Frankson v. Design Space Intern.

• Decision Date: 10 October 1986
• Docket Number: No. C5-85-708,C5-85-708
• Citation: 394 N.W.2d 140
• Parties: 105 Lab.Cas. P 55,634 David FRANKSON, Respondent, v. DESIGN SPACE INTERNATIONAL, et al., Appellants.
• Court: Minnesota Supreme Court

Page 140

394 N.W.2d 140

105 Lab.Cas. P 55,634

David FRANKSON, Respondent, v. DESIGN SPACE INTERNATIONAL, et al., Appellants.

No. C5-85-708.

Supreme Court of Minnesota.

Oct. 10, 1986.

Syllabus by the Court

1. Preparation of a defamatory letter and distribution of the letter to a personnel file and to two officers of a company constitutes a qualifiedly privileged publication of a defamatory statement under the facts of this case.

2. Because of the lack of sufficient evidence of malice, the qualified privilege was not lost.

3. Where the evidence indicates that there was no full agreement concerning compensation, the reasonable value of services in quantum meruit can be recovered.

Allen I. Saeks, James V. Roth, Minneapolis, for appellants.

Christopher S. Hayhae, Paul C. Wolf, Edina, for respondent.

Heard, considered, and decided by the court en banc.

SCOTT, Justice.

David Frankson ("Frankson") commenced this action in Hennepin County District Court, claiming that Design Space International ("DSI"), a division of Transport International Pool, Inc., had breached his employment commission contract; that DSI owed him compensation for the reasonable value of his services; that DSI had maliciously and wrongfully terminated his employment; and that his termination was done in a willful, malicious, defamatory, and outrageous manner. DSI counterclaimed, alleging that Frankson had breached both a covenant not to compete and a covenant not to divulge trade secrets and that he had engaged in unfair competition and deceptive trade practices following his termination.

The trial court denied defendants' motion for a directed verdict, both at the close of the plaintiff's case and at the close of all evidence, but granted plaintiff's motion for a directed verdict on the counterclaims. The jury awarded Frankson $28,196.27 plus interest for the reasonable value of his services, $70,000 in compensatory damages for defamation, and $125,000 in punitive damages. The trial court denied DSI's motion for judgment notwithstanding the verdict or for a new trial, and DSI appealed. The court of appeals, en banc, affirmed the trial court's decision, 380 N.W.2d 560. We affirm in part and reverse in part.

Frankson was employed by DSI, a division of Transport International Pool, Inc., and its predecessor, Space Rentals, from November, 1974, to November 24, 1980. DSI is in the business of selling and leasing mobile offices and other modular structures. Frankson began as DSI's Minneapolis branch sales manager and, at the time of his termination, was a major projects manager. Frankson's employment was governed by a series of written contracts. DSI's policy was to execute a new employment agreement whenever there was a change in title, salary, or territory.

In February, 1980, Frankson became a major projects sales representative with responsibility for major projects, which included those involving (1) more than $100,000 in building costs; (2) customers leasing more than 25 units per year; (3) the federal government; or (4) exports. He also retained the title of branch sales manager. He executed an employment agreement covering both of these positions in February, 1980.

Under the terms of his employment agreements Frankson was to receive a salary and "other valuable considerations." One of these valuable considerations was a commission or bonus, which was calculated according to the DSI compensation plan then in effect. The following clause appeared in the 1977-78 compensation plan: "The maximum cumulative commission payable for one or more contracts with one customer during the fiscal year shall not exceed $5,000." The 1978-79 and 1979-80 plans contained similar limitations. In 1980-81, DSI issued a new compensation plan specifically applicable to those in the major projects program. While still limiting commissions, that plan raised the limit to $10,000 per project.

Frankson was unhappy with these commission limits. When he signed the 1979-80 plan in September, 1979, he inserted: "With one exception that you waive the maximum cumulative commission payable for one or more contracts with one customer during the fiscal year" and a line for DSI's president, Ray Wooldridge ("Wooldridge"), to sign. Frankson sent the compensation plan with these modifications to Wooldridge, who did not sign it.

Frankson testified that he inserted this exception because he was going into the major projects program. He further testified that William Lindelow ("Lindelow"), DSI's vice-president of sales and the major projects program's supervisor, told him there would be no commission limitation for those in major projects. No special compensation plan specifically applicable to major projects salespeople was effective until August 1, 1980, although a draft that contained no commission limitation was sent to Frankson and other major projects salespeople in May, 1980. They were told that the plan was incomplete and were instructed to return it unsigned. Lindelow also testified that before August 1, 1980, there was only one compensation plan, the one with the $5,000 commission limitation, but that DSI had individual agreements with its original major projects salespeople, Maurice Phillips and Robert Holt ("Holt"). Holt testified that his oral agreement with Wooldridge and Lindelow provided for a salary plus 2% of sales between $550,000 and $1,500,000 and 1% of everything over $1,500,000. Holt operated under this agreement until the major projects program was expanded and the major projects compensation plan with its commission limitation came into effect.

Between February 1, 1980, and July 31, 1980, Frankson made sales to Montana Power totaling $2,319,627.16. These sales were invoiced between March and August of 1980, when there was no written compensation plan specifically applicable to major projects. While DSI claimed that the $5,000 limitation of the general compensation plan applied, Frankson claimed that there should be no limitation because of Lindelow's representations. Frankson admitted, however, that Lindelow had told him that any major projects compensation plan would have to be approved by Wooldridge.

When the dispute over his commissions arose, Lindelow advised Frankson to prepare a memorandum showing his sales to Montana Power and the commissions he thought he should receive. Frankson sent the figure of $28,196.27 to Lindelow in late August, 1980. Lindelow wrote "OK to pay" on it, signed it, and forwarded it to Wooldridge. The DSI compensation committee then discussed this dispute and agreed to pay Frankson $10,000, the amount of the commission limit under the new compensation plan. Frankson did not cash the check for $10,000 that DSI tendered to him.

In early November, 1980, Wooldridge, Lindelow, and Edward Burns ("Burns"), DSI's director of personnel, attended a meeting at which they decided to terminate Frankson. Both Lindelow and Burns testified that Frankson's commission dispute was not discussed at this meeting, and Burns further testified that he thought the dispute was settled when he sent the $10,000 check to Frankson. About a week later, on November 17, 1980, Lindelow and Burns went to Frankson's office and gave him a letter terminating his employment with DSI effective November 24, 1980. The letter recited the reason for Frankson's termination as his "failure to increase business as a major projects representative."

At trial, Frankson presented evidence of his past sales achievements and of the sales projects he had worked on in 1980. Lindelow testified, however, that Frankson had no sales in the quarter prior to his termination, while other major projects salespeople had made sales during this period.

After his termination, Frankson went into business for himself instead of looking for another sales job. He used his savings of $5,000 for capital and ran the business from his home. This business, called Space Mobile and Modular Structures, like DSI sold and leased modular structures.

Frankson then brought this action. The jury found no breach of contract but awarded Frankson $28,196.27 plus interest as the reasonable value of his services. The jury found that Frankson's employment was at will and that he was not wrongfully terminated, but awarded him $70,000 in compensatory damages and $125,000 in punitive damages after finding that the statement in his termination letter--that he was terminated for failing to increase sales--was both untrue and made with actual malice.

The issues needed for resolution of this case can be stated as follows:

(1) Was DSI's statement published?

(2) Was there sufficient evidence of malice to overcome the qualified privilege, allowing the consideration of the compensatory and punitive damage issues?

(3) Did the trial court err in submitting the issue of quantum meruit to the jury?

1. In order for a statement to be defamatory it "must be communicated to someone other than the plaintiff, it must be false, and it must tend to harm the plaintiff's reputation and to lower him in the estimation of the community." Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 255 (Minn.1980). DSI argues that the first element, communication to someone other than the plaintiff or publication, is not satisfied when the corporate personnel director prepares a termination letter that is shown only to the terminated employee, his immediate supervisor, and the corporation's president. Frankson, on the other hand, argues that this type of in-house communication is publication.

This court has not squarely addressed this issue. In Hebner v. Great Northern Railway Co., 78 Minn. 289, 80 N.W. 1128 (1899), however, this court went on to consider qualified privilege, an affirmative defense, and actual malice, which destroys that defense, when "the only publication complained of was when the record [of the reason for plaintiff's termination] was communicated by one of the clerks employed by defendant * * * to another clerk;...