based on the record before us, we conclude that Kessler was impermissibly awarded damages for lost profits on both the promissory-estoppel and interference-with-prospective-advantage claims because liability was premised on essentially the same harm.  Accordingly, we reverse with respect to the $42,000 awarded by the jury for promissory estoppel.

V

Finally, Chester Creek claims it is entitled to a new trial because the district court's jury instructions erroneously stated the law.  Chester Creek objects to the jury instructions on promissory estoppel, arguing that Kessler had no reliance damages and that lost anticipated profits is not a measure of damages for promissory estoppel.  It objects to the jury instructions on unfair competition, arguing that the instructions did not accurately reflect the claims made against Kessler.

District courts have considerable latitude in the selection of jury instructions and determining the propriety of a particular instruction.  Alholm v. Wilt, 394 N.W.2d 488, 490 (Minn. 1986).  We review a district court's selection and use of jury instructions for an abuse of discretion.  Id.  "The sole requirement is that the instructions convey to the jury a clear and correct understanding of the law."  Kirsebom v. Connelly, 486 N.W.2d 172, 174 (Minn. App. 1992).  "Errors in jury instructions warrant a new trial only if they destroy the substantial correctness of the charge, cause a miscarriage of justice, or result in substantial prejudice."  Id.

            Chester Creek also does not describe how any error in the jury instructions resulted in a "miscarriage of justice" or "substantial prejudice," which would warrant a new trial.  Furthermore, we have determined that in this case, lost anticipated profits may be an appropriate measure of damages for promissory estoppel, and we conclude that the district court's jury instructions did not constitute an abuse of discretion.

            Affirmed in part and reversed in part.