Opinion
No. C3-99-314.
Filed November 9, 1999.
Appeal from the District Court, Hennepin County, File No. F6971778.
Charles L. Friedman, (for respondent)
John E. Rode, Thomsen Nybeck, P.A., (for appellants)
Considered and decided by Amundson, Presiding Judge, Lansing, Judge, and Peterson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).
UNPUBLISHED OPINION
This appeal is from judgment and denial of posttrial motions on a jury determination in a misrepresentation action arising from an employment relationship. Because the evidence does not support the elements essential to a misrepresentation action and because the jury calculated damages on economic loss rather than out-of-pocket loss, we reverse.
FACTS
John Nuetzel sued Roger Saatzer, his former employer, for inducing him to purchase a house in Nisswa by misrepresenting continuous employment. Saatzer owns RF Inc., previously known as Northstar Freeze-Dry (NFD). NFD manufactured and sold freeze-dry machines. In September 1993, Saatzer hired Nuetzel as international marketing director for an indefinite period. In March 1994, Saatzer named Nuetzel vice-president and chief executive officer and increased his responsibilities at NFD.
In the spring of 1994, Saatzer received an unsolicited letter from a business broker asking whether NFD might be for sale. Nuetzel discussed the letter with Saatzer and encouraged him to think about placing NFD for sale. As a result, in June 1994 Saatzer and the broker entered into an exclusive listing agreement. Shortly after, the broker introduced Saatzer to Douglas Jensen, a prospective buyer. Jensen expressed interest in NFD and initiated a due-diligence investigation.
In July 1994, Nuetzel learned of a new process to coat freeze-dried fruits and vegetables. Along with a third-party investor, Saatzer organized Della Robbia, LLC, to market the new coating process to the craft industry. Nuetzel helped prepare a business plan and marketing strategies for the new company. In September 1994, Saatzer elected Nuetzel to the Della Robbia board and gave him stock options and a $500-per-month director's fee in compensation for finding the new process and doing the start-up work for Della Robbia. Nuetzel and Saatzer also agreed that if Saatzer sold NFD for $2,000,000, Nuetzel would receive a $30,000 bonus as consideration for the work he was doing in connection with the sale.
In October 1994, Jensen signed a letter of intent to purchase NFD. At the same time, Nuetzel, who had been living in Watertown and commuting to Nisswa, where NFD was located, bought a house in Nisswa. Nuetzel testified that Saatzer visited the property before Nuetzel bought it, gave him an idea of what it was worth, and encouraged him to buy it.
In the meantime, Jensen organized Innovative Preservation Corporation (IPC), which entered into an asset-purchase agreement with Saatzer in December 1994. The asset-purchase agreement stated IPC did not assume the obligation to hire NFD employees. Nonetheless, Jensen assured Saatzer and Nuetzel orally on numerous occasions that IPC would continue to employ Nuetzel and other NFD employees. Saatzer told Nuetzel of Jensen's assurances, but did not tell him that the asset-purchase agreement released IPC of the obligation to hire any employee.
Saatzer and Jensen closed on the sale of NFD on January 3, 1995. Although Saatzer had offered Nuetzel a managerial position at Della Robbia, Nuetzel opted to go with IPC and reported to work on January 3. On January 9, however, Jensen fired him. IPC paid Nuetzel a consulting fee for the week he had worked, but denied his request for unpaid commissions and accrued vacation and sick time.
Immediately after being fired, Nuetzel asked Saatzer for the managerial position at Della Robbia. But Saatzer had already hired his son and daughter-in-law to manage the company, so he offered Nuetzel a position in sales instead. Nuetzel rejected Saatzer's offer and asked for severance pay, unpaid commissions, accrued vacation and sick time, and the bonus he was to receive on the sale of NFD. Saatzer denied Nuetzel's requests, claiming Nuetzel should look to IPC for payment.
IPC defaulted on its payments to Saatzer; the bank foreclosed on IPC; Della Robbia went out of business; and Nuetzel obtained employment at U.S. Precision Glass, where he earned $31,500 in 1995. In February 1996, Nuetzel brought this action.
A district court jury returned a special verdict in Nuetzel's favor. The jury found that Saatzer made a false representation of continuous employment to Nuetzel to induce him to relocate, in circumstances under which Nuetzel was justified in relying upon it. It also found that Nuetzel relied on the misrepresentation and suffered damage. The jury awarded Nuetzel $47,800 in compensatory damages and $580 for severance pay, sick leave, and/or vacation time. This appeal followed the denial of posttrial motions and the entry of judgment.
DECISION
On review, we will not set aside special verdict answers unless they are palpably contrary to the evidence. Cobb v. Aetna Life Ins. Co., 274 N.W.2d 911, 917 (Minn. 1979). Special verdict answers are palpably contrary to the evidence when they cannot be reconciled with it on any theory. See Hanks v. Hubbard Broad. Inc., 493 N.W.2d 302, 309 (Minn.App. 1992), review denied (Minn. Feb. 12, 1993). We view the evidence in the light most favorable to the verdict. Id. We will affirm the judgment if the record contains sufficient competent evidence reasonably tending to support the jury's findings. Krengel v. Midwest Automatic Photo, Inc., 295 Minn. 200, 204, 203 N.W.2d 841, 844 (1973).
To establish an intentional-misrepresentation claim, a plaintiff must prove that the defendant intentionally misrepresented a material past or present fact susceptible of knowledge, knowing the representation was false. Davis v. Re-Trac Mfg. Corp., 276 Minn. 116, 117, 149 N.W.2d 37, 38-39 (1967). A plaintiff must also prove that he or she justifiably relied on the defendant's misrepresentations to his or her detriment. Id . To be actionable, a false representation must pertain to a past or present fact. Id. at 117, 149 N.W.2d at 38. A misrepresentation claim cannot be predicated on a promise to perform a future act, unless the record affirmatively shows that, at the time the promisor made the promise, he did not intend to perform. Vandeputte v. Soderholm, 298 Minn. 505, 508, 216 N.W.2d 144, 147 (1974).
Saatzer claims the evidence does not reasonably support the jury's findings that he intentionally misrepresented a past or present fact to induce Nuetzel to relocate and that Nuetzel reasonably relied on his misrepresentations to his detriment. Saatzer also argues the jury erred as a matter of law in awarding Nuetzel economic-loss damages. We address Saatzer's claims in that order.
I
Saatzer first argues the evidence does not reasonably support the jury's finding that he intentionally misrepresented (1) Jensen's intention to hire Nuetzel after the sale of NFD or (2) Saatzer's own intention to hire Nuetzel to manage Della Robbia. A review of the transcript provides minimal support for a finding that Saatzer misrepresented Jensen's intention to hire Nuetzel, but no factual support for a claim that Saatzer misrepresented a present intention to hire Nuetzel.
Saatzer's representation that Jensen intended to hire Nuetzel after NFD was sold is not a representation of a past or present fact but a representation of Jensen's present intention to perform a future act. See Vandeputte, 298 Minn. at 508, 216 N.W.2d at 147 (promise to reorganize corporation was statement of present intention to perform future act); Hayes v. Northwood Panelboard Co., 415 N.W.2d 687, 690 (Minn.App. 1987) (promise to buy cords "when our plant reaches full production" represented promisor's present intent to act in future), review denied (Minn. Jan. 28, 1988); Dollar Travel Agency, Inc. v. Northwest Airline, Inc., 354 N.W.2d 880, 883 (Minn.App. 1984) (assertion that third party would not return airline tickets or seek a refund was merely prediction or opinion), review denied (Minn. Dec. 21, 1984). Accordingly, it is actionable only if the record contains affirmative evidence that Saatzer knew or had reason to know the representation was false when he made it. See Taubman v. Prospect Drilling Sawing, Inc., 469 N.W.2d 335, 338 (Minn.App. 1991) (employer's promise to promote employee not actionable unless made in bad faith), rev'd on other grounds, No. C6-90-2448 (Minn.App. Aug. 27, 1991); Kramer v. Bruns, 396 N.W.2d 627, 631 (Minn.App. 1986) (statement of intent to accept government bid if made not actionable unless knowingly false when made).
The evidence, viewed in the light most favorable to the verdict, marginally supports the jury's finding that, despite Jensen's repeated oral assurances to the contrary, Saatzer had reason to know that Jensen did not intend to hire Nuetzel. Saatzer admitted knowing the asset-purchase agreement released IPC from the obligation to hire NFD employees. In addition, the broker testified that he told Saatzer that Jensen considered the obligation to hire Nuetzel a "deal breaker." The jury could reasonably infer from Saatzer's and the broker's testimony either that Saatzer knowingly misrepresented Jensen's intention to hire Nuetzel or that he unqualifiedly represented Jensen's intention knowing that information in his possession did not justify an unqualified representation.
The evidence is insufficient, however, to support a jury finding that Saatzer intentionally misrepresented his own intention to hire Nuetzel to manage Della Robbia. Saatzer's assertion that he would hire Nuetzel is a representation of his present intent to perform a future act and is therefore not actionable absent evidence that he knew the representation was false when he made it. See Taubman, 469 N.W.2d at 337; Kramer v. Buns, 396 N.W.2d at 631. Viewed in the light most favorable to the verdict, the record contains no affirmative evidence that Saatzer intended not to hire Nuetzel to manage Della Robbia when he stated he would. On the contrary, the evidence indisputably supports the conclusion that up until the time Nuetzel rejected Saatzer's offer by telling him he had decided to go with IPC, Saatzer had every intention to hire him to manage Della Robbia. Saatzer was pleased with Nuetzel's work, promoted him to vice-president and chief operating officer of NFD shortly after he hired him, increased his house and car allowances as an incentive to stay at NFD, readily agreed to reward Nuetzel financially for his efforts in connection with the sale of the company, entrusted him with the start-up work for Della Robbia, elected him to the board of directors, and gave him stock options in the company.
Saatzer's decision to hire his son and daughter-in-law does not evidence fraudulent intent. Nuetzel admitted telling Saatzer in September or October that he viewed IPC as a great business opportunity and had decided to work for it rather than go with Saatzer to Della Robbia. Saatzer hired his son and daughter-in-law after Nuetzel rejected his offer. Nuetzel's expectation that Saatzer's offer would remain open indefinitely has no legal or factual basis.
II
Saatzer also claims the evidence does not support a finding that Nuetzel reasonably relied on Saatzer's representations to his detriment. Reasonable reliance is a subjective standard. To determine if a person's reliance is reasonable, the factfinder must consider not what a reasonable person would do under similar circumstances, but what a comparable person reasonably could be expected to do. Spiess v. Brandt, 230 Minn. 246, 254, 241 N.W.2d 561, 567 (1950). A court or jury may infer reliance from plaintiff's conduct and the surrounding circumstances. Davis, 276 Minn. at 118, 149 N.W.2d at 39.
The record supports a finding that, in deciding to relocate, Nuetzel may have relied on Saatzer's representation that Jensen intended to hire him. It does not, however, support a finding that Nuetzel's reliance was reasonable. Despite Saatzer's representations, Nuetzel knew or should have known that Jensen was not legally obligated to hire him and, therefore, that there was no guaranty that Jensen would hire him. More important, Nuetzel knew or should have known that Saatzer had no authority to bind Jensen. See Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995) (land developer's reliance on city officials' promise to recommend public funding for developer's project to city council held to be unreasonable as a matter of law in absence of evidence that officials had authority to bind city council or city council was obligated to finance project). Thus, under the circumstances, any purported reliance on Saatzer's representation of Jensen's present intent to hire him was unreasonable as a matter of law.
Similarly, because Nuetzel rejected Saatzer's offer of employment at Della Robbia when he opted to go with IPC, the record does not support a finding that Nuetzel relocated in reliance on Saatzer's representation of employment at Della Robbia. By definition, one cannot reasonably rely on an offer he rejects. Nuetzel told Saatzer in September or October that he had decided to go with IPC. He bought the Nisswa house in October, after having decided not to accept Saatzer's employment offer. Given the timing of events, the jury could not reasonably conclude that Nuetzel relied on the promise of employment at Della Robbia in deciding to relocate.
III
Last, Saatzer claims the jury erred as a matter of law in awarding Nuetzel economic loss damages. We agree. In fraud and misrepresentation actions, damages are measured by the plaintiff's out-of-pocket loss. Hanks, 493 N.W.2d at 310. The "out-of-pocket" rule limits recovery to losses naturally and proximately arising from the fraud. Lewis v. Citizens Agency of Madelia, Inc., 306 Minn. 194, 200, 235 N.W.2d 831, 835 (1975). It differs from the "benefit-of-the-bargain" rule in that the plaintiff can recover only what he has lost, not the benefit of what he was promised. B.F. Goodrich Co. v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988). A misrepresentation loss is generally measured by the difference between what the defrauded party parted with and what he or she received. Johnson Bldg. Co. v. River Bluff Dev. Co., 374 N.W.2d 187, 195 (Minn.App. 1985), review denied (Minn. Nov. 18, 1985).
Minnesota law recognizes a narrow exception to the out-of-pocket rule and permits recovery of consequential economic damages when the out-of-pocket rule would not restore a defrauded plaintiff to the position he or she was in before the fraud. Lewis, 306 Minn. at 200, 235 N.W.2d at 835. Minnesota courts have generally applied the exception to restore a business to its former economic status when the misrepresentation "prevents the plaintiff from taking measures to protect the value of property it already has." B.F. Goodrich, 430 N.W.2d at 183.
The jury awarded Nuetzel $47,800 in damages. The jury's award was based not on the purchase of the Nisswa house, but on one year's lost salary, unpaid commissions, insurance premiums, automobile expenses, and director's fees. These damages represent the benefit of what Nuetzel was allegedly promised, rather than any loss he actually incurred. Thus, Nuetzel is entitled to them only if he can establish that his loss is not measurable by the out-of-pocket rule or that the out-of-pocket rule would not restore him to his former position. The record contains no evidence that the out-of-pocket rule would not adequately compensate Nuetzel for any loss he incurred.
Even if the record contained evidence that the out-of-pocket rule did not provide adequate compensation, the award could not be sustained under the benefit-of-the-bargain rule. Della Robbia went out of business three months after the sale of NFD. Nuetzel therefore would not have received the year's salary, unpaid commissions, insurance premiums, automobile expenses, and director's fees the jury awarded him. At most, he would have received three months' worth. More important, the undisputed evidence in the record shows that he made as much at U.S. Precision Glass in 1995 as he would have made if he had been employed at Della Robbia. Thus, even if we considered the loss of employment to be an out-of-pocket loss, the record establishes that Nuetzel incurred no damage.
Finally, we note that Nuetzel's failure to establish a compensable loss is an independent basis for reversal of the judgment. Whether or not a misrepresentation occurred and whether or not Nuetzel could reasonably rely on that representation, a cause of action is not sustainable when no compensable damages result from the conduct. Hanks, 493 N.W.2d at 308 (listing elements necessary to establish misrepresentation).