Commercial Assoc. v. Work Connection, No. A05-862.
| Decision Date | 18 April 2006 |
| Docket Number | No. A05-871.,No. A05-862. |
| Citation | 712 N.W.2d 772 |
| Parties | COMMERCIAL ASSOCIATES, INC., Respondent (A05-862), Appellant (A05-871), v. The WORK CONNECTION, INC., Appellant (A05-862), Respondent (A05-871). |
| Court | Minnesota Court of Appeals |
Jeffrey F. Shaw, David H. Grounds, Briggs & Morgan, P.A., Minneapolis, MN, for Commercial Associates, Inc.
M. Gregory Simpson, Siegel, Brill, Greupner, Duffy & Foster, P.A., and Robert J. Gilbertson, A.L. Brown, Robins, Kaplan, Miller & Ciresi, L.L.P., Minneapolis, MN, for The Work Connection, Inc.
Considered and decided by DIETZEN, Presiding Judge; WRIGHT, Judge; and WORKE, Judge.
In this fee dispute, appellant, an independent insurance agency, challenges the district court's grant of partial judgment notwithstanding the verdict (JNOV), ordering appellant, following a jury finding that it breached its fiduciary duty to respondent-client, to forfeit $483,000 in risk-management fees. Appellant argues that (1) the jury finding of no damages precludes the fee-forfeiture award, and (2) the fee-forfeiture award is not supported by the record. Respondent challenges the district court's judgment, arguing that (1) the fee forfeiture should have included the undisclosed commissions that the insurance company paid to appellant, and (2) the district court erred by refusing to instruct the jury on respondent's breach-of-contract theory. Because in determining the amount of the fee-forfeiture award the district court failed to consider whether the breach involved actual fraud or bad faith and whether it resulted in actual harm, we vacate that portion of the judgment and remand for further proceedings. Because we find no error or abuse of discretion with respect to all other issues, we affirm the remaining portion of the judgment.
Appellant Commercial Associates, Inc.1 is an independent insurance agency that procures business, property, general-liability, automobile, and workers'-compensation insurance for individuals and businesses. Respondent The Work Connection, Inc. is a staffing company that provides temporary and long-term employees to businesses. Respondent's largest insurance expense is workers' compensation, which costs approximately $1,000,000 annually.
Appellant procured insurance for respondent from 1996 to 2002. The first workers'-compensation policy appellant procured for respondent was issued in 1996. As part of that transaction, appellant had respondent sign a Risk Management Disclosure Statement (RMDS), which stated in pertinent part:
In Accordance with Minnesota Statute 60A, Subdivision 6B, this disclosure is being furnished to provide you [with] the following notice. Only the items whose number or letter is checked apply:
X 1. The commission paid by the insurance company is not adequate to compensate us for the work required in servicing your account to our normal standards.
Therefore, Commercial Associates is charging $48,000 as a risk management fee.
____ 2. This risk management fee is in addition to commissions which will be included in the premiums which you will be paying to [appellant] on behalf of the Insurance Company providing your Insurance protection.
(Emphasis added).
Between 1996 and 2002, respondent paid appellant a total of $483,000 in annual agency fees for the workers'-compensation insurance policies procured by appellant. During that same period, appellant received $485,070 in commissions from various insurance companies that issued those same policies that appellant procured for respondent. Respondent did not discover that the insurance companies were paying appellant commissions until 2002, when its lawyer received that information in discovery in an unrelated lawsuit.
In December 2000, appellant presented its written proposal to respondent for renewal of its workers'-compensation insurance. The written proposal indicated that the premium for the ACE workers'-compensation policy would accrue a 19% quote "scheduled debit," which increased the estimated premium by $266,214.2 Respondent contends that when it objected to the scheduled debit, one of appellant's principals, Jerry Crandall, stated, and promised to "take care of it." The final audited amount was $304,647.
In October 2002, Crandall committed suicide. Crandall left a note for the other principal stating that he had "screwed up big time" and had "kept it buried for a few months." The suicide note referenced the ACE credit/debit issue.
Shortly thereafter, appellant commenced a lawsuit against respondent, seeking to recover unpaid insurance premiums in the amount of $184,000. Respondent did not dispute that it owed appellant that amount, but it counterclaimed, alleging breach of fiduciary duty, negligence, negligent misrepresentation and fraud, breach of contract, and breach of statutory duties that resulted in damages in excess of $1,000,000. Essentially, respondent claimed that appellant: (1) breached its fiduciary duty to respondent when it secretly collected commissions from the insurance company, and (2) breached its contract with respondent when it failed to reduce the premium for the ACE policy by the scheduled debit of 19% or $304,647.
Following completion of the testimony at trial, the district court granted appellant's motion for a directed verdict on its claim for unpaid invoices. The district court also refused to instruct the jury on respondent's breach-of-contract claim related to the ACE policy scheduled debit. Appellant argued, and the district court agreed, that because the insurance proposal specifically stated that there was a scheduled debit of 19%, appellant did not breach the insurance contract. But the district court allowed respondent's negligent misrepresentation and fraud claim to go forward on the theories that appellant collected secret commissions, and misrepresented that the scheduled debit should be a 19% credit and that it would "take care of it."
The jury answered a special-verdict form that contained 26 questions. On the issue of whether appellant improperly received undisclosed commissions from the insurance company, the jury found that Crandall (1) did not falsely represent that appellant was not taking commissions on the insurance policies it obtained for respondent, (2) negligently failed to disclose that appellant was taking commissions on the insurance policies in addition to charging a risk-management fee, and (3) had a fiduciary relationship with respondent. The jury also found that respondent sustained no damages as a result of Crandall's failure to disclose the taking of commissions. On the question of whether appellant misrepresented the premiums it would be required to pay for the workers'-compensation policy, the jury found that Crandall (1) falsely represented to respondent that the 2000-01 ACE insurance policy was to contain a scheduled credit and (2) supplied false information to respondent regarding the scheduled debit on the 2000-01 ACE policy. The jury also found that respondent justifiably relied on Crandall's misrepresentations but was not financially harmed.
Both parties filed motions for JNOV or a new trial. Respondent argued that appellant should be required to forfeit not only the risk-management fees but also the commissions the insurance company paid appellant. Respondent also argued that the district court erred by refusing to submit the breach-of-contract claim to the jury. Appellant, in turn, argued that because the jury found that respondent incurred no actual damages, appellant should not be required to forfeit any fees or commissions to respondent.
The district court denied appellant's motion for JNOV or a new trial, and partially granted respondent's motion for JNOV by requiring appellant to forfeit fees to respondent. The district court confirmed the jury's finding that appellant breached its fiduciary duty by failing to disclose that it was receiving commissions from the insurance company. Based on that finding, the district court determined that appellant forfeited its right to the fees paid by respondent, regardless of any actual harm. But the district court declined to extend the fee forfeiture to the commissions the insurance company paid to appellant, and it denied respondent's motion for a new trial based on the failure to submit the breach-of-contract claim to the jury. Both parties appealed.
I. What is the applicable standard of review on appeal from a partial grant of JNOV ordering fee forfeiture for breach of a fiduciary duty, and is the equitable remedy of fee forfeiture precluded by the jury's finding of no actual harm?
II. Did the district court abuse its discretion by ordering appellant to forfeit all risk-management fees received from respondent, and declining to extend forfeiture to commissions received by appellant from a third-party insurance company?
III. Did the district court err by refusing to submit respondent's breach-of contract theory to the jury?
As a preliminary matter, the parties raise two threshold issues regarding the applicable standard of review and the effect of the jury's finding of no harm.
First, the parties dispute the standard of review applicable to the district court's determination that appellant breached its fiduciary duty. Appellant argues that the district court order partially granting respondent's motion for JNOV raises a question of law and, therefore, is subject to de novo review. Respondent argues that because the district court awarded respondent an equitable remedy for appellant's breach of fiduciary duty, the proper standard of review is abuse of discretion.
We review de novo a district court's decision to grant a motion for JNOV. Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn.1998). But we review for abuse of discretion the district court's determination of the...
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