Opinion
No. A05-366.
Filed January 24, 2006.
Appeal from the District Court, Hennepin County, File No. CT03-2445.
Sandra Kay Kensy, (for appellant)
Mark Donald Wisser, Anthony Ostlund Baer, P.A., (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant John Isaacs challenges the partial judgment granted to respondents on some of his claims; he and respondents challenge his award of damages for wrongful termination. Because we see no error of law, we affirm the district court's invocation of Minn. R. Civ. P. 54.02, its assumption of jurisdiction, and its adoption of respondents' proposed findings of fact and conclusions of law; because the death of respondent Fred Isaacs during the pendency of this appeal has implications on the order that the company buy John Isaacs's shares, we reverse that order and remand for a determination of whether the company should buy the shares belonging to the estate of Fred Isaacs or to John Isaacs and we do not address whether John Isaacs would be unfairly prejudiced by a buyout of his shares; because the district court made no finding as to whether Fred Isaacs waived the forfeiture clause in his agreement with John Isaacs, we remand for a determination of that question; because John Isaacs was not entitled to damages for wrongful termination but may be entitled to damages as an oppressed shareholder, we reverse the award of wrongful termination damages and remand for a consideration of appropriate equitable relief under the oppression doctrine.
FACTS
The late Fred Isaacs planned that his son, appellant John Isaacs, would acquire ownership of respondent American Iron Steel Company (the company) when Fred Isaacs died. In 1985, Fred and John Isaacs entered into an agreement whereby John was to purchase enough stock to give him 46% ownership while Fred retained 54%. The agreement also provided that John could purchase Fred's remaining shares at "book value" and that the agreement would terminate if the company became insolvent. John Isaacs became CEO of the company in 1993. Fred and John were then the only members of the board of directors.
Respondents testified that John Isaacs did not pay for these shares but received them as a gift from Fred Isaacs.
In July 2002, over John's objection, Fred voted to add his wife, respondent Rhea Isaacs, and his daughter, respondent Mindy Odegaard, to the board of directors. By January 2003, the board had demoted, suspended, and terminated John Isaacs.
In February 2003, John Isaacs brought an action against the company and its three directors. They counterclaimed, and both parties moved for summary judgment. The district granted partial summary judgment, which was affirmed by this court. Isaacs v. America Iron Steel, 690 N.W. 2d 373 (Minn.App. 2004), review denied (Minn. Apr. 4, 2005).
In May 2004, while the appeal was pending, the remaining counts were tried to a referee, who entered a second partial judgment. The district court subsequently adopted the referee's findings. John Isaacs now challenges (1) the entry of both the first and the second partial judgments, (2) the district court's jurisdiction while the appeal on the first judgment was pending, (3) the verbatim adoption of respondents' proposed findings of fact and conclusions of law, (4) the order that the company buy out John Isaacs's shares rather than the shares of the late Fred Isaacs, (5) the finding that his stock purchase agreement had either been terminated by the company's insolvency or been amended by Fred Isaacs's oral waiver of the forfeiture clause, and (6) the determination that John Isaacs was not unfairly prejudiced by violations of Minn. Stat. § 302A.751, subd. 1(2002). Both John Isaacs and respondents challenge the determination that John Isaacs is entitled to $1.5 million from the company as damages for his wrongful termination.
Fred Isaacs died while this appeal was pending, and respondents move to strike from the record references to his death.
DECISION I.
Minn. R. Civ. P. 54.02 provides for entry of judgment on "fewer than all" of the parties' claims "upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment." Appellate courts review questions of law, including statutory interpretation, de novo. Nordmarken v. City of Richfield, 641 N.W.2d 343, 346 (Minn.App. 2002), review denied (Minn. June 18, 2002).
John Isaacs argues that the district court erred "by twice invoking Minn. R. Civ. P. 54.02 prematurely." He has no right to challenge the entry of first partial judgment because he failed to challenge it when he appealed. See Dieseth v. Calder Mfg. Co., 275 Minn. 365, 370, 147 N.W.2d 100, 103 (1966) (stating "[e]ven though the decision of the trial court in the first order may have been wrong . . . it is still final after the time for appeal has expired"); see also Minn. R. Civ. App. P. 104.01, subd. 1 (setting time for appeal for final partial judgment entered pursuant to Minn. R. Civ. P. 54.02 at 60 days).
District courts have broad discretion to enter final judgment for less than all counts of a complaint under Minn. R. Civ. P. 54.02, if the "claims are clearly separable and no prejudice would result from appeal." Olson v. Tufford, 392 N.W.2d 281, 283 (Minn.App. 1986), review denied (Minn. Oct. 29, 1986). It is "rare that a [district] court could abuse its broad discretion in directing entry of final partial judgment." Id. John Isaacs is not entitled to relief on this claim because he has shown no prejudice resulting from the entry of the second partial judgment. See Bloom v. Hydrotherm, Inc., 499 N.W.2d 842, 845 (Minn.App. 1993) (stating appellant bears burden of demonstrating error is prejudicial), review denied (Minn. June 28, 1993).
He claims he was prejudiced because the district court did not have the complete file before it when it reviewed the referee's report, but the district court clearly stated the contrary: "Counsel for plaintiff insists that the district court never possessed or never read the record produced at trial in front of [the referee]. It is not clear whence counsel got this misinformation, but it is incorrect."
II.
Questions of subject matter jurisdiction are reviewed de novo. Johnson v. Murray, 648 N.W. 2d 664, 670 (Minn. 2002). John Isaacs argues that the district court was divested of jurisdiction over this case during his appeal of the first final partial judgment. Minn. R. Civ. App. P. 108.01, subd. 1, provides that "the filing of a proper and timely appeal suspends the authority of the trial court to make any order necessarily affecting the order or judgment appealed from. [But t]he trial court retains jurisdiction as to matters independent of, supplemental to, or collateral to the order or judgment appealed from, and to enforce its order or judgment." (Emphasis added.) Therefore, the district court retained jurisdiction as to all claims "independent of, supplemental to, or collateral to" the claims that were part of the judgment on appeal.
The judgment on appeal addressed (a) John Isaacs's claims of breach of contract, of improper and illegal board of directors' conduct, and of unspecified violations of "Chapter 302A" and (b) respondents' counterclaims of breach of fiduciary duty and waste of corporate assets. After entry of the first partial final judgment, John Isaacs's unresolved claims consisted of three counts of unfairly prejudicial conduct by board members in violation of Minn. Stat. § 302A.751, subd. 1(b)(3)(2002), one count of breach of fiduciary duty, one count of wrongful termination, and a request for injunctive relief, and respondents' unresolved claims consisted of breach of contract and a request for the company to buy John Isaacs's shares under Minn. Stat. § 302A.751, subd. 2(2002). These claims were involved in the second partial judgment, and the district court had jurisdiction over them regardless of the pendency of the appeal of the first partial judgment.
III.
John Isaacs also argues it was error for the referee, and then the district court, to adopt verbatim the respondents' proposed findings of fact and conclusions of law. When a district court adopts the findings and conclusions of a referee, this court considers those findings and conclusions to be made by the court. Minn. R. Civ. P. 52.01.
Verbatim adoption of proposed findings is not reversible error, but it raises "the question of whether the trial court independently evaluated each party's testimony and evidence." Bliss v. Bliss, 493 N.W.2d 583, 590 (Minn.App. 1992), review denied (Minn. Feb. 12, 1993). The practice is acceptable, although it should be used with caution. Id. The district court stated that it had "studied the evidence and compared it with the Referee's Finding with all the diligence due." John Isaacs is not entitled to a new trial on the ground that respondents' proposed findings of fact and conclusions of law were adopted.
IV.
Whether to grant equitable relief is within the sound discretion of the district court and will not be reversed on appeal absent a clear abuse of that discretion. Ripley v. Piehl, 700 N.W.2d 540, 544 (Minn.App. 2005), review denied (Minn. Oct. 18, 2005). John Isaacs argues that the district court abused its discretion when it ordered the company to buy his shares rather than the shares of Fred Isaacs. A district court may order "the sale by a plaintiff or a defendant of all shares of the corporation held by the plaintiff or defendant to either the corporation or the moving shareholders . . . if the court determines in its discretion that an order would be fair and equitable to all parties under all of the circumstances of the case." Minn. Stat. § 302A.751, subd. 2(2004).
Here, the district court ordered the buyout of John Isaacs's shares because it determined that the company would be better off under Fred Isaacs's control. Fred Isaacs's death while this appeal was pending eliminates the reason for the district court's decision. We reverse the order for the buyout of John Isaacs's shares and remand for the district court to reconsider whether the company should buy John Isaacs's shares or the shares of Fred Isaacs's estate.
V.
John Isaacs argues that the district court erred in finding that the stock purchase agreement had either been terminated when the company became insolvent or had been amended by an oral agreement of the parties because Fred Isaacs waived the forfeiture clause by continuing to assert the validity of the agreement after the insolvency. This court will not reverse findings of fact unless the findings are manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole. Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999).
After reviewing the record, we conclude that there is reasonable support in the record for the finding that the company was insolvent in 1999, which activated the insolvency clause. The district court, however, made no findings as to whether Fred Isaacs waived the forfeiture clause, an issue that was clearly raised below by John Isaacs. District courts are to make sufficient findings of fact to permit meaningful appellate review. Edina Community Lutheran Church v. State, 673 N.W.2d 517, 523 (Minn.App. 2004). Absent findings, we do not know what the district court concluded on the issues, and we remand for the district court to determine whether Fred Isaacs waived the forfeiture clause. See Appollo v. Reynolds, 364 N.W.2d 422, 424 (Minn.App. 1985) (stating "[i]gnoring a provision in a contract will constitute waiver").
VI.
John Isaacs argues the district court's determination that he was not unfairly prejudiced by the board's actions under Minn. Stat. § 302A.751, subd. 1(2002) is not supported by the record. John Isaacs's requested relief for the board's alleged violations of Minn. Stat. § 302A.751, subd. 1, is that he be reinstated as CEO and that the company buy out the shares of Fred Isaacs's estate. Because we are remanding for a reconsideration of whose shares the company should buy, we do not address this issue at this time.
VII.
Both respondents and John Isaacs challenge the district court's wrongful-determination damages award of $1.5 million. John Isaacs challenges the amount, arguing that it should be based on his salary and the bonuses he earned as CEO; respondents challenge the award itself, arguing that John Isaacs, as an at-will employee, did not have a reasonable expectation of lifetime employment and was not wrongfully terminated.
The district court found that John Isaacs was an at-will employee who had no contract for lifetime employment but had a reasonable expectation of lifetime employment from his status as a shareholder. A shareholder of a closely-held corporation typically has a reasonable expectation of continuing employment, and terminating the employment of the shareholder may be the basis for equitable relief under the oppression doctrine pursuant to Minn. Stat. § 302A.751 (2004). Gunderson v. Alliance of Computer Prof'ls, Inc., 628 N.W.2d 173, 189-90 (Minn.App. 2001). But the doctrine of employment-based shareholder oppression is distinct from the wrongful-termination doctrine. Id. at 190. The oppression doctrine affords equitable relief to a shareholder-employee of a closely-held corporation whose reasonable expectations are frustrated by controlling shareholders; the wrongful-termination doctrine affords relief of wages and/or reinstatement to discharged employees who can establish the existence of an express or implied employment contract or a promise inducing reliance. Id.
The district court correctly found that there was no employment contract between the company and John Isaacs and that his reasonable expectation of continuing employment as a shareholder-employee was frustrated, but it incorrectly awarded him lost wages for wrongful termination. Therefore, we affirm the district court's decision that the termination of John Isaacs violated the oppression doctrine, but we reverse the award of $1.5 million in lost wages and remand for the court to determine whether John Isaacs is entitled to equitable relief under the oppression doctrine.
VIII.
Prior to oral arguments, John Isaacs's attorney notified this court that Fred Isaacs had died on September 7, 2005. Respondents filed a motion requesting that we strike the notice of Fred Isaacs's death as irrelevant to the issues on appeal. But the death of a party to an appeal is generally, if not invariably, relevant to an appellate court, and that is especially true here because the district court relied on Fred Isaacs's ability to manage the company in reaching its decision. See Minn. R. Civ. App. P. 143.02 (stating that, if a party dies while an appeal is pending, "the surviving party or the legal representative . . . of the deceased party, shall file with the clerk of the appellate courts an affidavit showing the death" (emphasis added)). Respondents' motion to strike is denied.