Weiss v. Private Capital, LLC
| Decision Date | 25 August 2014 |
| Docket Number | A13-2029 |
| Parties | Lee D. Weiss, Plaintiff, Weiss Capital Real Estate Group, LLC, Respondent, v. Private Capital, LLC, et al., Appellants. |
| Court | Minnesota Court of Appeals |
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2012).
Reversed and remanded
Hennepin County District Court
Michael Paris, Nystrom, Beckman & Paris LLP, Boston, Massachusetts; and
Eric R. Sherman, Vernle C. Durocher, Jr., Dorsey & Whitney, LLP, Minneapolis, Minnesota (for respondent)
Bruce G. Jones, Tyler A. Young, Faegre Baker Daniels LLP, Minneapolis, Minnesota (for appellants)
Considered and decided by Peterson, Presiding Judge; Schellhas, Judge; and Connolly, Judge.
UNPUBLISHED OPINION
In this appeal from the denial of their motion for judgment as a matter of law, appellants argue that respondent's conversion claim fails because it does not allege a tort independent of the parties' contract; in the absence of an independent tort, punitive damages may not be awarded; and the evidence does not support the damages awarded for breach of contract. We reverse and remand.
Lee Weiss is a financial professional with more than 20 years of experience in the financial-services industry. In June 2007, Weiss decided to invest in appellant Private Capital, LLC, a real-estate-development company focused on properties in North Carolina. Weiss formed respondent Weiss Capital Real Estate Group, LLC, for the purpose of making the investment.
On June 28, 2007, Private Capital's manager, appellant K. Scott Fischer, sent Weiss an e-mail that states:
Attached is the Operating Agreement for Private Capital LLC and Schedule A reflecting the future ownership. . . . To confirm our conversation this morning, you will invest $500,000 into Private Capital LLC which will entitle you to 1) a 25% return on that capital until it is repaid, and 2) 18% of all profits on any Private Capital deals (other than Derbyshire, which has its own separate arrangement).
Weiss read the attached Private Capital operating agreement, signed it, and sent it back to Fischer. The operating agreement states:
Without the consent of the Manager, no Member shall be entitled to a return of its Capital Contributions except by way of the distribution to it of assets upon the dissolution of the Company pursuant to the provisions of this Agreement. No interest shall be allocated to any Member on the amount of its Capital Account.
On August 23, 2007, Weiss Capital wired $250,000 to Fischer. Fischer allocated $75,000 of that amount to Vein Mountain, LLC, a landholding company for which Private Capital was the developer, and $175,000 to Private Capital. At Fischer's request, Weiss agreed to advance an additional $750,000 to Private Capital as a loan. On September 17, 2007, Weiss Capital wired $1 million to Private Capital's bank account ($250,000 to complete the $500,000 equity investment and $750,000 for the loan). Fischer allocated $500,000 of that amount as an equity stake in Vein Mountain and $500,000 as an equity stake in Camp Creek, another company for which Private Capital was the developer. Weiss admitted that he signed Camp Creek's operating agreement and a conditional guarantee to permit Camp Creek to obtain a loan, but he testified that he signed the documents in his capacity as a partner in Private Capital.
In October 2008, Weiss received partnership tax statements for Vein Mountain, Camp Creek, and Private Capital. The tax statements showed that Weiss Capital had a $175,000 equity interest in Private Capital, a $925,000 equity interest in Camp Creek, and a $550,000 equity interest in Vein Mountain. Weiss testified that he was surprised to receive the tax statements for Vein Mountain and Camp Creek because he never agreed to invest in those companies. Weiss testified that he was shocked that the tax statement for Private Capital showed only a $175,000 investment in that company. Weiss sent aletter to Fischer stating that he disagreed with the allocation of profit, loss, capital, and liability in the tax statements that he received.
Weiss and Weiss Capital brought this lawsuit against appellants alleging a breach-of-contract claim against Private Capital and claims for unjust enrichment, conversion, and fraud against Private Capital and Fischer. Weiss and Weiss Capital sought punitive damages against both Private Capital and Fischer. The case was tried to a jury. The district court granted appellants' motion for a directed verdict on Weiss's and Weiss Capital's claims that appellants fraudulently induced Weiss and Weiss Capital to invest in Private Capital. The jury found Private Capital and Fischer liable to Weiss Capital for conversion and awarded $500,000 in damages. The jury found that Private Capital breached its contract with Weiss Capital and awarded $620,000 in damages. Before the punitive-damages phase of trial, Weiss and Weiss Capital agreed that they would not proceed with a punitive-damages claim against Private Capital. The jury awarded $500,000 in punitive damages against Fischer.
Appellants moved for judgment as a matter of law (JMOL) on multiple grounds, including that Weiss Capital was barred from seeking tort damages and there was no evidence to support the damages award for the breach-of-contract claim. The district court denied appellants' motion and ordered judgment for Weiss Capital in the amount of $620,000 against Private Capital for breach of contract, $500,000 against Private Capital and Fischer on the conversion claim, and $500,000 against Fischer for punitive damages. The district court awarded Weiss Capital $427,475 in attorney fees and $110,834 in costs against Private Capital. Judgment was entered accordingly. This appeal followed.
This court reviews the district court's denial of JMOL de novo. Bahr v. Boise Cascade Corp., 766 N.W.2d 910, 919 (Minn. 2009). JMOL should be granted:
only in those unequivocal cases where (1) in the light of the evidence as a whole, it would clearly be the duty of the [district] court to set aside a contrary verdict as being manifestly against the entire evidence, or where (2) it would be contrary to the law applicable to the case.
Jerry's Enters., Inc., v. Larkin, Hoffman, Daly & Lindgren, Ltd., 711 N.W.2d 811, 816 (Minn. 2006) (quoting J.N. Sullivan & Assocs., Inc. v. F.D. Chapman Constr. Co., 304 Minn. 334, 336, 231 N.W.2d 87, 89 (1975)); see also Glorvigen v. Cirrus Design Corp., 796 N.W.2d 541, 549 (Minn. App. 2011), aff'd 816 N.W.2d 572 (Minn. Jul. 18, 2012). In denying appellants' motion for JMOL, the district court rejected appellants' arguments that Weiss Capital was barred from seeking tort damages and that there was no evidence to support the damages awarded for the breach-of-contract claim.
A party may not recover tort damages for a breach of contract, "except in exceptional cases where the defendant's breach of contract constitutes or is accompanied by an independent tort." Wild v. Rarig, 302 Minn. 419, 440, 234 N.W.2d 775, 789 (1975) (citations omitted); see also Glorvigen v. Cirrus Design Corp., 816 N.W.2d 572, 584 (Minn. 2012) (stating that "[b]ecause of the differences between tort and contract actions, '[w]hen a contract provides the only source of duties between the parties, Minnesota law does not permit the breach of those duties to support a cause of action in negligence.'" (quoting United States v. Johnson, 853 F.2d 619, 622 (8th Cir. 1988))."When the gravamen of the complaint is the breach of contract, the plaintiff may not recover tort damages." McNeill & Assocs., Inc. v. ITT Life Ins. Corp., 446 N.W.2d 181, 185 (Minn. App. 1989), review denied (Minn. Dec. 1, 1989). Hanks v. Hubbard Broad., Inc., 493 N.W.2d 302, 308 (Minn. App. 1992), review denied (Minn. Feb. 12, 1993). The existence of a legal duty independent of the contract is a question of law, which is reviewed de novo. Id. at 307.
"Conversion is the wrongful exercise of dominion or control over the property of another." Bates v. Armstrong, 603 N.W.2d 679, 682 (Minn. App. 2000), review denied (Minn. Mar. 14, 2000). "Conversion may be established by proof of some act that changes the character of the property or permanently deprives the owner of it." Id.
Weiss Capital's conversion claim is that appellants changed Weiss Capital's $500,000 equity investment in Private Capital into equity in other entities.1 To recover tort damages for this claim, Weiss Capital needed to show that changing the character of its equity investment in Private Capital breached a duty that arose from a relationship between Weiss Capital and Private Capital, rather than from a contractual duty.
The district court concluded that, because changing the character of Weiss Capital's investment was a separate wrong independent of Private Capital's contractualduty to pay Weiss Capital interest on its investment,2 Weiss Capital's conversion claim was not barred. But the fact that changing the character of Weiss Capital's investment and failing to pay interest on the investment were separate, independent wrongs does not mean that changing the character of the investment breached a duty that was independent of the parties' contract.
Weiss Capital has not identified any duty independent of the parties' contract that was breached by changing the character of its equity investment in Private Capital. Section 6.2(a) of the operating agreement states that Under this provision,...
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