Opinion
No. C8-00-1739.
Filed March 27, 2001.
Appeal from the District Court, St. Louis County, File No. C898600874.
A. Blake MacDonald, MacDonald Downs, (for respondents)
James A. Wade, Laura J. Schacht, Johnson, Killen Seiler, P.A., (for appellants)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellants challenge the district court's decision, contending that the district court erred in (1) finding that appellants violated the noncompete agreement, and (2) awarding damages where respondents failed to provide evidence of actual damages. Because the district court did not err in finding that appellants continue to "operate" their restaurant in violation of the noncompete agreement, but erred in finding damages when no damages were proven, we affirm in part and reverse in part.
Respondents cross-appeal, arguing the district court erred by not awarding prejudgment interest and by excluding expert testimony. Because respondents did not prove damages, and because the district court properly excluded the expert testimony due to lack of foundation, upon respondents' cross-appeal, we affirm.
FACTS
Appellants John and Pamela Gressman owned and operated the Casa de Roma restaurant. In December 1998, the Gressmans signed a purchase agreement to sell Casa de Roma to respondents Charles Lemon and Kolar Leasing, Inc. (Lemon). A noncompete clause was included in the purchase agreement. It stated that "[s]eller agrees to non-compete clause within 1 mile of this property." During the first week of January 1999, the parties agreed and signed an addendum, which stated:
It is agreed that John Gressman and Pamela Gressman shall not compete with Buyer by operating a restaurant or bar within one (1) mile of the Casa de Roma for a period of ten (10) years.
The noncompete clause was valued at $7,500.
After the purchase, Lemon learned that the Gressmans were planning to buy the House of Donuts located next door. A judge denied Lemon's motion for temporary injunction, but cautioned the Gressmans that they could be liable under the noncompete agreement. Subsequently, the Gressmans purchased the House of Donuts but were given a $5,000 discount by the seller for their possible liability under the noncompete agreement.
A court trial for an injunction ensued. The district court found that the Gressmans violated the noncompete agreement by selling tacos and sandwiches. The Gressmans were enjoined from
participating as an owner or operator in any food service business * * * for a period of five years * * * within a one-mile radius of the current location of that business * * * formally known as the Casa de Roma.
Lemon v. Gressman, No. C7-98-2119, 1999 WL 451165 (Minn.App. July 6, 1999). Lemon changed the name of the restaurant to C.W. Chips, and the Gressmans retain Casa de Roma as their corporate name.
The Gressmans appealed, and this court concluded:
The plain language of the agreement refers only to operating a restaurant or bar. Because there was not clear and convincing evidence that the noncompete clause also applied to owning a restaurant, the district court was not warranted in adding the term "ownership."
Id. at *3.
As a result of this court's opinion, the Gressmans hired their daughter, Kari Gressman, to manage and run the day-to-day operations of the House of Donuts in July 1999.
The case came back before the district court upon Lemon's claim for damages resulting from Gressmans' breach of the noncompete agreement. At trial, Kari Gressman testified that she hires and fires employees, sets wages, and prepares and sells food from behind the counter. At the end of the day, she takes the register receipts to her father, appellant John Gressman. Those receipts are then taken by him and, at times, by Kari Gressman, to the accountant. John Gressman testified that he is at the House of Donuts every day for coffee and to make repairs. He also testified that he, his wife, and their two daughters are allowed to sign checks under the account of Casa de Roma, Inc.
Subsequently, on July 21, 2000, the district court concluded that the Gressmans were in violation of the noncompete agreement, but that the "precise amount of the damage suffered by [Lemon] is incapable of determination." The district court nonetheless entered judgment against the Gressmans "in the sum of $12,500 by reason of [the Gressmans'] continuing breach * * * of the covenant not to compete * * *." The district court arrived at that total because the Gressmans were paid consideration of $7,500 by Lemon for the noncompete agreement, and because the Gressmans received a discount of $5,000 in their purchase of the House of Donuts.
The Gressmans now appeal. Lemon cross-appeals, arguing that the district court erred by not awarding prejudgment interest and by excluding his expert's testimony.
DECISION
"Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." Minn.R.Civ.P. 52.01. In applying Minn.R.Civ.P. 52.01, "we view the record in the light most favorable to the judgment of the district court." Rogers v. Moore, 603 N.W.2d 650, 656 (Minn. 1999) (citation omitted). To warrant reversal, the court's factual findings must be clearly erroneous or "manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole." Id. (quotation omitted).
I.
The Gressmans argue that the district court erred in finding that they violated the noncompete agreement. "Minnesota courts do not favor noncompetition agreements because they are partial restraints on trade." Midwest Sports Mktg., Inc. v. Hillerich Bradsby of Canada, Ltd., 552 N.W.2d 254, 265 (Minn.App. 1996), review denied (Minn. Sept. 20, 1996) (citations omitted). Although the general rule is that covenants not to compete are to be strictly construed, the supreme court has noted the rule is less applicable in the case of a sale of a business. See B Y Metal Painting, Inc. v. Ball, 279 N.W.2d 813, 815 (Minn. 1979) (stating that "[m]any of the grounds for imposing a stricter test of reasonableness in the context of an employment relationship, however, are not present here [in a case of both an employment contract and sale of business]"). In the previous appeal, this court concluded that the district court was correct in finding that the Gressmans breached the noncompete agreement as to an operation of a competing business but reversed the district court's decision to prohibit the ownership of a competing business. Lemon, 1999 WL 451165, at *3. This court found that "[t]he plain language of the agreement refers only to operating a restaurant or bar." Id.
The Gressmans challenge the district court's findings that they were operating a business in violation of both the noncompete agreement and the July 6, 1999, decision by this court. The district court found that although the Gressmans' daughter, Kari Gressman, assumed the day-to-day management of the business, appellant John Gressman continued to operate the business by his "continuing active involvement in the financial affairs of the business and his frequent presence about the business premises." We sustain the district court's findings that John Gressman has continued to operate the House of Donuts in violation of the noncompete agreement. Even though Kari Gressman began to run the day-to-day functions of the House of Donuts after this court's prior decision, she still presents the banking and money receipts to John Gressman. In turn, after he reviews those receipts, he presents them to the accountant. John Gressman is also a signatory on the Casa de Roma checking account with his wife and two daughters. Furthermore, John Gressman testified that he is at the House of Donuts every day for coffee and to perform maintenance. We affirm the district court's conclusion insofar as it states that appellants have continued to operate the House of Donuts in violation of the noncompete agreement, and we note that the district court has continuing jurisdiction to entertain further proceedings in connection with any future violations of the noncompete agreement.
II.
Next, the Gressmans argue that the district court erred when it awarded $12,500 in damages to Lemon for their breach of the noncompete agreement. Damages awarded for a breach of a noncompete clause are measured by the business loss actually suffered as a consequence of the breach. Faust v. Parrott, 270 N.W.2d 117, 120 (Minn. 1978). To establish damages, the injured party must establish by a preponderance of the evidence that
(a) profits were lost,
(b) the loss was directly caused by the breach of the covenant not to compete, and
(c) the amount of such causally related loss is capable of calculation with reasonable certainty rather than benevolent speculation.
B Y Metal Painting, 279 N.W.2d at 816 (citing Faust, 270 N.W.2d at 121).
Here, the damages awarded by the district court (a) did not represent actual lost profits; (b) were not directly caused by the Gressmans' breach; and (c) were not capable of calculation with reasonable certainty but based on pure speculation. Lemon was unable to present any evidence of loss at trial, except for his opinion that his property value was diminished by approximately $67,000 because of the Gressmans' breach of the noncompete agreement. In its findings, the district court even acknowledged that the "precise amount of damage suffered * * * is incapable of determination * * *." While the district court awarded Lemon damages in the amount of $12,500, the evidence does not support a finding that any of the elements were proven. Therefore, we reverse the district court's decision as to the issue of damages.
In its cross-appeal, Lemon argues that the district court erred by not awarding prejudgment interest. Because Lemon did not prove damages, the issue of prejudgment interest is moot.
III.
Finally, Lemon argues that the district court erred by excluding expert testimony. This court is to give deference to the trial court's decision. Gross v. Victoria Station Farms, 578 N.W.2d 757, 761 (Minn. 1998). Questions regarding the qualifications of an expert witness are to be reviewed under an abuse of discretion standard. Goeb v. Tharaldson, 615 N.W.2d 800, 815 (Minn. 2000).
The testimony of Lemon's expert, Lawrence Harney, was offered in an attempt to show Lemon's loss of business due to the Gressmans' ownership of the House of Donuts. The trial court did not allow this testimony because it lacked foundation. A witness may be qualified as an expert if he or she has the "knowledge, skill, experience, training or education." Minn.R.Evid. 702. An expert must base his or her opinion upon those opinions and information reasonably relied upon by experts in the particular field. Minn.R.Evid. 703. Here, the record indicates that Harney (1) had never had prior experience with a situation where there was a violation of a noncompete agreement, and (2) was unable to justify, on industry standards or past experience, the arbitrary ten percent of business that he claimed went to the House of Donuts instead of C.W. Chips. Furthermore, there is (1) no evidence of customers lost by Lemon due to the Gressmans' House of Donuts next door or (2) any comparison numbers of the House of Donuts' business before and after the Gressmans' ownership. The trial court did not err and therefore, we affirm the trial court's ruling excluding the testimony of Lemon's expert witness Harney for lack of foundation.