Uselman v. Uselman, s. C9-89-1093

Decision Date14 December 1990
Docket NumberNos. C9-89-1093,C0-89-1094,s. C9-89-1093
Citation464 N.W.2d 130
CourtMinnesota Supreme Court
PartiesMary Ann USELMAN, Barbara Sundby, Mark Uselman, Jane Uselman, Nicolette Montgomery, & Philip Uselman, individually, and Mark Uselman, as a shareholder of Usie Corporation, a Minnesota corporation and Uselman's, Inc., a Minnesota corporation, Appellants (C9-89-1093), v. Jerry L. USELMAN, individually, as President and sole director of Usie Corporation, a Minnesota corporation, and as a former officer and director of Uselman's, Inc., a Minnesota corporation; George J. Uselman, individually, as a former officer and director of Usie Corporation, a Minnesota corporation, and as an officer and director of Uselman's, Inc., a Minnesota corporation; and Norwest Bank Minneapolis, N.A., formerly known as Northwestern National Bank of Minneapolis, trustee for the Nicholas Uselman Trust Agreement, Respondents, and Carol A. O'Toole, Non-Party Appellant (C0-89-1094).

Syllabus by the Court

1. Trial court did not err in denying a trial by jury where plaintiffs' claims remaining for trial were either equitable or derivative in nature.

2. Trial court did not abuse its discretion in disallowing the testimony of witnesses, known to the defendants 18 months earlier, upon defendants' failure to timely disclose their names in response to a court order.

3. Defendants were not prejudiced where an imposed evidentiary requirement was but one of several factors the trial court considered in its valuation decision and where trial court's denial of recusal motions did not deprive defendants of their right to a fair trial.

4. Trial court erred in imposing sanctions against defendants' counsel pursuant to Minn.Stat. Sec. 549.21 (1982) and Minn.R.Civ.P. 11 (1984).

5. In imposing sanctions pursuant to Minn.R.Civ.P. 11 (1989), the trial court should notify counsel or the party of the possibility of a sanction and the basis upon which it is proposed and provide counsel or the party with a meaningful opportunity to respond.

James H. Kaster, Jeffrey Anderson, Minneapolis, for Mary Ann Uselman, et al.

David F. Herr, Mary R. Vasaly, Minneapolis, for Carol A. O'Toole.

Thomas S. Fraser, Minneapolis, for George & Jerry Uselman.

Robert L. Meller, Jr., Minneapolis, for Norwest Bank.

Corey J. Ayling, Minneapolis, for amicus curiae, Civil Lib. Union.

Robert Hicks, MN. Civil Lib. Union, David L. Lillehaug, Minneapolis, amicus curiae, for MN. State Bar Assoc.

Peter W. Riley, Minneapolis, amicus curiae, for MN. Trial Lawyers Assoc.

Mark M. Nolan, St. Paul, amicus curiae, for Certified Trial Lawyers of MN.

Heard, considered and decided by the court en banc.

WAHL, Justice.

We accelerated review of judgments entered in favor of defendants Jerry L. Uselman, George J. Uselman and Norwest Bank on the merits of the complaint and amended complaints of plaintiffs Mary Ann Uselman, et al. for the purpose of considering within the context of this appeal the propriety of the trial court's imposition of sanctions and costs in the aggregate amount of $190,200 against plaintiffs' counsel Carol O'Toole pursuant to Minnesota Statute Section 549.21 and Minn.R.Civ.P. 11. 1 We consolidated separate appeals of the plaintiffs and O'Toole and affirm the judgment against the plaintiffs and reverse the award of sanctions imposed against O'Toole.

Attorney Carol O'Toole was retained by plaintiffs Mary Ann, the surviving spouse of Nicholas, and their five children and she commenced this action on April 3, 1984 to obtain rescission of the sale of the stock held by Nicholas but transferred on his death to the trust administered by Norwest. In essence, they claimed that the bank had breached its fiduciary duty and was negligent in selling the stock for less than its fair market value. As to the defendants Jerry Uselman and George Uselman, the plaintiffs raised specific claims of conversion of corporate assets, misappropriation, breach of fiduciary duty and misrepresentation and sought disgorgement of monies wrongfully taken or, as an alternative, compensatory damages as well as punitive damages. The facts underlying this controversy may be briefly stated.

On October 14, 1971, Nicholas Uselman executed an insurance trust agreement, naming Northwestern National Bank of Minneapolis (now Norwest) as trustee. The agreement provided that Nicholas would designate Norwest as beneficiary under certain insurance policies and would authorize Norwest to receive and distribute all property transferred to the trust. Upon Nicholas' death, Norwest was to distribute the income from the trust to his surviving spouse Mary Ann on a periodic basis. Mary Ann and Nicholas' children held contingent and remainder interests in the trust.

Nicholas' last will and testament, also executed on October 14, 1971, devised the residue of his estate to Norwest as trustee, nominating Norwest as executor and providing that Mary Ann could become a co-executor if she so desired. Nicholas died on April 11, 1975. The bulk of his estate was shares of stock in the family's closed corporations, Uselman's, Inc., an International Harvester and truck dealership (the Dealership), and Usie Corporation, a real estate holding company (Usie). Usie, formed in 1969 by brothers George, Nicholas and Michael Uselman, owned the Dealership properties, a separate commercial building and a farm. As of January 4, 1975, there were 920 Dealership shares outstanding, of which Nicholas held 315 shares (34%) with the remainder held by other Uselmans, George (540 shares--59%), Jerry (35 shares--4%), Michael (25 shares--3%) and Nicholas' son Mark (5 shares--1%). On August 12, 1974, there were 250,000 Usie shares outstanding, of which Nicholas held 34,000 shares (14%), with the remainder held by George, (147,500 shares--59%), Michael (30,167 shares--12%), Jerry (20,667 shares--8%) and Mark (17,666 shares--7%).

Luther Nervig, an attorney who probated the will and who allegedly at times also represented the family corporations, recommended that Mary Ann and her son Mark Uselman serve as co-executors. Accordingly and apparently at Nervig's suggestion, Norwest waived its right to act as administrator and executed a declination to file with the petition for allowance of the will. The proceeds of Nicholas' insurance policies, approximately $46,000, were paid to Norwest several months after his death. However, the Wadena County Probate Court did not issue its decree distributing the shares to Norwest as trustee until December 5, 1979, nearly 4 1/2 years after Nicholas' death. During this interim, Mary Ann received no salary, bonuses, dividends or any income from the shares held by the estate. In addition, despite detailed procedures for the sale of corporate stock contained in Usie's articles of incorporation, 2 no sale of any of the stock occurred until almost 5 years after Nicholas' death. It should also be noted that despite Norwest's declination of its appointment as executor, it actively involved itself in all sales negotiation; its trust officer met with all parties on several occasions and, it arranged in 1981, at plaintiffs' request, to obtain an independent real estate appraisal of the Usie properties.

The separate trust agreement, on the other hand, gave Norwest the unqualified right to sell the shares without the approval of any court or person. It thus executed redemption and purchase agreements without the assent of the beneficiaries. There were ultimately two separate stock sales representing Nicholas' interest in the separate corporations: on January 21, 1980, approximately one month after the stock was decreed to the trust, Norwest and the Dealership executed a redemption agreement whereby the corporation repurchased the 315 shares for $319.38 per share. 3 On April 25, 1983, Norwest and Usie executed a stock purchase agreement whereby Usie repurchased 34,000 shares at $1.32 per share, later increased by approximately $.44 per share for a total purchase price of $59,700. That agreement was executed by Jerry as president and secretary-treasurer of the corporation. That history served as the predicate for this action.

Recognizing the considerable sanction imposed on counsel, we find it necessary to detail the extensive pre-trial proceedings in which the parties and two successive trial judges engaged during the period from the filing of the complaint on April 3, 1984 and the commencement of trial on February 1, 1988. The multiple and often duplicative motions provided the court with several opportunities to caution counsel if it identified circumstances warranting sanctions or to simply dismiss the complaint--it did neither. Included in these motions were the plaintiffs' two attempts to amend their complaint, Norwest's motion for a stay and a series of motions by defendants for dismissal or summary judgment of all or portions of the plaintiffs' complaint. By the time the first pre-trial judge's participation was completed, the defendant Norwest's motion to deny the plaintiffs' demand for a jury trial had been granted subject to the empaneling of an advisory jury and the plaintiffs had been cautioned about their burden of proof with regard to their punitive damages claim. Issues for trial had been narrowed considerably and defendants' motions to dismiss the Uselman children as plaintiffs had been denied on the basis of their present and contingent interests in the trust. Finally, defendants' summary judgment motions were denied on the basis that genuine issues of material fact existed with regard to allegations relating to misrepresentations, breaches of fiduciary duty, failure to activate buy-sell agreements and failure to seek outside purchasers.

Then, after the second trial judge was assigned, defendants unsuccessfully renewed their motion for summary judgment. Shortly before trial, the defendants Uselman filed a motion to deny the plaintiffs' demand for a jury trial with regard to any claims against them, asserting that...

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