Diversified Water Diversion, Inc. v. Standard Water Control Systems, Inc., No. A07-1828 (Minn. App. 9/23/2008)
| Decision Date | 23 September 2008 |
| Docket Number | No. A07-1828.,A07-1828. |
| Parties | Diversified Water Diversion, Inc., Respondent, v. Standard Water Control Systems, Inc., Appellant. |
| Court | Minnesota Court of Appeals |
Appeal from the District Court, Hennepin County, File No. 27-CV-03-7231.
Todd Wind, Patrick D.J. Mahlberg, Fredrikson & Byron, P.A., (for respondent)
Paul A. Banker, Garrett M. Weber, David E. Ahlvers, Lindquist & Vennum, P.L.L.P., (for appellant).
Considered and decided by Halbrooks, Presiding Judge; Schellhas, Judge; and Huspeni, Judge.*
UNPUBLISHED OPINION
Appellant challenges the propriety of the district court's award of punitive damages and attorney fees to respondent. Concerning the punitive-damages award, appellant claims that the award does not satisfy the statutory criteria contained in Minn. Stat. § 549.20 (2006) and that the award violates its Fourteenth Amendment due-process rights. Appellant asserts that the district court erred in awarding attorney fees based on the language of a prior settlement agreement between the parties. We affirm.
Appellant Standard Water Control Systems, Inc. (Standard), and respondent Diversified Water Diversion, Inc. (Diversified), are business competitors. Both companies provide contracting services, with a focus on drain-tile and window installation in residential properties.
Mike Hogenson (Hogenson) is the president and owner of Standard. Hogenson's brother, Arthur Hogenson, and John Gieseke are associated with Diversified. Arthur Hogenson is not involved in Diversified's day-to-day operations; instead he provides financial backing for the company. Gieseke is Diversified's main principal. Arthur Hogenson and Gieseke were previously employed by, or had an ownership interest in, Standard before they severed ties with the company and became associated with Diversified. As a result, there is a great deal of ill will between Hogenson and Arthur Hogenson and Gieseke.
In 2002, Standard sued Diversified, alleging misappropriation of trade secrets and unfair competition. A settlement agreement between the parties was reached in October 2003. The terms of the settlement were orally placed on the record in district court but never incorporated in a formal written agreement. As part of the settlement, each party agreed not to disparage the business of the other.1 In addition, the parties stipulated that the "prevailing party" in any litigation relating to subsequent enforcement of the settlement would be entitled to attorney fees. Finally, if either party violated the settlement, a cease-and-desist letter was required before an action to enforce the agreement could be brought in district court.
In October 2005, Julie Korus solicited bids from both Standard and Diversified for a drain-tile-installation project. When Korus later called Hogenson to tell him that Standard's price was higher than other bids she received, Hogenson inquired about these bids, and Korus told him that Diversified was her preferred contractor. Upon learning this, Korus stated that Hogenson began "[b]ashing Diversified Water." Hogenson told her that Diversified was not a good company, did "terrible work," and was "not reliable." Korus disregarded Hogenson's statements, hired Diversified, and was satisfied with its performance.
Also in October 2005, Stephen Anderson, M.D., solicited bids from both Standard and Diversified for drain-tile work. Hogenson later made a follow-up call to Dr. Anderson about Standard's bid. Dr. Anderson informed Hogenson that he had decided to hire Diversified to do the drain-tile work. Hogenson became upset, recommended that Dr. Anderson choose a different company, and stated that Diversified would not honor the warranty for its work. Despite these statements, Dr. Anderson hired Diversified.
Diversified eventually learned of Hogenson's comments and sent Standard a cease-and-desist letter on February 9, 2006, stating that it believed that Hogenson was violating the terms of the 2003 settlement by disparaging Diversified. In a February 13, 2006 reply letter, Standard disputed the allegations of disparagement but acknowledged that Diversified's letter fulfilled the cease-and-desist requirement contained in the parties' 2003 settlement.
One week later, on February 20, Kelly Zimmerschied solicited bids for a drain-tile project from several businesses, including Diversified and Standard. During a subsequent phone conversation with Hogenson, Zimmerschied mentioned that she had solicited a bid from Diversified. Upon learning this, Hogenson became "very venomous and very angry." He told her that Diversified used substandard products, would not stand behind its warranty, was unreliable, acted in bad faith, and was generally a "sleazy" company. Nevertheless, Zimmerschied chose Diversified to perform the drain-tile project. Zimmerschied was so troubled by Hogenson's accusations that she later told Gieseke about them. Diversified subsequently sued Standard for breach of the settlement agreement and defamation.
Following a court trial, the district court found for Diversified. It ruled that Hogenson's conduct amounted to defamation per se because Hogenson's comments impugned Diversified's business practices and reputation.2 Although Diversified acknowledged that it did not suffer any actual injury as a result of Hogenson's actions, the district court noted that general damages are presumed in a defamation-per-se case and therefore failure to demonstrate actual harm was not fatal to Diversified's claim.3 The district court awarded Diversified $0 in compensatory damages and $30,000 in punitive damages. It also issued an injunction barring Standard from making any further disparaging comments in violation of the 2003 settlement. Finally, the district court awarded Diversified $16,072.50 in attorney fees pursuant to the 2003 settlement because it was the "prevailing party." This appeal follows.
Standard makes three arguments to this court. Standard argues that (1) Diversified failed to establish facts satisfying the statutory requirements that must be met to award punitive damages; (2) the punitive-damages award violates the Due Process Clause of the Fourteenth Amendment because it is an arbitrary deprivation of Standard's property; and (3) Diversified is not a "prevailing party" entitled to attorney fees under the 2003 settlement agreement.
Standard challenges the district court's conclusion that the facts established at trial meet the statutory requisites for awarding punitive damages. Minn. Stat. § 549.20 governs punitive damages in civil cases. The section states that before punitive damages can be awarded, clear and convincing evidence must establish that the acts of the defendant evince a "deliberate disregard for the rights or safety of others." Minn. Stat. § 549.20, subd. 1(a). This "deliberate disregard" standard is met by demonstrating that a defendant had knowledge of facts creating "a high probability of injury to the rights or safety of others" and that the defendant consciously, deliberately, or indifferently acted in a manner that disregarded this high probability of injury. Id., subd. 1(b); see also Longbehn v. Schoenrock, 727 N.W.2d 153, 162 (Minn. App. 2007) ().
Standard first contends that the district court erred in concluding that Hogenson's comments amounted to "deliberate disregard" of probable harm to Diversified's rights, arguing that Hogenson believed that his comments amounted only to "company comparisons" between Standard and Diversified. In support of its argument, Standard asserts that none of the three customers who testified at trial could point out specific, deliberately disparaging remarks that Hogenson made about Diversified. We disagree.
While a district court's findings of fact will not be reversed unless clearly erroneous, Minn. R. Civ. P. 52.01, the application of a statute to the facts found by the district court is a question of law, which we review de novo. See O'Malley v. Ulland Bros., 549 N.W.2d 889, 892 (Minn. 1996) (); In re Welfare of S.H.H., 741 N.W.2d 917, 919 (Minn. App. 2007) ( ).
Given the nature and content of Hogenson's statements, the district court properly concluded that they constituted a deliberate disregard of the probable harm to Diversified's good will and business reputation with its potential customers. For example, Zimmerschied testified that Hogenson told her that Diversified was a "sleazy" business, operated in bad faith, was unreliable, and would not stand behind its warranty. These statements were not merely a comparison of the different services offered or the products used by each company, but intentionally disparaged Diversified and its business practices. In making the comments, Hogenson intentionally disregarded Diversified's rights under the 2003 settlement and its right not to be defamed.
Standard next argues that, even assuming Hogenson deliberately disregarded Diversified's rights, this conduct did not create a "high probability" of harm to Diversified. Standard points out that all three customers to whom the remarks were made chose Diversified as their contractor anyway. Standard asserts that "[w]ithout any [actual] harm, there cannot be a high probability of harm."
But if accepted, this argument would effectively...
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