Four Seasons Automotive Services, Inc., Respondent, vs. Joan Neubauer, et al., Appellants.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C6-03-68

 

Four Seasons Automotive Services, Inc.,

Respondent,

 

vs.

 

Joan Neubauer, et al., Appellants.

 

 

Filed September 23, 2003 Affirmed in part, reversed in part, and remanded Randall, Judge

 

 

Washington County District Court

File No. C0-98-5214

 

 

Matthew A. Drewes, Thomsen & Nybeck, P.A., 3300 Edinborough Way, Suite 600, Edina, MN 55435; and

 

Lonny D. Thomas, Thomas & Associates P.A., 35258 County Road 3, P.O. Box 720, Crosslake, MN 56442 (for respondent)

 

Walter J. Gates, III, Walter J. Gates, III, P.A. 510 Long Street, Suite 109, P.O. Box 3008, Mankato, MN 56002 (for appellants)

 

 

            Considered and decided by Randall, Presiding Judge, Halbrooks, Judge, and Hudson, Judge.

 

U N P U B L I S H E D   O P I N I O N

RANDALL, Judge

            Appellants contend that the district court erred by (1) allowing respondent's expert to testify and failing to properly credit offsets against the damage award, and (2) denying their post-trial motions.  Because we find no error in allowing respondent's expert testimony or denying appellants post-trial motions, we affirm those decisions.  However, we reverse and remand for the district court to consider appellant's claimed entitlement to an offset. 

FACTS

            Appellants own a parcel of land (the Plaza).  In  1993, they entered into a five-year, renewable lease with respondent, whereby respondent would operate a filling station on a portion of this land.  In 1997, environmental regulations changed in such a way that the large underground fuel-storage tank for the filling station needed to be removed or changed. Respondent contacted appellants, claim that appellants must pay for this work under the lease.  Nothing was done about this until after the time to renew the lease had expired.  Throughout this time period, appellants were engaged in negotiations to sell the Plaza to another entity.  The sale could not be completed while respondent still had possession of the filling station. 

            In 1998, respondent initiated a declaratory-judgment action seeking to force appellants to repair the tank so that they could continue running the filling station at that location.  On February 10, 1999, the district court granted a permanent injunction in favor of respondent concluding that appellants were required to pay for the tank repair and that the lease had been extended.  No appeal was taken from this injunction order.  More than a year later, appellants moved to vacate the injunction order and the district court denied this motion.  On appeal, we affirmed, concluding the permanent injunction order had become the law of the case, as it was not appealed.  Four Seasons Automotive Services v. Estate of Habinger, 2001 WL 881474, No. C6-01-34 (Minn. App. Aug. 7, 2001).    

            A trial was set to resolve the only remaining issue: damages.  All issues of liability were decided by the permanent injunction order. D E C I S I O N             Appellants raise six issues, most of which are not properly before us.  Appellants' issues 1, 2, and 3 relate to liability and were settled by the permanent injunction order that this court has already held to be the law of the case.  Issue 4 deals with including portions of the contract on the special verdict form.  This is no longer at issue as the trial was solely to determine damages.  The remaining issues, appellants' 5 and 6 are: (5) Whether the district court abused its discretion by admitting the expert testimony of Kelley Wheeler; and (6) Whether the district court erred by denying appellant's post-trial motions for JNOV, conditional remittitur, and a new trial.

I.

            First, appellants argue that the district court erred by allowing Wheeler to testify because he was not competent to do so.  Appellants also argue that the formula Wheeler used to calculate damages is not accepted within the accounting profession and did not use appropriate numbers for gross income, gross profit, overhead expenses and net profit or loss. 

            Trial courts are given wide discretion in decisions on the admissibility of expert testimony.  The Minnesota Supreme Court has stated:  "[I]t has long been the law in this state that evidentiary rulings, including a decision to exclude expert testimony, lie within the sound discretion of the trial court."  Benson v. Northern Gopher Enterprises, Inc., 455 N.W.2d 444, 445 (Minn. 1990).  "A trial judge is given wide latitude in determining whether there is sufficient foundation upon which an expert may state an opinion."  Id. at 446.  "Even if this court would have reached a different conclusion as to the sufficiency of the foundation, the decision of the trial judge will not be reversed absent clear abuse of discretion."  Id.  "Rather, our standard of review places the responsibility for evidentiary rulings squarely with the trial judge."  Id. (quotation omitted).

The main dispute between the experts is how one should characterize profit.  Wheeler's essential point is that to avoid double taxation, the owners of the business (who he accepted to be Rick and Christina Wilson) would zero out the profits of the business by giving it to themselves in the form of salary.  Thus, when looking at the tax returns and seeing very little profit or a loss, one could not see the true profitability of the business.  To correct this deficiency, Wheeler's method sought to measure the "cash available to owners" and thereby come up with a more useful measure of the business.  Wheeler did so, setting the final lost profit calculation at around $250,000. 

Mr. Kenyon, appellants' expert witness, disputed the methodology used by Wheeler as well as his failure to adequately address assets that were transferred to respondent's other gas station that should count as offsets to any claims of loss.  Kenyon attacked almost every portion of Wheeler's analysis and stated that he had never seen anything like it before. 

A few things are clear after reviewing the voluminous examination of both experts:  (1) both are experienced CPAs who understood what they were dealing with and the court did not abuse its discretion by finding them both experts; (2) the records kept by respondents were not ideal and this left many of the smaller questions unanswerable by the experts; (3) Wheeler's theory of the profits of the business makes sense for this small business, even though it is not Generally Accepted Accounting Principals (GAAP) accounting; (4) Kenyon's assessment does not account for the fact that the Wilsons' salary varied widely with the state of the business and bore no relationship whatsoever to the hours worked; and (5) Wheeler's analysis does not seem to adequately discount the left-over items (some tools, shelving, etc.) that respondents removed and used in their other filling station. 

Respondent correctly asserts that there is no single method of determining lost profits in this state.  The Minnesota Supreme Court has stated:

The general rule in Minnesota is that damages in the form of lost profits may be recovered where they are shown to be the natural and probable consequences of the act or omission complained of and their amount is shown with a reasonable degree of certainty and exactness. This means that the nature of the business or venture upon which the anticipated profits are claimed must be such as to support an inference of definite profits grounded upon a reasonably sure basis of facts.  This rule does not call for absolute certainty.  The controlling principle is that speculative, remote, or conjectural damages are not recoverable.

 

Cardinal Consulting Co. v. Circo Resorts, Inc., 297 N.W.2d 260, 266-67 (Minn. 1990) (citations omitted).  In addition, "[d]amages for loss of profits will not be denied merely because of the difficulty of ascertaining them."  Polaris Industries v. Plastics, Inc., 299 N.W.2d 414, 419 (Minn. 1980). 

            The real issue is not whether lost profits can be recovered, it is clear that they can.  The dispute is whether this business had any profits.  There were two competing experts that answered this question differently.  Appellants cite no authority for their implicit contention that testimony must be based on GAAP to be competent.  In fact, this contention is easily defeated by the language quoted above.  The evidence must be able to support an "inference" that is "grounded upon a reasonably sure basis of fact."  GAAP accounting is neither the exclusive way, nor is it the only reasonable way to do so.  Wheeler's method, based on his experience, comports with the realities of this small business.  In fact, Kenyon also testified that a small business might pay out profit in the form of increased compensation to the owners to minimize taxes. 

Appellants' reliance on Frye v. United States, 293 F. 1013 (D.C. Cir. 1923) is unconvincing.  Frye and the cases following Frye concern junk areas of expert testimony, but not the experts themselves.  The Frye analysis is most often applied to an area of expertise itself.  The explicit mathematical model Wheeler used is difficult to discern, but the theory he was proceeding under is not unique.  It is but one way to evaluate the profitability, and therefore predict profits of, a small business that has tax incentives to zero out profit.  We cannot conclude the district court abused its discretion by allowing Wheeler's testimony.

However, despite the fact that the court could properly credit Wheeler's testimony, it is clear that appellants are entitled to setoffs for any equipment that was moved to respondent's other filling station.  Kenyon's testimony considered these items while it appears that Wheeler's did not.  Without counting these items, appellants are being compensated for a loss they did not incur.  We therefore reverse the damages award and remand the case to the district court to determine the value, if any, of items that were taken to respondent's other location and adjust the damage award as the court deems appropriate.

II.

Appellants argue that they are entitled to JNOV, conditional remittitur, and/or a new trial because: (1) the verdict was unsupported by the evidence; (2) the jury accepted Wheeler's account, not Kenyon's; and (3) alleged misconduct of respondents' attorney. 

We review the denial of a motion for JNOV de novo.  Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998).  Where JNOV has been denied by the trial court, on appellate review the denial "must be affirmed, if, in the record, there is any competent evidence reasonably tending to sustain the verdict."  Id. (quotation omitted).  "Unless the evidence is practically conclusive against the verdict, this court will not set the verdict aside."  Id. (quotation omitted).  "The evidence must be considered in the light most favorable to the prevailing party and an appellate court must not set the verdict aside if it can be sustained on any reasonable theory of the evidence."  Id.

"On appeal from a denial of a motion for a new trial, the verdict must stand unless it is manifestly and palpably contrary to the evidence, viewed in a light most favorable to the verdict."  ZumBerge v. Northern States Power Co., 481 N.W.2d 103, 110 (Minn. App. 1992) (citation omitted), review denied (Minn. Apr. 29, 1992).

Appellants' claim for conditional remittitur repeats its argument that the jury should have accepted Kenyon's methods over Wheeler's.  The JNOV motion asks essentially the same thing.  Having concluded that the evidence was properly admitted, we see no error in the district court's denial of these motions.

Appellants' headings in their brief assert two errors made by counsel: (1) use of the word "profits;" and (2) stating that counsel kept the corporate records and that the Wilsons are the owners of the company. 

"The decision whether to grant a new trial due to improper argument by counsel rests almost entirely within the discretion of the trial court and should not be reversed on appeal absent a clear abuse of discretion."  Sather v. Snedigar, 372 N.W.2d 836, 838 (Minn. App. 1985).  In addition, "[t]he purpose of a new trial is not to punish counsel, but to cure prejudice."  Id. at 839.  Only where the misconduct of counsel clearly results in prejudice to the losing party is a new trial warranted.  Id.

In denying the motion for a new trial, the court stated:

The court has examined [appellants] allegations.  There was reference in the testimony as to the ownership of the [respondent] company.  There is also no error in stating the least agreement did not apply to [respondent'] claim.  Prior Orders of the Court had decided the issues with respect to the parties' responsibility under the lease and had limited this trial to damages only. 

 

This implies the district court found no error.  Neither do we.  We need not reach the issue of whether respondent's counsel committed misconduct because appellant has failed to show any clear prejudice.  In fact, appellants failed to even argue prejudice, instead, simply relying on their assertion of error.  The district court's denial of appellants' motion for a new trial is affirmed.

Affirmed in part, reversed in part, and remanded.