Opinion
No. C9-02-846.
Filed January 14, 2003.
Appeal from the District Court, Itasca County, File No. C7-00-1539.
Larry C. Minton, Jason M. Hill, The Law Offices of Larry C. Minton, Ltd., (for respondent)
George G. Eck, Julie Meany, Dorsey and Whitney, LLP, (for appellant)
Considered and decided by Peterson, Presiding Judge, Randall, Judge, and Willis, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellant challenges the district court's denial of pre- and post-trial motions, arguing that the district court erred by: (1) failing to find the contract between it and respondent void and illegal as a matter of law and submitting the issue of severability to the jury; (2) incorrectly instructing the jury on contract severability; and (3) failing to reduce the award of future damages to present value. We affirm.
FACTS
On January 1, 1997, appellant National Steel Pellet Company (NSPC) entered into a contract with respondent Frank H. Bigelow, Jr., d/b/a Bigelow Appraisals (Bigelow), an independent land appraisal specialist. Under the contract, Bigelow was to provide a variety of land and lease management services for the properties owned by NSPC. Bigelow was to receive $2,800 per month for these services. The contract would terminate December 31, 1999. This contract also provided that Bigelow would report to and work through Jerry Drong, d/b/a Drong Associates (Drong). To effect this, Bigelow also signed a contract with Drong under which he paid Drong $1,000 per month for his assistance in performing the contract with NSPC. Bigelow retained a total of $1,800 per month.
The parties continued under this contract until October 1, 1997, at which time Drong approached Bigelow with a new agreement signed by Emil Draskovich, the then-general manager of NSPC. This agreement extended the term of Bigelow's services to September 30, 2001, and increased his monthly compensation to $4,100. The new agreement continued the requirement that Bigelow report to Drong, and did not otherwise change Bigelow's duties. Bigelow later testified that he understood that he was to continue to retain $1,800 per month, and that the rest of the increase was to go to Drong, but no new written agreement was made to that effect. When Bigelow asked Drong why this increase was necessary, Drong replied that it was to "take care of the big guy's old lady."
On April 20, 1999, Drong again approached Bigelow with an agreement signed by Emil Draskovich. This time, the agreement extended the terms of the second contract from September 30, 2001 to April 30, 2002.
Sometime in the fall of 1999, NSPC's parent company contacted private investigators regarding allegations of embezzlement and kickbacks at the NSPC offices in Minnesota. Internal and external auditors launched an extensive investigation that revealed that Draskovich, his wife, Drong, and others at NSPC were engaged in embezzling large amounts of money from NSPC. The Draskoviches, Drong, and others eventually faced criminal penalties.
During the investigation, auditors became aware of NSPC's contract with Bigelow. Examinations revealed a correlation between money Bigelow paid to Drong under the contract and kickbacks Drong paid to Gayle Young Draskovich (Emil's wife). Auditors interviewed Bigelow several times. At first, Bigelow denied all knowledge of wrongdoing. Later, though, in a private meeting with an external auditor, Bigelow repeated Drong's statement that the $1,300 increase in the contract payments was to "take care of the big guy's old lady."
Based on information gained during the investigation, NSPC decided to terminate the contract with Bigelow. On January 18, 2000, Bigelow was informed by auditors and the interim manager that his services would no longer be required. In June 2000, Bigelow filed a breach of contract action against NSPC.
Eventually, NSPC moved for summary judgment on the grounds that the contract was void and illegal as against public policy, or was otherwise unenforceable, claiming Bigelow had unclean hands because he assisted Drong in the illegal kickbacks paid to Gayle Young Draskovich. The district court denied this motion, finding that questions of material fact remained concerning Bigelow's role in the wrongdoing, of which Bigelow consistently denied knowledge.
The case went to a jury trial in August 2001. Bigelow insisted on the stand that he was never aware of any illegal activities and that he had merely performed his duties under the contract. Bigelow testified that Drong's assistance as a "point man" at the NSPC facilities was "invaluable" to him, since his own offices were in downtown Hibbing, some 20 miles away. He testified that although he did not know how many hours Drong spent performing work under the contract, he believed that Drong's services were well worth the increased fees. Bigelow admitted he knew that a portion of the money was being paid to Gayle Young Draskovich, but insisted that he did not know it was an illegal kickback. Bigelow admitted that Mrs. Draskovich did not work directly for him under the land and lease contract and that he did not talk to her about the money she received. However, Bigelow insisted that he did not know whether Mrs. Draskovich had a separate contract with Drong or whether she was performing services at the NSPC facility that were not reported to him. NSPC presented no testimony that Bigelow had been accused of illegal activity, and no criminal charges were brought against him.
Near the close of the evidence, NSPC moved for a directed verdict, arguing that the contract was void and illegal as a matter of law. This motion was denied. The jury returned a divided verdict. As a plaintiff, Bigelow sued for the $4,100 a month he would have made if he had been allowed to complete his contract. The jury found that Bigelow legitimately expected $1,800 per month under the contracts for the services he performed. Because NSPC had breached this part of the contract, the jury awarded Bigelow $45,000, or 25 months' expectation under the contract. The remainder of the contract, $2,300 per month, was found to be illegal and not enforceable.
After this verdict, NSPC moved alternatively for a judgment notwithstanding the verdict (JNOV) or a new trial. NSPC argued that the jury's verdict severing the contract was against the weight of the evidence, and that the instruction the jury received on severability was a fundamental error of law justifying a new trial. NSPC also moved to have Bigelow's damages reduced to "present value," since some of the award was for future damages. These motions were denied. This appeal follows.
DECISION I.
NSPC argues that the district court erred by failing to find that, as a matter of law, the contract between NSPC and Bigelow was illegal as against public policy or unenforceable due to Bigelow's unclean hands. NSPC also argues that the district court erred by submitting the issue of severability to the jury. We disagree.
This court reviews summary judgment and directed verdict decisions with similar standards. For both, we must look to see if there was sufficient question of fact to present to a jury . See, e.g. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990) (summary judgment standard); Boone v. Martinez, 567 N.W.2d 508, 510 (Minn. 1997) (directed verdict standard). Here, the district court determined that whether the contract was illegal or whether Bigelow had unclean hands were material questions of fact that turned on whether Bigelow knowingly participated in the kickback scheme.
A contract is void as against public policy if it "would be in violation of the settled policy of the state." Anheuser-Busch Brewing Ass'n v. Mason, 44 Minn. 318, 321, 46 N.W. 558, 559 (1890). But, a contract is not automatically illegal "simply because there is something immoral or illegal in its surroundings or connections." Id. 44 Minn. at 320, 46 N.W. at 558. On its face, the contract here does not call for illegal action — it is a perfectly licit contract for services. In fact, the contract between Bigelow and Drong is legal on its face. There is nothing illegal about paying a person to perform services. Appellant never challenged Bigelow's right to recover under the original contract, and acknowledged at oral argument before this court that it had previously paid him in full the amounts owed under that agreement. Appellant seems to agree that any illegality is not found on the face of the contract, but is imbedded in the surroundings of the contract. Viewing the lack of facial illegality, Bigelow's denial of any knowledge of wrongdoing, and examining the record in the light most favorable to Bigelow, the district court properly found it could not determine that the contract was illegal as a matter of law.
The doctrine of unclean hands provides that a person should not benefit from an unconscionable result reached through bad motives. Hruska v. Chandler Assoc's, Inc., 372 N.W.2d 709, 715 (Minn. 1985). As with the public policy argument, the district court here found that Bigelow's role in the illegal activity was a material question of fact for the jury to answer. Caselaw tells us that to be barred from recovery due to unclean hands, a claimant must have some active role in the wrongdoing; mere knowledge of the illegal underpinnings of a contract will not suffice. See, e.g., Johnstown Land Co. v. Brainerd Brewing Co., 142 Minn. 291, 294, 172 N.W. 211, 212 (1919); Anheuser-Busch, 44 Minn. at 321, 46 N.W. at 559. Bigelow consistently denied any active participation in the kickback scheme. The record is unclear whether Bigelow knew that any illegal activity was occurring, or, if so, the extent of it. Bigelow testified that while he knew the contract increase was somehow related to Mrs. Draskovich, he did not know if she was performing any of the work to earn it. He simply testified that he did not know. There is no indication in the record that Bigelow, Drong, or Mrs. Draskovich were under any obligation to report their daily activities to each other. Viewing these facts in the light most favorable to Bigelow, the district court properly found there to be a question of material fact as to Bigelow's role that warranted submission to a jury.
Appellant also argues that the district court erred in submitting the issue of severability to the jury and should have granted its motion for judgment notwithstanding the verdict. Appellant argues that the contract must be construed as a whole, and that the jury's verdict severing it into legal and illegal parts is against the overwhelming weight of the evidence. We disagree.
Where JNOV has been denied by the district court, on appellate review, the denial "must be affirmed, if, in the record, there is any competent evidence reasonably tending to sustain the verdict." Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998). "The evidence must be considered in the light most favorable to the prevailing party." Id.
Generally, whether a contract is severable into distinct parts depends on the "intent of the parties; it must be determined by considering the language used, the subject matter of the contract, and how the parties themselves treated it." Autrey v. Trkla, 350 N.W.2d 409, 413 (Minn.App. 1984) (quoting Anderson v. Kammeier, 262 N.W.2d 366, 370 (Minn. 1977)). In the case of an illegal contract
where the illegality so far pervades the entire bargain that no set of its reciprocal promises can be said to be unaffected thereby, * * * the whole must fall.
Simmer v. Simmer, 195 Minn. 1, 5, 261 N.W. 481, 483 (1935). Although the contract here provides for only one monthly payment of $4,100 to Bigelow, the jury could reasonably have concluded that the illegal and legal parts of the contract could be divided. Bigelow performed legitimate services under the contract for which he legitimately expected to receive a sum of $1,800 per month. The remainder of the total monthly payment, $2,300, the jury could have found was illegal, as it was designed at least in part to fund kickbacks to Mrs. Draskovich. As respondent points out, considering the surrounding circumstances and the way the parties treated the bargain as a whole, the jury could reasonably find that the services Bigelow performed were separate from the illegal activities of Drong and Draskovich.
II.
Appellant argues that the jury instruction given on contract severability was a fundamental error of law that confused the jury and substantially prejudiced appellant's position. Appellant argues that although not objected to at trial, this instruction contained an error of fundamental law justifying a new trial. We can only note that the instruction given was a compromise the parties reached before trial. The parties agreed to the following jury instruction:
A contract which is illegal is void. However, where only a portion of the contract is illegal, and the illegal portion is severable, the remainder of the contract will be enforced. A contract will be deemed severable when the illegal portion of the contract does not affect the remaining portions of the contract and if the remainder of the contract can be enforced if the unlawful provision is stricken.
Appellant asks this court to determine that this is an incorrect statement of law and to apply the
well-established" rule that "where any part of a bilateral bargain is illegal, no promise can be enforced unless not only that promise is legal but a corresponding legal promise is, by the terms of the bargain, apportioned as consideration therefor * * * ."
Shank v. Fidelity Mut. Life Ins. Co., 221 Minn. 124, 132, 21 N.W.2d 235, 239 (1945) (quotation omitted). Appellant's argument on the instruction boils down to a continuation of its argument about severability — that the jury improperly severed a contract that should have been deemed unseverable. As we determined above, the jury based its verdict on a consideration of the whole bargain, not merely on the face of the contract between Bigelow and NSPC. As the district court noted, the Shank decision does not require that a contract apportion the consideration between legal and illegal promises on its face, but rather that the bargain must be divisible into legal and illegal parts. Because we determine that the evidence supports the jury's verdict severing the contract, and we agree that the jury could properly consider not only the face of the contract, but also the surrounding circumstances and the way the parties treated it, the instruction did not misstate the law or confuse the jury.
III.
Finally, appellant argues that should we affirm the district court's rulings and the jury's verdict, we should reduce the amount of damages awarded to their "present value." Appellant argues that the jury must have awarded some amount of future damages in its lump sum award of $45,000.
In general, we review damage awards under an abuse of discretion standard. Holiday Recreational Indust., Inc. v. Manheim Servs. Corp., 599 N.W.2d 179, 183 (Minn.App. 1999). We will only set aside a damage award if it is "manifestly and palpably contrary to the evidence." Levienn v. Metropolitan Transit Comm'n, 297 N.W.2d 272, 273 (Minn. 1980) (citation omitted).
A contract damage award should put the non-breaching party in the position it would have had if no breach had occurred. Lesmeister v. Dilly, 330 N.W.2d 95, 102 (Minn. 1983). Where a contract is breached, the plaintiff "may recover his whole damages, present and prospective, for the loss of his contract * * * ." Ennis v. Buckeye Pub. Co., 44 Minn. 105, 106, 46 N.W. 314, 314 (Minn. 1890) (emphasis added), cited with approval by John Newton Porter Co. v. Kiewel Brewing Co., 137 Minn. 81, 85, 162 N.W. 887, 889 (1917). Here, had appellant not breached the legal portion of the contract, Bigelow would have earned at least $1,800 per month until April 30, 2002, totaling $48,600. The jury knew exactly what it was doing. The jury award of $45,000 is precisely two months less, at $1,800 a month. Giving deference to the factfinder, as we must, the record supports this verdict. At trial, plaintiff's attorney argued for $4,100 a month. The jury calculated Bigelow was entitled to just $1,800 a month for 25 months rather than 27 months, and separated that from the additional $2,300 a month claim that would have gone to Drong for the life of the contract. Appellant cited no authority for the proposition that breach-of-contract damages are limited to present value. Ennis is authority for exactly the opposite. Further, appellant did not argue any alternative amount, leaving both the district court and this court to speculate as to what amount appellant would consider fair. We decline to do so.
The district court did not abuse its discretion in denying appellant's motion to reduce a breach of contract award that contained future damages for the life of the employment contract to present value.
Affirmed.