Westgor v. Grimm

• Citation: 381 N.W.2d 877
• Decision Date: 18 February 1986
• Docket Number: No. C8-85-1173,C8-85-1173
• Parties: Wayne WESTGOR, individually and as a minority shareholder of Winton's, Inc., Respondent, v. Harvey W. GRIMM, et al., Appellants.
• Court: Minnesota Court of Appeals

Page 877

381 N.W.2d 877

Wayne WESTGOR, individually and as a minority shareholder of Winton's, Inc., Respondent, v. Harvey W. GRIMM, et al., Appellants.

No. C8-85-1173.

Court of Appeals of Minnesota.

Feb. 18, 1986.

Syllabus by the Court

The trial court erred by holding appellant in contempt when he had not personally appeared before the court for examination, by awarding a $5,000 "penalty" for contempt, and by awarding excessive attorney's fees.

Ronald L. Snelling, Olsen, Snelling & Christensen, Minneapolis, for respondent.

William F. Kolbinger, Big Lake, for appellants.

Heard, considered and decided by LANSING, P.J., and HUSPENI and LESLIE, JJ.

OPINION

LANSING, Judge.

Harvey Grimm appeals from a judgment awarding respondent Wayne Westgor $5,000 as a "penalty" for Grimm's constructive civil contempt and $2,500 for attorney's fees incurred in prosecuting the contempt proceedings. We reverse and remand.

FACTS

In 1976 Wayne Westgor, a minority shareholder of Winton's, Inc., brought this action on behalf of himself and the corporation against its officers and directors (Harvey Grimm, Charles Grimm and Arlene Grimm). He sought an involuntary dissolution of the corporation, an accounting, and damages. The trial court directed a verdict for the defendants at the close of Westgor's case-in-chief. On appeal the supreme court held that the trial court properly dismissed the claim for involuntary dissolution and any individual cause of action Westgor asserted. See Westgor v. Grimm, 318 N.W.2d 56, 58 (Minn.1982). The supreme court also held that Westgor had successfully pled an action for breach of fiduciary duty and had presented sufficient evidence to shift the burden to the Grimms to show that certain transactions were in the corporation's interest. The court remanded for the trial court to "(1) take testimony from defendants' witnesses, (2) make the necessary factual findings, and (3) conduct an accounting of Winton's." Id. at 59.

On remand the trial court issued an order dated May 2, 1983, ruling the Grimms failed to show that the sale of a corporate asset (a model home) to Charles Grimm was an arms-length bargain in the interest of the corporation. The Grimms were ordered to repay to Winton's any corporate funds used to maintain the model home after its sale to Charles Grimm.

At the same time the trial court ordered the Grimms

to account, in writing, to the Court and Mr. Westgor, for all assets of the corporation since its inception until the present time, including a breakdown of all moneys, receipts and property, profits and losses, and loans to the corporation by various officers. Said accounting, in writing, shall be sent to this Court's attention and to Mr. Westgor by June 3, 1983.

The Grimms did nothing to comply with this order, and on August 6, 1983, Westgor personally served a motion and order to show cause on Harvey Grimm, seeking to have him held in contempt for not obeying the order of accounting. In response, Grimm mailed updated balance sheets and income statements to Westgor.

Grimm did not appear at the motion hearing held on December 23, 1983. The trial court issued an order dated January 16, 1984, holding Grimm in contempt for failing to provide a sufficient accounting. The order was conditional and allowed Grimm to purge himself by complying with the accounting order by February 15, 1984. If Grimm failed to comply, a local CPA was to provide the accounting, and Grimm was to pay for it. Westgor requested and received $500 in attorney's fees for bringing the motion.

Grimm did not comply with the order. On May 17, 1984, he was again served with an order to show cause and a motion to hold him in contempt. The motion was heard May 25, 1984. Grimm did not appear, but his attorney did. On June 6 the court ordered that a warrant issue for Grimm's arrest and awarded another $500 in attorney's fees to Westgor.

On August 3, 1984, Grimm mailed to the trial court an unaudited "Statement of Changes in Cash Balances" for Winton's for the period 1967 to 1983. The trial court, on its own motion, then issued an order to Westgor to show cause why the court should not accept this set of figures as the required "accounting."

Grimm was not present at the hearing on October 25, 1984, but his attorney was. The trial court found that Grimm's "Statement of Cash Balances" did not satisfy the requirements of the accounting order. The trial court again held Grimm in contempt, awarded additional attorney's fees in the amount of $1,500 to Westgor, and ordered Grimm to pay Westgor $5,000 as a "penalty for * * * contempt." Despite the fact that the order to show cause did not indicate or specify that any of the above actions were contemplated, there was no objection to the lack of notice, the trial court's contempt ruling, the imposition of the $5,000 penalty, or the award of $1,500 in attorney's fees.

The written order dated January 9, 1985, required Grimm to pay $7,500 to Westgor ($5,000 contempt penalty, $1,500 attorney's fees, plus $1,000 attorney's fees for prior motions) within 30 days of the date of the order. Westgor, upon receipt of the $7,500, was to tender to Grimm his shares of Winton's, Inc. The money was not paid, and a judgment for $7,500 was entered in favor of Westgor.

ISSUE

Did the trial court err in holding Grimm in contempt, awarding the $5,000 penalty, and awarding attorney's fees?

ANALYSIS

Failing to obey a court order in favor of an opposing party in a civil proceeding constitutes constructive civil contempt punishable and enforceable by fine or imprisonment. Minn.Stat. Sec. 588.01, subd. 3(3) (1984); Minnesota State Bar Association v. Divorce Assistance Association, Inc., 311 Minn. 276, 285, 248 N.W.2d 733, 741 (1976). A court, however, does not have authority to adjudge a person guilty of constructive civil contempt unless the person has first appeared before the court, voluntarily or involuntarily, and been examined. Minn.Stat. Secs. 588.09-.10 (1984); Clausen v. Clausen, 250 Minn. 293, 296-99, 84 N.W.2d 675, 678-80 (1957). See also Smoot v. Smoot, 329 N.W.2d 829, 832 (Minn.1983) (court may find a person in constructive civil contempt without appearance if contemnor submits affidavit admitting contempt).

Grimm was held in conditional contempt at the December 23, 1983, hearing and adjudged in contempt in the order issued from the October 25, 1984, hearing. Grimm was not brought before the court at either hearing, was not personally examined, and did not submit affidavits admitting any violations of the trial court's orders. The trial court was empowered to order Grimm's arrest or continue the matter and again order him to appear. See Minn.Stat. Sec. 588.04, Sec. 588.14; Clausen, 250 Minn. at 296-99, 84 N.W.2d at 678-79. It was error for the trial court to hold Grimm in contempt without securing his presence. ¹

Grimm also challenges the award of attorney's fees and the $5,000 "penalty." Minn.Stat. Sec. 588.11 (1984) provides:

If any actual loss or injury to a party in an action * * *, prejudicial to his right therein, is caused by such contempt, the court * * * may order the person guilty of the contempt to pay the party aggrieved a sum of money sufficient to indemnify him and satisfy his costs and expenses, including a reasonable attorney's fee incurred in the prosecution of such contempt * * *.

The indemnity must be based on proof of damages actually suffered or it cannot be sustained. Campbell v. Motion Picture Machine Operators, 151 Minn. 238, 242, 186 N.W. 787, 789 (1922). In Campbell the trial court ordered the contemnor to pay the plaintiff $125 "for the benefit of plaintiff." The supreme court reversed, stating:

The statute [identical to Sec. 588.11] does not authorize the court to impose a penalty on [contemnor] for the benefit of plaintiff. It...