Gieseke ex rel. Diversified Water Diversion, Inc. v. Idca, Inc., A12–0713.

• Decision Date: 26 March 2014
• Docket Number: No. A12–0713.,A12–0713.
• Court: Minnesota Supreme Court
• Parties: John GIESEKE, on behalf of DIVERSIFIED WATER DIVERSION, INC., Respondent, v. IDCA, INC., et al., Appellants.

844 N.W.2d 210

John GIESEKE, on behalf of DIVERSIFIED WATER DIVERSION, INC., Respondent,

v.IDCA, INC., et al., Appellants.

No. A12–0713.

Supreme Court of Minnesota.

March 26, 2014.

Syllabus by the Court

1. Tortious interference with prospective economic advantage is a viable claim in Minnesota. To successfully pursue the claim, a plaintiff must prove five elements, including that the defendant's interference was intentional and either independently tortious or in violation of a state or federal statute or regulation.

2. Because respondent failed to specifically identify any third parties with whom it had a reasonable expectation of a future economic relationship, and failed to prove damages caused by the wrongful interference with such a relationship, the district court erred when it denied appellants' motion for judgment as a matter of law.

Todd Wind, Fredrikson & Byron, P.A., Minneapolis, MN, for respondent.

Lisa Lodin Peralta, Peralta & Peralta, Ltd., Minneapolis, MN; and

Kelly Griffitts, Griffitts Law Offices, PLLC, Bloomington, MN, for appellants.

OPINION

DIETZEN, Justice.

The primary question before us is whether Minnesota should formally recognize a cause of action for tortious interference with prospective economic advantage. John Gieseke, on behalf of Diversified Water Diversion, Inc. (Diversified), brought an action against appellants IDCA, Inc., et al. (IDCA), asserting, among other claims, tortious interference with Diversified's prospective economic advantage. Following trial, an advisory jury found, among other things, that IDCA had tortiously interfered with Diversified's prospective economic advantage and that Diversified sustained $220,000 in damages. The district court issued findings of fact and conclusions of law and entered an order for judgment consistent with the jury's determination. IDCA subsequently moved for judgment as a matter of law, arguing that Minnesota does not recognize a cause of action for tortious interference with prospective economic advantage and even if such a tort were available, Diversified failed to show a reasonable expectation of economic advantage. IDCA also moved for a new trial or remittitur, arguing that the damages were excessive. The district court denied the post-trial motions, and the court of appeals affirmed. We reaffirm that tortious interference with prospective economic advantage is a viable claim in Minnesota. But we reverse and vacate the judgment on the tortious interference claim, because Diversified failed to specifically identify any third parties with whom it had a reasonable expectation of a future economic relationship, and failed to prove damages caused by the wrongful interference with such a relationship.

This case arises out of a protracted dispute between appellant Michael Hogenson (Mike), who owns Standard Water Control Systems, Inc. (Standard), and his brother Arthur Hogenson (Art), who is a part-owner of Diversified. Standard and Diversified compete with each other in the drain tile installation business in the Twin Cities metropolitan area. Standard was incorporated in 1984, and each brother held 50 percent ownership of the stock. Mike and Art also owned Hogenson Properties, a holding company for various properties.

In 1999, Mike and Art had a falling out and divided their businesses so that Mike became the sole owner of Standard and Art became the sole owner of Hogenson Properties. John Gieseke, a friend of Art's, was terminated from his employment with Standard. In 2000, Gieseke started Diversified with another exemployee of Standard as a competing drain tile business, and six months later Art joined the business and became a part-owner. Gieseke and Art each owned 50 percent of the company, with Gieseke serving as the chief executive officer and treasurer of Diversified, and Art as the vice president, chief operating officer, and secretary.

The dispute between the two brothers generated two lawsuits prior to this one, as well as protracted litigation regarding a default judgment against Art. In 2002, Standard sued Diversified, alleging misappropriation of trade secrets and unfair competition. The parties reached a settlement that included a mutual non-disparagement clause. In 2006, Diversified sued Standard for defamation and to enforce the non-disparagement agreement. Following trial, the district court concluded that Standard had defamed Diversified and entered judgment in favor of Diversified for punitive damages and an award of attorney fees. The court of appeals affirmedthe award of punitive damages and attorney fees, and we denied review. Diversified Water Diversion, Inc. v. Standard Water Control Sys., Inc., No. A07–1828, 2008 WL 4300258, at *2, *8 (Minn.App. Sept. 23, 2008), rev. denied (Minn. Dec. 16, 2008). Consequently, Diversified had a judgment against Standard in the amount of $67,717.

In 2007, MWH Properties, an entity owned by Mike, purchased a default judgment in the amount of $737,679 that Thomas Fallon had obtained in September 2007 against Art and Diversified. The judgment arose out of a personal injury that Fallon suffered while working at a Diversified jobsite. In February 2008, Art challenged the validity of the Fallon judgment on the ground that the court lacked subject matter jurisdiction over Fallon's claim and, thus, the default judgment was invalid.

While Art's challenge to the validity of the Fallon judgment was pending, MWH Properties pursued collection remedies against the judgment. Specifically, Mike directed MWH Properties to execute on the Fallon judgment, which resulted in a sheriff's sale being held to liquidate Art's assets and satisfy the Fallon judgment. Mike then formed a separate corporation, IDCA, Inc., for the purpose of purchasing Art's 50 percent interest in Diversified at the sheriff's sale, taking control of Diversified, and then shutting down the Diversified business.

Art's 50 percent interest in Diversified was sold to IDCA at the sheriff's sale. Having obtained a 50 percent interest in Diversified, Mike changed its registered address with the Minnesota Secretary of State to Standard's address. Mike also directed a towing company to seize Diversified's equipment at Art's house and deliver it to Standard's offices. Next, Debra Hogenson, Mike's wife, settled Diversified's $67,717 judgment against Standard for $12,000, via a release signed by Debra purporting to act as Diversified's vice president, and Mike, acting on behalf of Standard. Debra, however, had never been elected vice president of Diversified. Gieseke, Diversified's other 50 percent owner, did not receive notice of the release.

The current lawsuit was filed by Gieseke, on behalf of Diversified, against IDCA in September 2009. The amended complaint alleged, among other things, conversion of Diversified's equipment, replevin, and tortious interference with prospective economic advantage. The complaint included a request for equitable relief under Minn.Stat. § 302A.751 (2012). While this case was pending, the district court considered Art's motion to vacate the Fallon judgment and concluded that the court had lacked subject matter jurisdiction to enter that judgment. The Fallon judgment was consequently vacated by order dated August 27, 2010.¹

The Gieseke lawsuit proceeded to trial in November 2011. Diversified presented testimony that IDCA, through Mike and Debra, tortiously interfered with its business. Specifically, testimony established that IDCA converted Diversified's equipment which prevented Diversified from doing business, changed Diversified's registered business address, settled Diversified's $67,717 judgment against Standard for $12,000, and obtained Diversified's tax returns. Diversified also presented testimony that it saw a dramatic decrease in business, with annual profits approximately$78,450 lower than expected from 2009 through 2011. The parties stipulated that IDCA returned the seized equipment to Diversified on December 20, 2010.

An advisory jury answered special verdict questions finding, among other things, that: (1) appellants had converted Diversified's property, for which the jury awarded damages of $10,000; (2) Diversified was entitled to replevin, for which the jury awarded damages of $10,000; and (3) appellants tortiously interfered with Diversified's prospective economic advantage, for which the jury awarded damages of $220,000. The district court rejected the replevin damages as duplicative of the conversion damages, adopted the jury's findings on the conversion and tortious interference claims, and entered judgment against appellants IDCA, Mike, and Debra in the amount of $230,000.

Appellants moved for judgment as a matter of law or alternatively for a new trial on various grounds, including that tortious interference with prospective economic advantage is not a recognized cause of action in Minnesota, that Diversified did not have a reasonable expectation of economic advantage, and that the damages were excessive. The district court denied the motions and concluded, among other things, that Diversified had provided sufficient evidence that IDCA had tortiously interfered with Diversified's prospective economic advantage, and that the award of damages was supported by Gieseke's testimony that Diversified had lost profits from 2009 through 2011.

The court of appeals affirmed, holding that tortious interference with prospective economic advantage is a recognized cause of action in Minnesota and that the evidence was sufficient to support the jury's verdict on liability and damages. Gieseke ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 826 N.W.2d 816, 832–33 (Minn.App.2013). We granted IDCA's petition for review.

I.

At issue is whether Minnesota recognizes a cause of action for tortious interference with prospective economic advantage. IDCA argues that we have not formally recognized such a cause of action and that, even if we have, Diversified's claim fails....