Metro Sales, Inc. v. Core Consulting Grp., LLC

• Decision Date: 26 July 2017
• Docket Number: Civil No. 15–3233 (DWF/SER)
• Citation: 275 F.Supp.3d 1023
• Parties: METRO SALES, INC., Plaintiff, v. CORE CONSULTING GROUP, LLC and Rodger Mohagen, Defendants. and Core Consulting Group, LLC, Counter–Claimant, v. Metro Sales, Inc., Counter–Defendant.
• Court: U.S. District Court — District of Minnesota

275 F.Supp.3d 1023

METRO SALES, INC., Plaintiff,

v.CORE CONSULTING GROUP, LLC and Rodger Mohagen, Defendants.andCore Consulting Group, LLC, Counter–Claimant,

v.Metro Sales, Inc., Counter–Defendant.

Civil No. 15–3233 (DWF/SER)

United States District Court, D. Minnesota.

Signed July 26, 2017

Gretchen L. Gurstelle, Esq., Karla M. Vehrs, Esq., and Sarah Pruett, Esq., Lindquist & Vennum LLP, counsel for Plaintiff.

Kasey D. McNary, Esq., and Ronald H. McLean, Esq., Serkland Law Firm, counsel for Defendants.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, United States District Judge

INTRODUCTION

This matter is before the Court on a Motion for Summary Judgment brought by Plaintiff Metro Sales, Inc. ("MSI"). (Doc. No. 59.) Also before the Court is MSI's Motion to Exclude Expert Testimony. (Doc. No. 62.) Defendants Core Consulting Group, LLC ("Core") and Rodger Mohagen ("Mohagen") (collectively, "Defendants"), oppose the motions. (Doc. Nos. 72, 73.) For the reasons set forth below, the Court grants the motions, in part, consistent with this opinion. As outlined below, the following claims will proceed to trial: (1) Plaintiff's breach-of-fiduciary-duty and declaratory judgment claims; and (2) Core's breach-of-contract and deceit counterclaims.

BACKGROUND

Jerry Mathwig ("Mathwig") is the founder and president of Metro Sales, Inc., a Minnesota corporation that provides and services office equipment. (Doc. No. 75 ("McNary Decl.") ¶ 3.bb, Ex. 28 ("Mathwig Dep.") at 21:20–22, 23:16–18, 28:15–23, 35:14–19.) This case relates to MSI's efforts to pursue an employee stock ownership plan ("ESOP")¹ for the company in late 2014 through the spring of 2015 in consultation with Core Consulting Group, LLC.

I. The First Consulting Agreement

In an October 2, 2014 e-mail, Mathwig reached out to Core, a North Dakota company that provides professional ESOP services. (McNary Decl. ¶ 3.c, Ex. 3.) Mathwig sent the e-mail to Core's president, Rodger Mohagen, asking if he and his company would be interested in discussing a possible ESOP for a Minneapolis company. (Id. ) Mohagen's response was positive, and the parties signed an initial Consulting Agreement (the "First Consulting Agreement") effective October 30, 2014 for Core to provide MSI with an ESOP "feasibility analysis." (Id. ; Doc. No. 67 ("Vehrs Decl.") ¶ 2, Ex. 3 ("1st CA").) The First Consulting Agreement had the following purposes:

[T]o gather information related to the governance and operations of [MSI] necessary to allow [Core] to determine primary issues to be addressed in [MSI's] formation and ongoing sponsorship of an [ESOP] ... and to present these issues to [MSI] in a form ... which enables [MSI] to make informed decisions in forming and addressing ongoing administration of a[n] ... ESOP.

(Id. , Ex. 1.) In performing the feasibility analysis, Core anticipated that it would "[r]equest and review ... [MSI] documents," and "review and comment on" implementing the ESOP as well as pre- and post-ESOP-formation transaction issues. (Id. ) These services were to run from October 30, 2014 through January 15, 2015. (Id. ) The First Consulting Agreement had "a fixed fee of ... $35,000." (Id. ¶ 2.)

II. The Second Consulting Agreement

MSI and Core entered into another Consulting Agreement (the "Second Consulting Agreement") effective December 16, 2014 with a fixed fee of $25,000. (Doc. No. 1 ("Compl.") ¶ 9, Ex. B ("2nd CA").) The Second Consulting Agreement contained the same provisions as the first, but provided for additional services to run from December 8, 2014 through January 30, 2015. (Id. ; see also 1st CA.) The services in the Second Consulting Agreement focused on designing and drafting documents for the ESOP, such as an ESOP plan document, minutes, and other corporate documents. (2nd CA, Ex. 1.) Core also agreed to counsel MSI on several issues, including the timing of employee notices, provisions to include in the ESOP Document, the accrual and payment of ESOP contributions, and "anticipated income tax benefits." (Id. )

Communication and work on services contained in each of the two signed Consulting Agreements continued after the terms of the contracts ended. The feasibility analysis continued into February 2015, when Mohagen e-mailed Mathwig and noted that Core was "winding up the 'feasibility' portion." (Vehrs Decl. ¶ 2, Ex. 22.) MSI adopted the ESOP plan document on December 30, 2014. (McNary Decl. ¶ 3.i, Ex. 9.) This was before the Second Consulting Agreement's term ended, but some matters relating to this agreement were still in progress in March 2015. (Vehrs Decl. ¶ 2, Ex. 23.) MSI has paid the $60,000 in fixed fees under the First and Second Consulting Agreements. (See Compl. ¶ 12; Doc. No. 47 ("Am. Answer") ¶ 12.) The consulting agreements are governed by North Dakota law. (See 1st CA ¶ 12; 2nd CA ¶ 12.)

III. Additional Fees

As Core's consulting work continued, the parties discussed additional fees and services on numerous occasions. On November 2, 2014, Mohagen sent Steve Zenz ("Zenz"), a member of MSI's board of advisors, a fee estimate. (McNary Decl. ¶ 3.a, Ex. 1; Vehrs Decl. ¶ 2, Ex. 6.) Including the First Consulting Agreement's $35,000 fixed fee, this anticipated fee estimate ranged from $105,000 to $127,500. (Vehrs Decl. ¶ 2, Ex. 6; McNary Decl. ¶ 3.r, Ex. 18.) Mohagen noted that "it is extremely difficult if not impossible to provide an 'estimated fee' " partly because of "the high number of potential issues to be addressed." (Vehrs Decl. ¶ 2, Ex. 6.) He also noted that "if any issues arise in the feasibility analysis, those issues will be resolved outside of a 'simplified' ESOP formation." (Id. ) On November 3, 2014, Zenz e-mailed Mathwig and told him he "let [Mohagen] know we are okay with the feasibility fee and that we want to know in advance if he is going to do anything with an additional fee." (Vehrs Decl. ¶ 2, Ex. 25.)

On March 13, 2015, Mohagen e-mailed Zenz another fee estimate indicating fees of $395,000 plus at least an additional $122,500. (Vehrs Decl. ¶ 2, Ex. 5.) On March 14, 2015, Zenz responded to Mohagen's e-mail, noting that he "was expecting the all-in fee would be around $300k, maybe $350k" and stating that he was "very concerned" about the high fee estimate. (Id. ) On March 25, 2015, Mohagen sent Mathwig an e-mail and attached an anticipated fixed fee schedule for additional services in response to a request from MSI. (Vehrs Decl. ¶ 2, Ex. 6.) The estimated fees totaled $532,500, including the $60,000 already paid. (Id. )

IV. Additional Services

As the engagement continued, Core proposed additional consulting agreements beyond those signed by the parties. On March 25, 2015, Mathwig sent a proposed Consulting Agreement for services totaling $7,500 to be executed from March 2, 2015 through April 30, 2015. (Vehrs Decl. ¶ 2, Ex. 7.) On April 20, 2015, Mohagen e-mailed three new proposed consulting agreements, which were to account for work from March 2, 2015 until June 30, 2015. (Vehrs Decl. ¶ 2, Ex. 11.) The additional fees proposed in these agreements totaled $180,000. (Id. ) Then, Mathwig e-mailed five more proposed consulting agreements on April 23, 2015, totaling $285,000. (Vehrs Decl. ¶ 2, Exs. 12, 13.) The term of these proposed agreements also began on March 2, 2015. (Id. ) Mohagen noted on both April 20, 2015 and April 23, 2015 that Core had already "engaged in significant services related to each of the attached [consulting agreements]." (Vehrs Decl. ¶ 2, Ex. 11; Vehrs Decl. ¶ 2, Ex. 13.)

MSI did not sign any of the additional proposed consulting agreements. (McNary Decl. ¶ 3.w, Ex. 23.) However, the parties dispute whether Mathwig promised to do so. In his deposition, Mohagen asserted that he had a conversation with Mathwig on April 7, 2015, and Mathwig "agreed to all the engagement letters that were the product of the [fixed fee] schedule that he had been provided." (Vehrs Decl. ¶ 2, Ex. 38 ("Second Mohagen Dep.") at 17:24–18:6.) On April 8, 2015, Mohagen wrote to Zenz that "Jerry [Mathwig] did agree to sign engagement agreements and pay fees as we go." (Vehrs Decl. ¶ 2, Ex. 10.) Mathwig does not deny that a phone call occurred on April 7, 2015, but he asserts that he "made no such promise," and noted that he "had not even seen the other proposed agreements as of the date of that phone call." (Doc. No. 66 ("Mathwig Decl.") ¶¶ 5, 6.)

It is also disputed whether MSI knew Core was undertaking additional services beyond the scope of the First and Second Consulting Agreements. Mohagen testified that he informed Mathwig about such services and fees in "personal meetings" or "telephone conferences." (Vehrs Decl. ¶ 2, Ex. 37 ("Mohagen Dep.") at 48:3–24.) Additionally, at least some agenda items and communications appear to include items not explicitly listed in either of the two signed Consulting Agreements. For example, a February 2, 2015 agenda included "NA Trading" and "Treatment of AAA"—both of which were not specifically listed in either of the signed Consulting Agreements. (McNary Decl. ¶ 3.j, Ex. 10; see 1st CA; 2nd CA.) On February 17, 2015, Mohagen also e-mailed Mathwig a summary of anticipated services for moving forward and indicated that some services would be completed immediately. (Vehrs Decl. ¶ 2, Ex. 22.)

However, on March 13, 2015, Mohagen wrote to Zenz that "Core anticipates entering into Consulting Agreements prior to material services being initiated on a particular project within the confines of the overall engagement." (Vehrs Decl. ¶ 2, Ex. 5.) And on March 25, 2015, Mohagen wrote to Mathwig that the First and Second Consulting Agreements for fees of $35,000 and $25,000 "have been engaged, initiated and completed, therefore the services [sic] fees have been set and paid. The remaining services have not as of yet been engaged." (Vehrs Decl. ¶ 2, Ex. 6.)

V. "Halt All Work" Instruction and Termination of the Relationship

On May 6, 2015, the relationship between MSI and Core quickly deteriorated when Mathwig sent Mohagen an instruction "to halt all...