Opinion
A22-0777
09-23-2024
Stacy Demskie, et al., Appellants, v. U.S. Bank National Association, Respondent.
Daniel R. Hall, Joseph W. Anthony, Anthony Ostlund Louwagie Dressen &Boylan P.A., Minneapolis, Minnesota (for appellants) Denise S. Rahne, Brendan V. Johnson, Timothy W. Billion, Robins Kaplan LLP, Minneapolis, Minnesota (for respondent)
This opinion is nonprecedential except as provided by Minn. R. Civ. App. P. 136.01, subd. 1(c).
Scott County District Court File No. 70-CV-21-12704
Daniel R. Hall, Joseph W. Anthony, Anthony Ostlund Louwagie Dressen &Boylan P.A., Minneapolis, Minnesota (for appellants)
Denise S. Rahne, Brendan V. Johnson, Timothy W. Billion, Robins Kaplan LLP, Minneapolis, Minnesota (for respondent)
Considered and decided by Johnson, Presiding Judge; Connolly, Judge; and Jesson, Judge.
OPINION
Jesson, Judge[*]
This appeal is before us for a second time following a decision by the supreme court that reversed in part our previous decision and remanded to us for consideration of an issue not addressed in our previous decision. See Demskie v. U.S. Bank Nat'l Ass'n, 7 N.W.3d 382 (Minn. 2024), reh'g denied (June 24, 2024). Specifically, we must decide whether the district court erred by dismissing appellants' breach-of-fiduciary-duty claim on the ground that appellants were not owed fiduciary duties as beneficial owners of stock. We first determine that, in the absence of a per se fiduciary relationship, the question of whether a fiduciary relationship exists is a question of fact. And we second determine that evidence could be produced, consistent with appellants' pleadings, to support the existence of a fiduciary relationship between appellants and respondent. We thus conclude that the district court erred by dismissing appellants' claim for breaches of fiduciary duty. And we reverse in part and remand for further proceedings.
FACTS
The circumstances underlying this matter are discussed in detail in the supreme court's decision and our previous decision, and we do not fully restate them here. Instead, we summarize the facts alleged in the complaint and the procedural history as follows.
This appeal is taken from one of three separate actions commenced by appellants Stacy Demskie, Lue Demskie, and Michael Demskie (the Demskies) against respondent U.S. Bank National Association. The actions arise out of U.S. Bank's conduct following the death of John Demskie (the decedent) in relation to decedent's trust, his estate, and a company founded by him, Remote Technologies, Inc. (RTI). According to the allegations of the Demskies' complaint, the decedent's 90 percent interest in RTI was poured into the trust following his death. The Demskies are beneficiaries of the trust. U.S. Bank became the trustee upon the decedent's death and also was appointed as special administrator for the decedent's probate estate. In separate trust and probate actions, the Demskies challenged U.S. Bank's conduct as trustee for the trust and special administrator for the estate. In this action the Demskies alleged, as relevant on remand, that U.S. Bank was a shareholder of RTI and breached fiduciary duties owed to the Demskies as beneficial owners of RTI stock.
U.S. Bank moved for judgment on the pleadings, and the district court granted that motion. The district court reasoned, as pertinent on remand, that U.S. Bank was not a shareholder of RTI and that, even if it were, "it did not owe duties to [the Demskies] as co-shareholder[s], because [the Demskies] are not shareholders as a matter of law. [U.S. Bank] does not owe vague duties to a group of undefined 'beneficial owners.'" The district court thus dismissed the Demskies' claim for breaches of fiduciary duties.
The Demskies appealed, and we affirmed the dismissal of the breach-of-fiduciary-duty claim on the ground that the complaint did not adequately plead that U.S. Bank was a shareholder of RTI. See Demskie v. U.S. Bank Nat'l Ass'n, No. A22-0777, 2022 WL 17751473, at *3 (Minn.App. Dec. 19, 2022), aff'd in part, rev'd in part, 7 N.W.3d 382 (Minn. 2024). The supreme court granted further review and reversed this part of our decision, concluding that "for purposes of the motion for judgment on the pleadings, the complaint adequately alleges the shareholder status of U.S. Bank." Demskie, 7 N.W.3d at 388. The supreme court remanded to this court, directing us to consider the Demskies' argument that "the district court erred by concluding that . . . as owners of beneficial interests, appellants were not owed any fiduciary duties." Id. at 388.
The supreme court, being equally divided, affirmed the part of our decision that affirmed the district court's dismissal of the Demskies' claim for a buyout under Minn. Stat. § 302A.751, subd. 2 (2022). Demskie, 7 N.W.3d at 388-90. The effect of this procedural history is that the district court's decision has already been affirmed in part, as to dismissal of the buyout claim. Our disposition in this opinion focuses on the remaining claim for breach of fiduciary duty.
DECISION
When we review a district court's decision to grant judgment on the pleadings, we "accept the allegations set forth in the complaint as true and construe all reasonable inferences in favor of appellants, as the nonmoving parties." Id. at 384. Our review is de novo, and "[a]t this stage of the litigation," we must "construe the complaint to allow the claim to go forward unless there is no way to construe the alleged facts-and the inferences drawn from those facts-in support of the claim." Id. (quotation omitted).
We begin our analysis by examining the nature of a fiduciary relationship under Minnesota law. A fiduciary relationship exists where one party-the fiduciary-stands in a superior position in terms of knowledge and authority in relation to another party, who in turn places substantial trust and confidence in the fiduciary. Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985); Carlson v. SALA Architects, Inc., 732 N.W.2d 324, 331 (Minn.App. 2007), rev. denied (Minn. 2007). "Some types of relationships automatically give rise to a fiduciary relationship." Thomas B. Olson &Assocs., P.A. v. Leffert, Jay &Polglaze, 756 N.W.2d 907, 914 (Minn.App. 2008), rev. denied (Minn. Jan. 20, 2009) (Olson). An example is the relationship between shareholders of a close corporation. Berreman v. W. Pub. Co., 615 N.W.2d 362, 367 (Minn.App. 2000). The Demskies cite no binding authority recognizing a per se fiduciary relationship between shareholders and beneficial owners of stock. However, the absence of such authority is not dispositive because, "while a relationship might not be fiduciary per se, the facts of the case might create such a relationship." Carlson, 732 N.W.2d at 331; see also Murphy v. Country House, Inc., 240 N.W.2d 507, 512 (Minn. 1976) ("[T]he existence of a fiduciary relationship is a question of fact."); Olson, 756 N.W.2d at 914 ("Other types of relationships, however, may or may not give rise to a fiduciary relationship.").
When examining whether a factual situation may give rise to a fiduciary relationship, the supreme court has recognized that "[d]isparity of business experience and invited confidence could be a legally sufficient basis for finding a fiduciary relationship." Toombs, 361 N.W.2d at 809 (quoting Murphy, 240 N.W.2d 507, 512 (Minn. 1976)). In Murphy, the supreme court held that there was a genuine issue of material fact regarding the existence of a fiduciary relationship where one business co-owner had, by virtue of his previous occupation, "considerable knowledge of business affairs" and had control of the management of the corporation while the other owners "presumably had no knowledge of corporate affairs" and "left their previous employment because of their confidence in him." 240 N.W.2d at 512. The supreme court concluded that "[s]uch facts may be the basis for a finding that a fiduciary duty existed." Id. at 512; see also Carlson, 732 N.W.2d at 331 (holding that issue of whether architect owed fiduciary duty to client was "not an issue for resolution by summary judgment").
With these principles in mind, we turn to evaluating the allegations of the Demskies' complaint. The Demskies allege that, following the decedent's death, U.S. Bank took control over RTI; U.S. Bank made assurances to the Demskies about the financial viability of RTI; and "the Demskie[s], who had been excluded from participation in the business of RTI, relied on U.S. Bank as Trustee to manage RTI and relied on U.S. Bank's representation that RTI was in the process of being sold." These alleged facts are comparable to those that the supreme court determined sufficient to create a fact issue in Murphy. 240 N.W.2d at 512. And we cannot conclude that "there is no way to construe the alleged facts-and the inferences drawn from those facts-in support of the [breach-of-fiduciary-duty] claim." Demskie, 7 N.W.2d at 384. Accordingly, we reverse the dismissal of that claim and remand for further proceedings.
Reversed in part and remanded.
[*] Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.