Kratzer v. Welsh Companies, LLC

• Decision Date: 30 July 2009
• Docket Number: No. A06-2284.,A06-2284.
• Citation: 771 N.W.2d 14
• Parties: Wayne J. KRATZER, Respondent, v. WELSH COMPANIES, LLC, Appellant.
• Court: Minnesota Supreme Court

771 N.W.2d 14

Wayne J. KRATZER, Respondent, v. WELSH COMPANIES, LLC, Appellant.

No. A06-2284.

Supreme Court of Minnesota.

July 30, 2009.

Jeffrey R. Ansel, Thomas H. Boyd, Justice E. Lindell, Winthrop & Weinstine, P.A., Minneapolis, MN, for appellant.

James H. Kaster and Jessica J. Clay, Nichols, Kaster & Anderson, PLLP, Minneapolis, MN, for respondent.

OPINION

GILDEA, Justice.

Respondent Wayne Kratzer brought this action against his former employer, Welsh Companies, LLC (Welsh), alleging that Welsh terminated his employment in violation of Minnesota's whistleblower statute, Minn.Stat. § 181.932, subd. 1(a) (2008).¹ The district court granted Welsh's summary judgment motion, but the court of appeals reversed. Kratzer v. Welsh Cos., No. A06-2284, 2008 WL 1747607, at *1 (Minn.App. Apr. 15, 2008).² We granted Welsh's petition for review on the whistleblower claim. Because we conclude that Kratzer has not demonstrated that he engaged in protected activity under the whistleblower statute, we reverse.

The record reflects that Kratzer began working with Welsh as a real estate agent in January 1997. Three years later, Kratzer became Assistant Vice President of Investment Sales. In February 2000, Kratzer received a Letter of Understanding/Offer of Employment detailing that Kratzer's supervisor would be Welsh President Robert Angleson, but functionally, Kratzer would report to Pete Rand. The terms of Kratzer's employment included a salary, commissions, health insurance, and a company car.

Kratzer's whistleblower claim stems from a transaction for the purchase of the Park Square Shopping Center (Park Square) in Brooklyn Park, Minnesota. John Hancock Real Estate Investment Group (John Hancock) owned Park Square. In early 2000 John Hancock retained Welsh to act as the brokerage firm in connection with its efforts to sell Park Square. John Hancock set the original list price at $10 million and agreed to pay Welsh a 2.5% commission on the purchase price. Pete Rand acted for Welsh as John Hancock's broker on the Park Square transaction.

Simultaneously with his broker work for John Hancock, Rand also represented WelshInvest, an affiliate of Welsh, in connection with WelshInvest's efforts to acquire properties. When WelshInvest expressed interest in acquiring Park Square, Rand acted as its broker, and Kratzer assisted Rand with the Park Square deal on the acquisition side, representing WelshInvest.

Rand testified that he presented WelshInvest to John Hancock as a potential buyer for the Park Square property. Because he also represented WelshInvest, Rand said that he discussed with John Hancock the potential conflict of interest for the Park Square transaction.³ According to Rand, John Hancock chose not to pursue WelshInvest as a buyer at the time that Park Square was first on the market because of the conflict. After considering several offers, however, John Hancock changed its mind.

Initially John Hancock received three offers for Park Square: WelshInvest's offer for $8.025 million and two others for $8 million and $8.6 million. Rand testified that John Hancock wanted to complete the sale by the end of 2000, and that only WelshInvest was in a position to complete the deal by that deadline. With WelshInvest as the most viable prospect, John Hancock decided to entertain WelshInvest's offer.

As the predicate for his claims, Kratzer relies on the fact that at some point during negotiations for Park Square, Rand entered into an agreement with WelshInvest for an additional commission. Kratzer characterizes this agreement as WelshInvest agreeing to pay Rand an "extra two points on his commission if he could convince [John] Hancock to lower their asking price by [$1.5 million]."

WelshInvest ultimately lowered its purchase price offer to $6.5 million. Rand testified that WelshInvest lowered the offer "for a variety of reasons." Rand stated, for example, that during the time that Park Square was on the market, the closure of the anchor store, Rainbow Foods, negatively impacted the value of the property. In August 2000, the deal between John Hancock and WelshInvest nearly fell through.

But on August 29, 2000, WelshInvest purchased Park Square from John Hancock for $6.5 million. According to the complaint, Rand earned an additional $130,000 commission from WelshInvest for securing the price reduction on the transaction.

Sometime in January 2002, WelshInvest decided to sell Park Square. Rand represented WelshInvest in this transaction, and assigned Kratzer to handle marketing materials for the sale. Rand told Kratzer that the sale should not be advertised to John Hancock because Rand did not want John Hancock to question WelshInvest's asking price for Park Square, which was higher than the purchase price WelshInvest paid to John Hancock. Kratzer then questioned Rand regarding the additional commission agreement, and Rand said that John Hancock was not aware of that agreement.

Kratzer told Rand that Kratzer believed it would be illegal to exclude John Hancock from the marketing of the Park Square property.⁴ According to Kratzer, Rand responded, "You can go to management if you disagree with me, but if you do, this will be your last deal at Welsh." Rand removed Kratzer from the Park Square sale that day, and removed Kratzer's name from marketing materials several weeks later.

Around the same time as this conversation with Rand, Kratzer also met with Angleson to describe what Kratzer thought was illegal conduct on the Park Square transaction. Kratzer contends that Angleson did not address his concerns.

Several months after his meeting with Angleson, Kratzer received a letter from Angleson informing Kratzer that his compensation would be adjusted from that of a salaried employee to the company's standard commission program. Kratzer alleges that on August 30, 2002, he discovered that Rand had prevented Kratzer from receiving a commission he believed he was owed in connection with a different transaction.

On September 6, 2002, Kratzer presented his concerns about Rand, the Park Square transaction, and the actions taken by Angleson and Rand to Welsh's Chief Executive Officer, Dennis Doyle. Doyle told Kratzer that Doyle would "get to the bottom of it," but also stated his desire to maintain his "longterm relationship with Rand." Kratzer alleges that Doyle's attitude toward Kratzer changed after this meeting.

On October 14, 2002, Welsh terminated Kratzer's employment. Angleson stated in an affidavit that Welsh terminated Kratzer's employment because of Kratzer's "lack of productivity and focus in the brokerage area."

As a result of Kratzer's termination and issues surrounding commissions, Kratzer commenced legal action against Welsh. After discovery, Welsh moved for summary judgment. The district court granted summary judgment on all claims. The court held, in relevant part, that Kratzer failed to establish a prima facie case under the whistleblower statute because the conduct Kratzer reported did not violate any state or federal law or rule adopted pursuant to law, and because Kratzer failed to establish a causal connection between his report and the adverse employment action.

The court of appeals reversed. Kratzer, 2008 WL 1747607, at *1. The court held that Rand's activities, as reported by Kratzer, violated Minn. R. 2805.2000, subpart 1(A) (1999).⁵ 2008 WL 1747607, at *5-6. This Minnesota rule requires knowing consent to dual agency in a real estate transaction. To interpret language in the rule, the court of appeals referred to the common law. Id. at *5. The court noted that at common law "a real estate broker has a fiduciary duty toward the principal," and that one "with a fiduciary duty has a duty to disclose material facts to the persons to whom the duty is owed." Id. The court concluded that Rand's commission arrangement with WelshInvest was a material fact and that without knowledge of this arrangement, John Hancock could not give the "knowing consent to the dual representation" required under Rule 2805.2000, subpart 1(A). 2008 WL 1747607, at *5. The court also held that Kratzer's report was made in good faith and that Kratzer established a prima facie showing of causation. Id. at *6. Finally, the court concluded that whether Welsh's reasons for terminating Kratzer's employment were pretextual was a disputed fact question. Id. at *7. We granted Welsh's petition for review.⁶

This case comes to us after the district court granted Welsh's motion for summary judgment. We apply a de novo standard of review to a grant of summary judgment. Zip Sort, Inc. v. Comm'r of Revenue, 567 N.W.2d 34, 37 (Minn.1997). Because the district court granted Welsh's summary judgment motion against Kratzer, we view the evidence in the light most favorable to Kratzer. See Grondahl v. Bulluck, 318 N.W.2d 240, 242 (Minn.1982). The judgment will be affirmed, however, if no genuine issues of material fact exist and if the court below properly applied the law. Zip Sort, Inc., 567 N.W.2d at 37; see also Minn. R. Civ. P. 56.03.

I.

This issue presented in this case is whether Kratzer engaged in conduct that the whistleblower statute, Minn.Stat. § 181.932, protects. For the whistleblower statute to apply so as to restrict the employer's ability to lawfully terminate an employee, the employee must have engaged in protected conduct. Minn.Stat. § 181.932.⁷ Specifically, the statute makes it illegal for an employer to terminate an employee because the employee "in good faith, reports a violation or suspected violation of any federal or state law or rule adopted pursuant to law to an employer." Minn.Stat. § 181.932, subd. 1(a). The parties agree that the conduct at issue is Kratzer's report that Rand failed to tell John Hancock about the terms of Rand's commission agreement with WelshInvest.⁸ Kratzer argues that this report is protected under the whistleblower statute because it implicates a violation of Minn.Stat. § 82.27 (2002) and Minn. R....