author: BLATZ, Chief Justice.

text:
    Fithi Chernet ASFAHA, Petitioner, Appellant, v. STATE of Minnesota, Respondent.
    No. C6-02-691.
    Supreme Court of Minnesota.
    July 24, 2003.

      Leslie J. Rosenberg, Assistant State Public Defender, Minneapolis, MN, for Appellant.
    Michael A. Hatch, Minnesota Attorney General, St. Paul, MN, Raymond F. Schmitz, Olmsted County Attorney, James E. Haase, Assistant Olmsted County Attorney, Rochester, MN, for Respondent.
   OPINION

BLATZ, Chief Justice.

Appellant Fithi Chernet Asfaha, a juvenile, was certified as an adult, pleaded guilty to first-degree assault, and received a 98-month sentence. The sentence was stayed and he was placed on probation. As one of his probation conditions, the district court ordered Asfaha to successfully complete treatment at a residential treatment facility. Subsequently, Asfaha violated his probation and the court executed his 98-month sentence. Concluding that placement at the residential treatment facility was functionally equivalent to placement at a juvenile correctional facility, the court granted Asfaha jail credit for the 288 days spent in the residential treatment facility. On appeal, the court of appeals held that the sentencing guidelines do not allow jail credit for time served in a residential treatment facility and reversed the district court. In this appeal, Asfaha challenges the denial of jail credit on two grounds. First, Asfaha contends that to insure proportionality in sentencing, the appropriate test for granting jail credit should be whether the defendant is in custody and not simply the official name of the facility. Second, Asfaha asserts that awarding jail credit to some and not other similarly situated individuals violates the equal protection and due process clauses of the federal and state constitutions. Because we hold that fairness and equity require jail credit be granted for confinement in facilities that are the functional equivalent of a jail, workhouse, or regional correctional facility, we reverse the court of appeals and reinstate the district court’s ruling.

On May 7, 1996, Asfaha, then age 16, was certified as an adult pursuant to Minn. Stat. § 260.125 (1996) (repealed and reenacted by Act of May 11, 1999, ch. 139, art. 2, § 11, art. 4, § 3, 1999 Minn. Laws 583, 589-591, 692, codified at Minn.Stat. § 260B.125 (2002)) and, as part of a plea agreement, pleaded guilty to one count of first-degree assault under Minn.Stat. § 609.221 (1994) (current version at Minn. Stat. § 609.221, subd. 1 (2002)). At the time, Asfaha was on probation for several juvenile offenses for which he had been adjudicated delinquent. As part of the plea agreement, the state agreed to recommend a stay of execution of the presumptive prison sentence provided that Asfaha complete the previously imposed juvenile probation conditions, as well as those probation conditions imposed in the present case. The stay was also contingent on Asfaha testifying truthfully against the two co-defendants in the underlying case.

One of the probation conditions imposed was that Asfaha enter and successfully complete the Intensive Treatment Center program (ITC) at the Bar-None facility (Bar-None) in Anoka, Minnesota, a locked program for juveniles with severe conduct disorder. Asfaha entered the ITC on June 13, 1996 and, while in the program, resided in the Lakeview living unit in the ITC building. The literature describing the ITC provides that placement in the program is court-ordered and is for juveniles who have been adjudicated delinquent and often have a history of numerous therapeutic interventions and placement failures. The literature further notes that the ITC “provides a high level of security to guarantee public safety and to assure that residents remain in the program while in treatment.” Asfaha spent 288 days in the ITC, successfully completing the program on March 28, 1997.

After his discharge from Bar-None, Asfaha violated several conditions of his probation, leading the district court to revoke probation and execute the prison sentence. At the September 12, 2001 revocation hearing, Asfaha requested jail credit for the 288 days he spent in the ITC. The district court granted his request, concluding that although Bar-None is a residential treatment facility, the restrictions imposed at the ITC program were the functional equivalent of those imposed at the Minnesota Correctional Facility — Red Wing, and that denial of jail credit would be inequitable and a violation of equal protection. The court of appeals reversed the district court and held that because “the sentencing guidelines expressly deny jail credit for time served in ‘residential treatment facilities,’ ” Asfaha could not receive credit for any time spent at Bar-None regardless of the level of security and punitive impact of the program. Asfaha v. State, No. C6-02-691, 2002 WL 1803827, at *3 (Minn.App. Aug.6, 2002). It is from this decision that Asfaha appeals.

On appeal, Asfaha contends that jail credit for his time spent in the ITC should be awarded on two grounds. First, Asfaha asserts that to ensure proportionality in sentencing, the award of jail credit should not depend on whether the defendant is confined in “jails, workhouses, [or] regional correctional facilities” but instead should depend on whether the defendant was in custody in connection with the offense. Because the district court found that Asf-aha’s confinement while in the ITC was the functional equivalent of confinement in the juvenile correctional facility in Red Wing, Asfaha asserts that he should receive credit for the 288 days he spent there. Second, Asfaha contends that “giv[ing] different amounts of jail credit to adults confined for similar amounts of time for similar offenses” results in disproportionate sentencing and violates the equal protection and due process clauses of the federal and state constitutions.

We begin our analysis by examining the Minnesota Sentencing Guidelines. As originally promulgated by the Minnesota Sentencing Guidelines Commission, the guidelines’ jail credit provision excluded credit for time spent in confinement as a condition of probation. Minnesota Sentencing Guidelines Commission, Report to the Legislature 36 (1980). When we amended Minn. R.Crim. P. 27.03, subd. 4(B) in 1983 to include jail credit for time spent in custody as a condition of probation, the sentencing guidelines were modified to include a similar credit. Minnesota Supreme Court Order Promulgating Amendments to the Rules of Criminal Procedure (June 9, 1983); see Minnesota Sentencing Guidelines III.C (1984). The corresponding commentary to the amended guidelines stated that credit was to be “limited to time spent in jails, workhouses, and regional correctional facilities.” Minnesota Sentencing Guidelines III.C.02 comment (1984). However, in 1999, this limitation originally set forth in the commentary was incorporated into the text of the sentencing guidelines and is in the current version of the jail credit provision. Minnesota Sentencing Guidelines III.C.3.

Accordingly, with regard to confinement while on probation, the sentencing guidelines currently, provide that:

Jail credit shall reflect time spent in confinement as a condition of a stayed sentence when the stay is later revoked and the offender is committed to the custody of the Commissioner of Corrections. Such credit is limited to time spent in jails, workhouses, and regional correctional facilities.

Id. While only advisory and not binding on the courts, the commentary to this section of the guidelines specifically notes that “[c]redit should not be extended for time spent in residential treatment facilities * * ⅝.” Minnesota Sentencing Guidelines III.C.04 comment; see State v. Notch, 446 N.W.2d 383, 385-86 (Minn.1989) (concluding that comments to the Minnesota Sentencing Guidelines were advisory rather than controlling).

In this case, the parties do not dispute that Bar-None is a residential treatment facility. The point of contention is instead whether the district court erred in concluding that the restrictions imposed by the ITC were the functional equivalent of those imposed by a correctional facility and therefore, Asfaha must be awarded jail credit for the time spent in the ITC at Bar-None. An appellate court will accept a district court’s findings of fact unless they are clearly erroneous. State v. Colvin, 645 N.W.2d 449, 453 (Minn.2002). “Findings of fact are not clearly erroneous if there is reasonable evidence to support them.” Id.

In support of his argument that jail credit should be granted, Asfaha focuses on one of the guidelines’ foundational principles: proportionality in sentencing and punishment. See Minnesota Sentencing Guidelines I. Specifically, he argues that “[rjigidly adhering to a formalistic test which denies credit based on whether a facility is a correctional facility instead of whether the defendant was in custody * * * creates disparities resulting in disproportional sentences.” Asfaha further asserts that principles of fairness and equity, recognized by our court in State v. Dulski, should determine whether jail credit is granted and not the label given to the correctional facility. 363 N.W.2d 307, 310 (Minn.1985) (stating “[w]e in no way intend that this decision be the final word on the difficult subject of fairness and equity in the award of jail credit under the Sentencing Guidelines.”). In contrast, the state contends that the only way to guarantee that jail credit is applied fairly and equitably is to draw clear lines between the different facilities, seemingly implying that courts should defer to the label attached to a particular facility regardless of the level of restrictions imposed by that facility.

Agreeing with Asfaha’s reasoning, the district court concluded that the restrictions imposed by the ITC were functionally equivalent to those imposed at a correctional facility and, therefore, jail credit should be granted for the 288 days Asfaha was in the program. In reaching its conclusion, the district court relied, in part, on a letter from Bar-None’s Coordinator of Intake and Clinical Services, which was stipulated to by both parties. The letter described the Lakeview unit where Asfaha resided while in the ITC as follows:

Lakeview is a 12-bed living unit located in the Intensive Treatment Center building. Although treatment is a major focus, security is the most crucial concern and there have been no escapes from the Intensive Treatment Center. The building is secure, so no one can enter or leave Lakeview without the central control booth operator electronically opening the doors — staff do not carry keys. In order to enter or leave the building, there are three locked doors that must be individually opened by the control booth operator. There is a secure fenced exercise area behind the building that can only be entered and exited through an electronically controlled door and a gym that is entered or exited through a door that also can only be opened by the control booth operator. There are bars on outside windows and surveillance cameras are located throughout the building. The control booth operator monitors activity everywhere, except directly in the cells. Each resident has an individual wet cell that is locked at night and during a crisis. When cells are locked, [sjtaff monitor activity through windows in the doors. Everything happens in the building and fenced area. Food is prepared in the central kitchen and delivered to the living unit, where all meals are served. There are classrooms in the living unit and residents attend school in the locked setting, as well. If a resident must leave the building for a medical appointment or court hearing, he is transported in mechanical restraints. ' If a resident must be totally isolated, he can be moved to the administrative segregation area in the building.

In addition to the letter, the court also reviewed photographs of a cell at Lake-view and of the perimeter fence around the facility’s secured exercise area.

In determining that the restrictions imposed by the ITC were equivalent to a correctional facility and that jail credit should be granted, the district court compared the Lakeview unit to the Minnesota Correctional Facility — Red Wing, a correctional facility for serious and chronic juvenile offenders that qualifies for jail credit under the sentencing guidelines. Minn. Stat. § 242.41 (2002). The court noted that it had been offered “no credible distinction between incarceration at Red Wing and at [Lakeview]” and could see “no basis to distinguish the Defendant, who received treatment while locked for 288 days in Bar-None’s [Lakeview unit], from other young offenders who receive their residential treatment locked in Red Wing.”

We conclude that Asfaha’s arguments and the district court’s reasoning are persuasive. It is clear that, based on the findings of the district court, the ITC imposes essentially the same limitations on a person’s freedom as a jail, workhouse, or regional correctional facility — perhaps even more. Fairness and equity require that jail credit be granted in such cases so as to not elevate form over substance. As recognized by Judge Shumaker in his concurring opinion in State v. Razmyslowski what is important is not solely the label attached to a facility:

[CJourts should be guided by considerations of fundamental fairness and not by labels in dealing with custody credit issues. If the incarceration is the functional equivalent of a placement in a jail, workhouse, or other correctional facility, custody credit ought to be allowed. Because our workhouse[s] and prisons also provide “residential treatment,” fairness requires that we look beyond the label attached to a facility and inquire as to whether the facility operates basically as a jail.

Nos. C7-99-1322, C5-99-1559, 2000 WL 343211, at *2 (Minn.App. Apr.4, 2000) (Shumaker, J., concurring specially).

While the establishment of clear lines helps protect the principle of uniformity, proportionality — an equally meritorious principle — also must be sought. See Minnesota Sentencing Guidelines I. To that end, district courts must look closely at the facts of the case presented. When the court is presented with evidence that supports a decision that the level of confinement and limitations imposed are the functional equivalent of those imposed at a jail, workhouse, or regional correctional facility, then fairness and equity demand that jail credit be awarded.

In this case, the district court determined that the restrictions imposed by the ITC were the functional equivalent of those imposed at the juvenile correctional facility in Red Wing. Concluding that the record supports the district court’s findings, and that the findings are not clearly erroneous, we hold that the court did not err in awarding jail credit for the 288 days Asfaha spent in the ITC. We therefore reverse the court of appeals and reinstate the district court’s ruling.

Reversed.

      . The official name of the residential treatment facility is Volunteers of America, Bar-None Residential Treatment Service, but is more commonly known as "Bar-None.” In addition to the Intensive’ Treatment Center, Bar-None also has the Residential Treatment Center and Sunrise programs, two less-restrictive programs for juveniles exhibiting severe behavioral problems.

      . Asfaha was in treatment at Bar-None from June 13, 1996, to August 4, 1997. During this time, he was in the ITC for 288 days and in the unlocked Residential Treatment Center for 129 days. In this appeal, Asfaha is seeking jail credit only for the 288 days spent in the ITC.

      . In 1978, the Minnesota legislature established the Minnesota Sentencing Guidelines Commission and charged it with promulgating sentencing guidelines that were to be advisory to the district courts. Act of April 5, 1978, ch. 723, art. 1, § 9, 1978 Minn. Laws 761, 765-67, codified at Minn.Stat. § 244.09, subd. 1, 5 (2002). While advisory, the district courts were expected to follow the guidelines, departing only when there were "substantial and compelling circumstances” to do so. State v. Garcia, 302 N.W.2d 643, 647 (Minn.1981) overruled on other grounds by State v. Givens, 544 N.W.2d 774 (Minn.1996)

      . Because we conclude that jail credit may be granted on this basis, we do not reach Asf-aha’s second challenge that provisions of the federal and state constitutions are violated by the sentencing guidelines.


source: Caselaw Access Project

author: HUSPENI, Judge.

license: Public Domain

text:
    DULUTH SUPERIOR ERECTION, INC., Respondent, v. CONCRETE RESTORERS, INC., et al., Appellants.
    No. C1-02-1831.
    Court of Appeals of Minnesota.
    July 15, 2003.

      Robert C. Maki, Shawn B. Reed, Maki & Overom, Duluth, MN, for respondent.
    Michael E. Orman, Nancy von Seggern, Orman, Nord & Spott Law Offices, Duluth, MN, for appellants Concrete Restorers, Inc., Anthony Coda, Douglas Coda, and Lake Superior Polymers, Inc.
    Considered and decided by KALITOWSKI, Presiding Judge, ANDERSON, Judge, and HUSPENI, Judge.
   OPINION

HUSPENI, Judge.

In challenging the district court’s grant of summary judgment, appellants argue that (1) summary judgment was inappropriate because there are genuine issues of material fact; (2) as to certain appellants, the district court erred by finding a presumption of liability and shifting the burden of proof under Minn.Stat. § 514.02 (2002); (3) the district court erred by finding that appellants breached a fiduciary duty pursuant to Minn.Stat. § 514.02; (4) the district court erred by entering judgment against appellants jointly and severally pursuant to Minn.Stat. § 514.02; and (5) the award of attorney fees was an abuse of discretion. Because there are no genuine issues of material fact, we affirm the district court’s grant of summary judgment, but because Minn.Stat. § 514.02 expressly prohibits a finding of fiduciary liability, and joint-and-several liability is, therefore, inappropriate under the statute, we vacate the joint-and-several judgment award and remand to enable the district court to determine the extent to which each agent is liable based on the amount of proceeds each knowingly received.

FACTS

Appellant Concrete Restorers, Inc. (Concrete Restorers) subcontracted with respondent Duluth Superior Erection, Inc. (Duluth Superior) for excavation and concrete services for two residential projects known as the “Side Lake Project” and the “Grindy Project.” The Side Lake Project consisted of a contract between Concrete Restorers and Duluth Superior for an estimated 6,100 square feet of 5 1/2-inch Fibermesh reinforced concrete. The contract required that Duluth Superior receive an advance payment of $10,000 from Concrete Restorers, leaving a balance due under the contract of $24,500. The terms of the Grindy Project specified that Duluth Superior was to receive $9,450 upon completion of the project.

Duluth Superior completed the work, and the owners of both the Side Lake and Grindy Project paid Concrete Restorers for the services. But Duluth Superior claims it was never compensated and is owed $24,500 for the Side Lake contract and $9,450 for the Grindy Project contract. Duluth Superior brought an action against Concrete Restorers and its shareholders, officers, directors, and agents for nonpayment for improvements to real property pursuant to Minn.Stat. § 514.02 (2002). Appellant Anthony Coda is a shareholder and the president of Concrete Restorers. Appellant Douglas Coda was a sales representative for Concrete Restorers. Appellant Lake Superior Polymers (Lake Superior), along with Concrete Restorers, is a family owned business headquartered in the home of Anthony Coda. The district court found that Anthony Coda, Douglas Coda, and Lake Superior were agents of Concrete Restorers, and that all had failed to pay Duluth Superior for its services. Duluth Superior’s motion for summary judgment was granted, and judgment was entered jointly and severally against Concrete Restorers, Anthony Coda, Douglas Coda, and Lake Superior. This appeal resulted.

ISSUES

I. Are there are genuine issues of material fact rendering summary judgment against appellants inappropriate?

II. Did the district court err by finding a presumption of liability and shifting the burden of proof to appellants under Minn.Stat. § 514.02 (2002)?

III. Did the district court err in determining that appellants breached a fiduciary duty pursuant to Minn. Stat. § 514.02?

IV. Did the district court err in entering judgment against appellants jointly and severally pursuant to Minn.Stat. § 514.02?

V. Did the district court abuse its discretion by awarding attorney fees to respondent pursuant to Minn.Stat. § 514.02?

ANALYSIS

I.

Appellants argue that the district court erred by granting summary judgment because there are genuine issues of material fact.

On an appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law.

State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990) (citation omitted).

A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law. On appeal, the reviewing court must view the evidence in the light most favorable to the party against who judgment was granted.

Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993) (citation omitted). When the district court grants summary judgment based on the application of a statute to undisputed facts, the result is a legal conclusion, reviewed de novo by the appellate court. Lefto v. Hoggsbreath Enters., Inc., 581 N.W.2d 855, 856 (Minn.1998).

License Requirement

A corporation that is licensed or should be licensed under Minn.Stat. § 326.84 (2002) may be held liable for theft pursuant to Minn.Stat. § 514.02 (2002) for nonpayment for improvements to residential real estate. Minn.Stat. § 514.02, subd. la, provides:

A person injured by a violation of subdivision 1 may bring a civil action and recover damages, together with costs and disbursements, including costs of investigation and reasonable attorney fees, and receive other relief as determined by the court, including, without limitation, equitable tracing. A civil action under this subdivision may be brought:
(1) against the person who committed the theft under subdivision 1; and
(2) for an improvement to residential real estate made by a person licensed, or who should be licensed, under section 326.84, against a shareholder, officer, director, or agent of a corporation who is not responsible for the theft but who knowingly receives proceeds of the payment as salary, dividend, loan repayment, capital distribution, or otherwise.

Minn.Stat. § 326.84, subd. 1, states that:

A person who meets the definition of a residential remodeler as defined in section 326.83, subdivision 16, or a residential building contractor as defined in section 326.83, subdivision 15, must be licensed as a residential building contractor or residential remodeler.

The district court determined that Concrete Restorers should have been licensed under Minn.Stat. § 326.84 because they provided two special skills, “masonry and concrete” and “excavation.” Thus, the court determined that provisions of Minn. Stat. § 514.02 were applicable to the facts of this case. Appellants challenge this determination and allege that there is a genuine issue of material fact as to whether Concrete Restorers was required to be licensed as a residential remodeler or residential building contractor. We conclude that summary judgment was properly granted on this issue.

Both residential building contractors and residential remodelers, as defined in MinmStat. § 326.83, subds. 15, 16 (2002), provide two or more special skills as defined in MinmStat. § 326.83, subd. 19 (2002). Under subdivision 19, special skills fall into any one of eight categories, including “Excavation” and “Masonry and Concrete.” MinmStat. § 326.83, subd. 19. Appellants concede that they provide “masonry and concrete” skills as defined by the statute. They assert, however, that they do not provide excavation work and, therefore, provide one special skill, not two.

The definition of excavation, as provided in MinmStat. § 326.83, subd. 19(a), states:

Excavation includes work in any of the following areas:
(1) excavation;
(2) trenching;
(3) grading; and
(4) site grading.

The proposal for the Grindy project, which was accepted by Concrete Restorers, stated that Duluth Superior proposed to excavate and dispose of 12 inches of the existing base. Duluth Superior offered evidence that excavation was provided at the Side Lake project because Duluth Superior was required to use a backhoe to excavate and level the ground surfaces. In addition, Concrete Restorers’ advertising brochure states in pertinent part: “At a fraction of replacement cost, Concrete Restorers, Inc. can level most slabs without excavation * ⅜ *.” (Emphasis added.) A proper inference, therefore, is that Concrete Restorers does offer, when necessary, excavation skills in addition to masonry and concrete skills. Even though Concrete Restorers subcontracted with respondent for the excavation, the excavation was provided by and through Concrete Restorers. Thus, there are no genuine issues of fact concerning whether Concrete Restorers should be licensed as a residential remodeler or residential building contractor in accordance with section 326.84 because they provide at least two specialty skills, “masonry and concrete” and “excavation.”

Agents

As noted above, a person who is injured by a violation of MinmStat. § 514.02, subd. 1, may bring a civil action against the agent of a corporation who knowingly receives proceeds of the payment as salary. MinmStat. § 514.02, subd. la. Appellants contend that whether Douglas Coda and Lake Superior were agents of Concrete Restorers is an issue of fact and, therefore, not subject to resolution by summary judgment. We disagree.

We recognize initially that whether an agency relationship exists is generally a question for the jury, unless the evidence is conclusive. PMH Properties v. Nichols, 263 N.W.2d 799, 802 (Minn.1978). To support a finding of an agency, two elements must be satisfied. Teeman v. Jurek, 312 Minn. 292, 299, 251 N.W.2d 698, 702 (1977). First, it must be shown that there is a manifestation by the principal that an agent act for the principal. Id. Second, it must be shown that the principal is in control of the undertaking. Id.

The evidence of agency in this case is conclusive. Although appellants assert that Douglas Coda was employed as a sales representative for Concrete Restorers and therefore was not an agent of the company, they concede that because Anthony Coda was out of town, he instructed Douglas Coda to sign the contract with Duluth Superior. The district court properly concluded that when Anthony Coda instructed Douglas Coda to sign the contract, a manifestation that Douglas Coda was acting on behalf of Concrete Restorers was created, thus satisfying the first element set forth in Teeman. The court also properly concluded that Anthony Coda controlled the undertaking because Douglas Coda could not sign the contract but for Anthony Coda’s approval. Thus, the second element in Teeman is satisfied. Based on the uncontested evidence presented to the district court, there are no issues of fact regarding Douglas Coda. He was an agent of Concrete Restorers and therefore liable under Minn.Stat. § 514.02, subd. la.

Appellants also contend that Lake Superior is a supplier of materials and a totally separate entity from Concrete Restorers. Appellants contend, therefore, that Lake Superior did not have authority to act on behalf of Concrete Restorers, and thus was not an agent of Concrete Restorers. Again, we find the evidence of agency conclusive.

The district court found that Lake Superior shares a corporate address with Concrete Restorers, and that Duluth Superior was partially paid for its work on the Side Lake Project by Lake Superior, on behalf of Concrete Restorers, with a Lake Superior check drawn on Lake Superior’s account. In addition, the court noted Duluth Superior’s unrefuted affidavit that it received assurances from the Codas that Lake Superior could make the payment on behalf of Concrete Restorers. Just as summary judgment was appropriate on the question of Douglas Coda’s agency, it was appropriate on the question of the agency of Lake Superior.

Knowingly Receive Payments of Proceeds

Minn.Stat. § 514.02, subd. 3, states:

Proof that such person failed to pay for labor performed, or skill, material, or machinery furnished within 15 days after receiving notice that the cost of such labor performed, or skill, material, or machinery furnished remains unpaid will be sufficient to sustain a finding that the proceeds of such payment were used for a purpose other than the payment for labor, skill, material, and machinery for such improvement, knowing that the costs of labor performed, or skill, material, or machinery furnished remains unpaid, unless the person;
(1) Establishes that all proceeds received from the person making such payment have been applied to the cost of labor, skill, material, or machinery furnished for the improvement; or
(2) Within 15 days after receiving notice shall give a bond or make a deposit ■with the court administrator of district court, in an amount and form approved by a judge of district court, to hold harmless the owner or person having the improvement made from any claim for payment of anyone furnishing labor, skill, material, machinery for such improvement.

The district court, having concluded that Anthony Coda, Douglas Coda, and Lake Superior were agents of Concrete Restorers, concluded further that pursuant to subdivision 3, appellants had the burden to establish that the proceeds of payment received by them were either properly applied or alternatively deposited with the court administrator. Minn.Stat. § 514.02, subd. 3. Appellants argue that the district court erred in granting summary judgment in favor of Duluth Superior after determining that not one of the appellants rebutted the presumption. They argue that genuine issues of material fact exist regarding the knowing receipt of proceeds of payments by Anthony Coda, Douglas Coda, and Lake Superior. We disagree, and conclude that summary judgment was properly granted.

A party opposing a motion for summary judgment may not rest upon the pleadings, but must present specific facts showing genuine issues at trial. Lundgren v. Eustermann, 370 N.W.2d 877, 881 (Minn.1985). Anthony Coda stated that “he did not knowingly receive proceeds of payment as salary, dividend, loan repayment, capital distribution or otherwise.” That simple denial was insufficient to raise a genuine issue of material fact. Indeed, appellants could have raised an issue of material fact by producing their financial records and by providing for an accounting of the proceeds received. The district court noted that Concrete Restorers and Lake Superi- or are closely held family businesses operated from Anthony Coda’s residence, and properly concluded that appellants knowingly received proceeds of payments, and failed to rebut the presumption set forth in subdivision 3.

Amount Owed

Appellants next argue that summary judgment was inappropriate because there are genuine issues of material fact concerning the amount owed to Duluth Superior. First, appellants claim they are still owed $3,000 for work done on the Side Lake Project. However, they concede that they received payment from the owners of Side Lake for the work supplied by Duluth Superior, but failed to properly apply the proceeds to respondent for the labor, skill, material, or machinery contributing to the improvement. Accordingly, any dispute regarding the amount still owed by the owners of the Side Lake Project is irrelevant to the fact that appellants have not compensated Duluth Superi- or.

Appellants also contend that there is an issue of material fact concerning an alleged “overcharge” due to an approximate 5,400 square feet of concrete versus the estimated 6,100 square feet called for in the contract. The subcontract, however, specifically contemplated a lump-sum payment. The matter was not contracted on a time-and-material basis, and there was no opportunity for an adjustment downward to reflect the actual concrete installed. There are no genuine issues of material fact concerning the amount owed to Duluth Superior. Summary judgment was appropriate on the issue of amounts owed by appellants to Duluth Superior.

II.

Appellants do not challenge the action of the district court in applying a presumption of liability and shifting the burden of proof to Concrete Restorers pursuant to Minn.Stat. § 514.02. They do, however, claim that the court erred in applying the presumption of liability and shifting the burden of proof to Anthony Coda, Douglas Coda, and Lake Superior. They contend that since Concrete Restorers received the payments, under Minn. Stat. § 514.02, subd. 3, Anthony Coda, Douglas Coda, and Lake Superior could not be a “person” who received payments; that the “person” referred to in subdivision 3 is Concrete Restorers only, and cannot include shareholders, officers, directors, or agents of a corporation. We find no merit in this argument.

Minn.Stat. § 514.02, subd. la, allows a civil action to be brought against a shareholder, officer, director, or agent of a corporation. Consistent with that statutory language, if a court finds a corporation hable based on the presumption set forth in Minn.Stat. § 514.02, subd. 3, certain agents of the corporation can be held liable pursuant to subdivision la.

Here, the district court determined, and appellants do not contest, that Concrete Restorers received payment for the work provided by Duluth Superior, but failed to compensate Duluth Superior for its performance. Thus, the burden was shifted to Concrete Restorers pursuant to subdivision 3. Concrete Restorers failed to rebut this presumption. As previously indicated, Anthony Coda, Douglas Coda, and Lake Superior were properly determined to be agents of Concrete Restorers, and the language of subdivision la provides that agents of a corporation can be held liable for the theft even if they are not responsible, but knowingly receive proceeds of the payment as salary, dividend, loan repayment, capital distributions, or otherwise. Minn.Stat. § 514.02, subd. la(2). Thus, as agents of Concrete Restorers, Anthony Coda, Douglas Coda, and Lake Superior are included as the “person” referred to in subdivision 3. The district court, after considering uncontested evidence, established knowledge on the part of all appellants, and correctly applied a presumption of liability and shifted the burden of proof to appellants Anthony Coda, Douglas Coda, and Lake Superior pursuant to Minn.Stat. § 514.02.

Appellants also contend that summary judgment was premature because, due to the unsettled financial state of Concrete Restorers, they were unable to properly account for the proceeds owed to Duluth Superior. The statute, however, specifically provides that within 15 days of receiving proof of knowledge of nonpayment, appellants were required to give a bond or make a deposit with the court administrator of the district court for the amount in question. MinmStat. § 514.02, subd. 3(2). Duluth Superior provided proper notice of nonpayment to appellants, thus satisfying its burden. Appellants had the statutory 15-day period to rebut the presumption. They also have had ample opportunity during the litigation process to account for the proceeds of payment. Summary judgment was not premature.

III.

Appellants next argue that it was error for the district court to determine that they breached a fiduciary duty pursuant to Minn.Stat. § 514.02. There is merit to this argument. While the district court properly recognized that appellants were subject to the nonpayment provisions of Minn.Stat. § 514.02, subd. 1, thus requiring them to hold funds in trust for the benefit of Duluth Superior, the court also concluded that appellants’ failure to do so breached an implied fiduciary duty owed to Duluth Superior. This latter conclusion was unfounded.

In 1974, the Minnesota Supreme Court ruled in State v. Reps, 302 Minn. 38, 46, 223 N.W.2d 780, 785-86 (1974), that Minn. Stat. § 514.02 implicitly established a fiduciary relationship. At that time, Minn. Stat. § 514.02, subd. 1 (1974), provided:

Whoever, on any improvement to real estate within the meaning of section 514.02, fails to use the proceeds of any payment made to him on account of such improvement by the owner of such real estate or person having any improvement made, for the payment for labor, skill, material, and machinery contributed to such improvement, knowing that the cost of any such labor performed, or skill, material, or machinery furnished for such improvement remains unpaid, and who has not furnished to the person making such payment either a valid lien waiver as to any unpaid labor performed, or skill, material, or machinery furnished for such improvement, or a payment bond in the basic amount of the contract price for such improvement, conditioned for the prompt payment to any person or persons entitled thereto for the performance of labor or the furnishing of skill, material, or machinery for the improvement, shall be guilty of theft of the proceeds of such payment and upon conviction shall be fined not more than $1,000 or imprisoned not more than one year or both.

In holding that the contractor receives payment in a fiduciary capacity, the court stated:

[A] reasonable and practical construction of these provisions is that the contractor, unless he has furnished a hen waiver or payment bond, accepts payment for the improvement in a fiduciary capacity. This imposes a trust character on the payments, and it is a knowing violation of that trust, rather than a failure to pay a debt, which the statute makes punishable.

Reps, 302 Minn. at 46, 223 N.W.2d at 786.

In 1998, this corut was presented with the issue of whether Minn.Stat. § 514.02, a criminal statute, gave rise to civil liability. Energy & Air Systems, Inc. v. Kuettel, 580 N.W.2d 62 (Minn.App.1998). We found that the express language of the statute clearly did not create a civil cause of action and that nothing in the statute suggested that the legislature intended to create a civil cause of action. Id. at 64. Accordingly, we held that nothing in the statute or applicable caselaw created a civil cause of action under section 514.02. Id.

Following our decision in Kuettel, the legislature amended section 514.02. The amended statute now expressly provides for a civil cause of action under subdivision la. Minn.Stat. § 514.02, subd. la. The legislature also amended subdivision 1, which now provides in pertinent part:

Proceeds of payments received by a person contributing to an improvement to real estate within the meaning of section 514.01 shall be held in trust by that person for the benefit of those persons who furnished the labor, skill, material, or machinery contributing to the improvement. Proceeds of the payment are not subject to garnishment, execution, levy, or attachment. Nothing contained in this subdivision shall require money to be placed in a separate account and not commingled with other money of the person receiving payment or create a fiduciary liability or tort liability on the part of any person receiving payment or entitle any person to an award of punitive damages among persons contributing to an improvement to real estate under section 514.01 for a violation of this subdivision.

Minn.Stat. § 514.02, subd. 1(a) (2002).

Appellants contend that despite the court’s conclusion in Reps, Minn.Stat. § 514.02 expressly prohibits a finding of fiduciary liability. We agree. The initial language of the statute appears to imply that a fiduciary duty is created because the statute requires that certain payments pertaining to the improvement of real estate shall be held in trust until the proper beneficiary is paid. Minn.Stat. § 514.02, subd. 1(a). Nevertheless, the statute expressly states that, “Nothing contained in this subdivision shall * * * create a fiduciary liability * * ⅜.” Id. (emphasis added). The plain meaning of this statute is that section 514.02 does not create a fiduciary liability. Therefore, we hold that the district court erred as a matter of law in determining that appellants breached a fiduciary duty pursuant to Minn.Stat. § 514.02, subd. 1(a).

IV.

Having concluded that the district court erred in determining that appellants breached a fiduciary duty, we consider appellants’ additional argument that the district court erred when it entered judgment against all appellants jointly and severally, pursuant to Minn.Stat. § 514.02. Appellants argue that Minn.Stat. § 514.02 not only makes no provision for joint-and-several liability, but expressly provides that it does not create tort liability. Again, there is merit to this argument.

Minn.Stat. § 514.02, subd. 1(a), provides, in pertinent part, “Nothing contained in this subdivision shall * * * create a fiduciary liability or tort liability * * *.” (Emphasis added.) Based on subdivision 1(a), the civil action provided for in subdivision la must be in the form of a contract action. Accordingly, the action brought by Duluth Superior, in order to comply with statutory requirements, must be considered to be a contract action.

In Minnesota, joint-and-several liability for damages in contract actions applies only where two persons independently and unintentionally breach separate contracts, closely related in point of time, to the same person, and it is not reasonably possible to make a division of the damages caused by the separate breaches. Mike’s Fixtures, Inc. v. Bombard’s Access Floor Sys., Inc., 354 N.W.2d 837, 839 (Minn.App.1984). Here, Duluth Superior’s sole contract was with Concrete Restorers, making the exception in Mike’s Fixtures inapplicable. Further, there is no indication in the record before us that an equitable contract remedy was fashioned by the district court. Therefore, judgment against appellants jointly and severally was entered erroneously.

The contract at issue in this case was between Concrete Restorers and Duluth Superior. Concrete Restorers is liable on the contract. The statute entitles Duluth Superior to recover from the agents of Concrete Restorers if the agents knowingly receive proceeds of the payment as salary, dividend, loan repayment, capital distribution, or otherwise. Minn.Stat. § 514.02, subd. la(2). Anthony Coda, Douglas Coda, and Lake Superior are agents of Concrete Restorers and knowingly received proceeds of payments stemming from the services provided by Duluth Superior. Although joint-and-several liability is inappropriate under section 514.02, appellants are liable under the statute for the proceeds of payment they received. We reverse the judgment entered by the district court, and remand to enable the district court to determine the extent to which each appellant is liable based upon the amount of proceeds each knowingly received.

V.

Finally, appellants argue that the district court abused its discretion by awarding attorney fees to Duluth Superior without making a finding that the fees were reasonable, and by not independently evaluating the evidence. “On review, this court will not reverse a trial court’s award or denial of attorney fees absent an abuse of discretion.” Becker v. Alloy Hardfacing & Eng’g Co., 401 N.W.2d 655, 661 (Minn.1987) (citation omitted). Here, the court recognized that Minn.Stat. § 514.02, subd. la, allows for the recovery of reasonable attorney fees. The court also found that Duluth Superior filed the appropriate motion in accordance with Minn. R. Pract. 119.04, and thus granted the motion for attorney fees in its entirety. There is no evidence that the district court adopted the proposed findings without independently evaluating the evidence. There was no abuse of discretion in awarding attorney fees to Duluth Superior.

DECISION

The district court properly determined that appellants were hable under Minn. Stat. § 514.02 (2002), and, therefore, summary judgment was appropriate. The court’s determination that appellants breached a fiduciary duty under section 514.02 was erroneous, however, because the statute expressly forbids a finding of fiduciary liability. Because there is no fiduciary liability, joint-and-several liability is inapplicable. We reverse the judgment entered against appellants and remand for further proceedings and entry of judgment not inconsistent with this opinion.

Affirmed in part, reversed in part, and remanded.

       Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const, art. VI, § 10.

      . All appellants challenge the judgment and will be referred to hereafter as "appellants” unless individually identified by name.


author: G. BARRY ANDERSON, Judge.

text:
    STATE of Minnesota, Respondent, v. Paul Anthony KYCIA, Appellant.
    No. C3-02-1457.
    Court of Appeals of Minnesota.
    July 15, 2003.

      Mike Hatch, Attorney General, David Woodward, Assistant Attorney General, St. Paul, MN; and
    Brett Corson, Fillmore County Attorney, Preston, MN, for respondent.
    James E. Ostgard, Minneapolis, MN, for appellant.
    Considered and decided by ANDERSON, Presiding Judge, PETERSON, Judge, and HALBROOKS, Judge.
   OPINION

G. BARRY ANDERSON, Judge.

Appellant was convicted of reckless discharge of a firearm and now challenges that conviction. Appellant argues that the district court abused its discretion when instructing the jury and that the prosecutor’s comments dining closing arguments constituted prejudicial misconduct. We reverse and remand.

FACTS

This appeal arises out of a hunting accident. Both appellant Paul Anthony Kycia and Pat Thomas, the victim, were legally hunting turkey on the same farm in Fillmore County. Appellant believed he would be the only hunter on the land that day. The record is unclear whether Thomas believed he had the farm to himself.

Thomas arrived at the farm at approximately 4:45 a.m. He was dressed head to toe in camouflaged clothing. Even Thomas’ backpack and rifle were camouflaged. Thomas, who had walked the farm earlier, hiked about half a mile and decided to set up among a strip of trees and saplings close to a stand of pine where he had heard male turkeys gobbling. He placed two decoys by the trees, sat in his spot, began making female turkey calls and waited.

Although the exact time appellant arrived at the farm or set up is not clear, it appears he was in position to hunt around 5:80 A.M. Appellant settled on a particular place to hunt based in part on his belief that he was “miles away” from the nearest hunter. Although he saw Thomas’ truck parked at the farm while appellant made his way to his hunting spot, he believed the truck belonged to someone fishing nearby. As it turned out, appellant and Thomas were only approximately 167 feet away from each other, yet were oblivious to each other.

Some time between 8:15 and 8:30 A.M., while making turkey calls, and moving his head back and forth slowly, Thomas heard a shot fired behind him, and felt pellets strike his face and body. Thomas was struck in the scalp, just above his eye and in the left arm and shoulder. Immediately after the injury, Thomas lay flat on the ground and shouted, “Don’t shoot, don’t shoot. You shot me.”

Appellant, after firing his shotgun and believing he had shot a turkey, ran to Thomas’ location. Thomas testified that when appellant got to him, Thomas asked why appellant shot at him and appellant allegedly replied “I seen movement.” A few days after the shooting, appellant told the police he

saw movement in the brush up above, it was kind of thin little peninsula of woods, and what I thought was a turkey, kind of looked like it was standing up and, basically it kind of went down a little bit, basically I took a shot and I ran up the hill thinking that I got a bird, and I ran up and there was a man named Pat Thomas that screamed, “don’t shoot again.” I was just dumbfounded.

At trial appellant testified that he did not shoot at mere movement, but shot at what he was sure was a turkey. Appellant helped Thomas to his truck. Thomas drove to an area hospital but the doctors who treated him could not remove all of the pellets from his body.

Appellant was charged with one count of reckless discharge of a firearm, in violation of Minn.Stat. § 609.66, subd. la(a)(2) (2000). Following the close of evidence there was considerable debate about the jury instructions to be given concerning the elements of the offense. The district court ultimately told the jury that it should convict appellant only if it found beyond a reasonable doubt that appellant (1) intentionally discharged a firearm; (2) that he did so “under circumstances that endangered the safety of Patrick Thomas. The defendant’s knowledge of the endangerment is not required to be proven by the state;” and (3) that he did so on April 28, 2001, in Fillmore County.

The district court provided the jury with a verdict form that read:

We, the jury, find the defendant guilty of the charge that the defendant intentionally discharged a firearm under circumstances that endangered the safety of another, to-wit: the defendant did discharge a shotgun striking Patrick Thomas.

Appellant was convicted and sentenced to a five-year term of probation. This appeal followed.

ISSUE

Did the district court’s instructions and verdict form materially misstate the law, by failing to adequately instruct the jury that it must consider the totality of the circumstances present at the moment appellant discharged his rifle, in order to convict appellant of reckless discharge of a firearm?

ANALYSIS

Appellant argues that the district court committed reversible error by failing to adequately instruct the jury concerning the “under circumstances which endanger the safety of another” element of the offense of reckless discharge of a firearm. Further, appellant asserts that the district court’s jury-verdict form encouraged the jury to render a verdict without considering every element of the charged offense.

District courts are allowed “considerable latitude” in the selection of language for the jury instructions. State v. Gray, 456 N.W.2d 251, 258 (Minn.1990) (quoting Alholm v. Wilt, 394 N.W.2d 488, 490 (Minn.1986)). Jury instructions must be viewed in their entirety to determine whether they fairly and adequately explain the law of the case. State v. Flores, 418 N.W.2d 150, 155 (Minn.1988).

An instruction is in error if it materially misstates the law. Furthermore, it is well settled that the court’s instructions must define the crime charged. In accordance with this, it is desirable for the court to explain the elements of the offense rather than simply to read statutes.

State v. Kuhnau, 622 N.W.2d 552, 556 (Minn.2001) (citations omitted). Verdict forms are considered part of the jury instructions and subject to the same standard of review. State v. Ascheman, 589 N.W.2d 486, 491 (Minn.App.1999).

The only issue in dispute at trial was whether appellant discharged his firearm in a reckless manner. A conviction of reckless endangerment with a firearm requires proof that the defendant “intentionally discharge[d] a firearm under circumstances that endanger the safety of another.” Minn.Stat. § 609.66, subd. la(a)(2) (2000). Appellant contends that when the district court instructed the jury that appellant could be convicted if the jury found beyond a reasonable doubt that appellant intentionally discharged a firearm “under circumstances that endangered the safety of Patrick Thomas” and that the state was not required to prove that appellant knew he was endangering anyone, the district court improperly created a strict liability offense. Appellant argues that this instruction could lead the jury to convict appellant regardless of the circumstances when he fired his rifle.

Moreover, appellant claims that the verdict forms compound this problem by also leading the jury to believe it was irrelevant what facts appellant knew when he discharged his shotgun. Appellant contends that the verdict form implies that the only relevant issue for the jury to decide is whether appellant intentionally discharged his firearm “under circumstances that endangered the safety of another.”

Both parties rely on In re Welfare of A.A.E., 590 N.W.2d 773 (Minn.1999) in support of their respective arguments. In AA.E., a 16-year-old deer hunter climbed into a deer stand and saw what he thought were antlers and a “brown spot.” Id. at 774-75. He looked through his scope, and seeing nothing orange or any other indication that another hunter was present, he fired. Id. He fired again, hoping to scare the deer into better position. Id. Seeing movement in the woods, he fired three more shots at 3-to-5 second increments. Id. A.A.E., in fact, had hit another hunter dressed in orange multiple times and had inflicted serious injuries. A.A.E., 590 N.W.2d at 775. He was charged by petition with reckless discharge of a firearm. Id. at 775.

In A.A.E., the supreme court held the statute’s “circumstances” language required an analysis of

whether, under the totality of the circumstances extant at the moment the trigger was pulled-including what the defendant knew and particularly important here, what the defendant did not know- — would the discharge of the firearm place another person’s safety in danger.

Id. at 777.

The A.A.E. court chose not to define the “outer boundaries of what those ‘circumstances’ might be,” Id. But it did hold that because the child had intentionally fired his gun “at either a noise or a movement” at least four times without knowing what he was actually shooting at, and because the victim was only 90 yards away, and because her blaze orange clothing should have been visible to the child, there were

circumstances of endangerment, and whether known or unknown to him, when coupled with appellant’s intent to discharge the firearm, the evidence was sufficient beyond a reasonable doubt to prove that appellant “intentionally discharged a firearm under circumstances that endangered another person” in violation of Minn.Stat. 609.66, subd. la(a)(2).

Id.

The record here reflects that the district court was quite conscious of the A.A.E. holding, and took considerable care in crafting the instructions. After much debate, the district court added language stating that the state was not required to prove appellant’s knowledge at the time of the shooting.

In A.A.E., the supreme court analyzed at some length the circumstances surrounding the shooting in that case. A.A.E., 590 N.W.2d at 776-77. It was central to the court’s analysis what A.A.E. knew and did not know at the moment he fired his rifle. Id. at 777. Although the court clearly stated it was not requiring an analysis of whether the defendant knew his acts were endangering others, it focused on the circumstances the child was aware of, or should have been aware of, when he discharged his weapon. Id.

Here, the district court by telling the jury the state did not have to prove appellant’s knowledge, impermissibly invited the jury to disregard what facts appellant knew or should have known when he discharged his firearm. We conclude that the jury was not properly instructed about the importance of the circumstances present at the time of the shooting. The jury was told only to consider if Thomas was in danger when appellant fired his rifle. The fact that he was shot is conclusive evidence on that point. But by instructing the jury to disregard what appellant knew, the jury may have been tempted to disregard whether appellant’s actions were reasonable under the circumstances.

Of particular significance to our analysis is the verdict form, which also suggests that this was a strict liability offense and the fact that Thomas was shot would be enough to convict appellant. The verdict form states that the defendant can be found guilty if the jury found that he intentionally discharged his rifle under circumstances that endangered another. The instruction then suggests what circumstances would qualify: “to-wit: Defendant did discharge a shotgun striking Patrick Thomas.” This form leads jurors to believe that the fact that Thomas was shot was sufficient evidence that appellant acted recklessly.

The jury instructions materially misstated the law by allowing the jury to conclude that what facts appellant knew or did not know when he discharged his rifle were irrelevant. The A.A.E. court was clear that the fact finder in a reckless-discharge-of-a-firearm case is to examine the totality of the circumstances surrounding the shooting, including what a person knew and did not know when he pulled the trigger. Id.

Because we have concluded that a new trial is required, it is not necessary to address appellant’s claims regarding the closing arguments. But because the matter may be re-litigated, some discussion of the troubling aspects of the state’s closing arguments is appropriate. By arguing that the jury should acquit if it was “absolutely” sure appellant was innocent, the state came dangerously close to shifting the burden of proof to appellant. Further, by arguing the county’s woods must be kept safe from irresponsible hunters, the state encouraged the jury to consider facts outside the evidence when deliberating. Finally, by arguing that there are only two types of defendants — the innocent and those who avoid responsibility for their acts, the state suggested those exercising their constitutional right to a trial have acted in a questionable manner. This characterization is highly disturbing. A prosecutor may not seek a conviction at any cost, but must instead protect “the rights of the accused” as well as enforce the law. State v. Salitros, 499 N.W.2d 815, 817 (Minn.1993) (quotation omitted).

DECISION

The district court abused its discretion by instructing the jury it did not have to consider the facts appellant knew or should have know when he fired his rifle. This error was compounded by the verdict form that gave the clear impression that the mere fact appellant fired his rifle and an injury occurred was sufficient to return a guilty verdict.

Reversed and remanded.

      . The jury received a nearly identically worded not-guilty form.


author: FORSBERG, Judge.

text:
    BRIGHT WOOD CORPORATION, Appellant, v. BANKERS STANDARD INSURANCE COMPANY, Respondent, California Insurance Company, Respondent.
    No. C5-02-2075.
    Court of Appeals of Minnesota.
    July 22, 2003.

      Paul A. Banker, Thomas C. Mielenhau-sen, Eric J. Nystrom, Lindquist & Ven-num, PLLP, Minneapolis, MN, for appellant.
    Thomas S. Fraser, Richard D. Snyder, Fredrikson & Byron, P.A., Minneapolis, MN, for respondent Bankers Standard Insurance Company.
    Jeanne H. Unger, Diane B. Bratvold, Kimberly A. Ross, Rider, Bennett, LLP, Minneapolis, MN, for respondent California Insurance Company.
    Considered and decided by HUDSON, Presiding Judge, KALITOWSKI, Judge, and FORSBERG, Judge.
   OPINION

FORSBERG, Judge.

In this declaratory judgment action, appellant insured, Bright Wood Corporation, challenges the grant of summary judgment to respondent insurers, Bankers Standard Insurance Company and California Insurance Company. Respondents denied coverage for damages incurred when wood window sash components supplied by appellant Bright Wood failed to meet contract specifications, forcing its customer, Scherer Brothers Lumber Company, to remove and replace all window sashes suspected of containing the defective components. Bright Wood contends that summary judgment was inappropriately granted because genuine issues of material fact remain concerning whether property other than its product was damaged or rendered useless. We disagree and affirm.

FACTS

Bright Wood Corporation manufactures wood sash components for windows. Scherer Brothers Lumber Company manufactures windows using components provided from various suppliers. In 1996, Scherer entered into a contract with Bright Wood through JJJ Specialty Company, a budding materials representative, to supply the wood components that surround the glass in a window sash. In its contract with Bright Wood, Scherer specified that the wood sash components had to be treated with a wood preservative to prevent rot. From October 1996 to November 1997, Bright Wood failed to treat the sash components sold to Scherer. While reviewing milling records in late 1997, a Bright Wood employee discovered that the components had not been treated; Bright Wood did not inform either Scherer or its insurers about the problem, but began to treat the components with a preservative. Unaware of the problem, Scherer continued to use both treated and untreated components, installing them in between 50,000 and 90,000 sash units.

In late 1997, Scherer received at least two service requests for windows with problems with discoloration and stripped hardware. In 1998, while inspecting for hail damage after a bad storm, Scherer noticed a number of windows with discolored sash components and began to receive numerous complaints about discolored or deteriorating windows. Scherer notified Bright Wood that there appeared to be a problem with Bright Wood’s preservative process. On December 1, 1999, Bright Wood’s CEO, Dallas Stovall, met with representatives of Scherer and JJJ, the building materials representatives, to discuss the increasing problem of rotting windows. Stovall did not disclose the failure to treat the wood, but on December 3 notified Bright Wood’s insurance agent of a potential liability. On January 14, 2000, Stovall wrote to JJJ stating that a review of Bright Wood’s records indicated that from October 1996 through November 1997, it failed to treat the wood sash components supplied to Scherer with preservatives.

Scherer embarked on a repair program. Initially, Scherer responded to complaints and replaced visibly defective parts during field visits. It found that it could not reliably determine which sash units would rot and began on-site replacement of all wood sash components manufactured in 1996 and 1997. During these repairs, the windows showed no other damage or deterioration except to the Bright Wood components. However, in order to replace the wood sash components, Scherer technicians necessarily had to remove weather stripping, hardware, and aluminum cladding. The windows also had to be refinished.

As the scope of the problem grew, Scherer decided it was more efficient to replace the entire window with a newly manufactured window; although material costs were somewhat higher, labor costs were lower. This again meant that window finishes had to be redone to match. In all the inspections and replacements, no defect or damage was noted in any part of the windows except to the wood sash components provided by Bright Wood. The only damage to non-Bright Wood components occurred during the repair process.

Scherer sued Bright Wood for breach of contract and warranties. The two companies settled for $8.2 million in December 2001. In February 2001, Bright Wood brought this declaratory judgment action, after respondents Bankers Standard Insurance Company and California Insurance Company both denied coverage. California provided comprehensive general liability coverage for Bright Wood from January 1, 1995 to January 1, 1998. Bankers provided comprehensive general liability coverage beginning January 1, 1998. California moved for summary judgment, asserting that because Scherer did not start receiving complaints until 1998, any occurrence, as defined in its policy, happened after its policy period ended on January 1, 1998. On August 14, 2002, the district court denied California’s summary judgment motion, stating that issues of fact remained as to whether California had notice of claims made during its policy period.

Both Bankers and California moved for summary judgment based on various policy exclusions. Both policies contain an exclusion for property damage to the insured’s product “arising out of it or any part of it.” Both policies also contain a so-called “sistership” exclusion, excluding coverage for

[djamages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:
(1) “Your product”;
(3) “Impaired property”;
if such product * * * or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.

“Impaired property” is defined in both policies as

tangible property, other than “your product” * * * that cannot be used or is less useful because:
a. It incorporates “your product” * * * that is known or thought to be defective, deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a contract or agreement;
if such property can be restored to use by:
a. The repair, replacement, adjustment or removal of “your product”
⅜ ⅜ ⅜ * QJI
b. Your fulfilling the terms of the contract or agreement.

Bright Wood argued that because the repair and replacement process damaged non-Bright Wood components, neither exclusion applied. Bright Wood produced evidence showing that the cost of replacing weather stripping and aluminum cladding and providing new finishes, formed a significant part of the cost of repair or replacement.

On September 27, 2002, the district court granted summary judgment to California and Bankers, concluding that the policies were unambiguous and, based on the sistership exclusion, clearly excluded the property damage to the wood sash components, as the insured’s product, and any other damage to the sash, including replacement costs. Bright Wood appeals.

ISSUES

1. Did the district court err in granting summary judgment based on policy exclusions denying coverage for damage to the insured’s product that arose out of the product?

2. Did the district court err in granting summary judgment based on policy exclusions denying coverage for damages caused by the repair or replacement of the insured’s product or property impaired by the insured’s product?

ANALYSIS

This court reviews a grant of summary judgment to determine whether there are any genuine issues of material fact and whether the district court correctly applied the law. Burlington N. R.R. Co. v. Comm’r. of Revenue, 606 N.W.2d 54, 57 (Minn.2000). The interpretation of an insurance policy is a question of law reviewed de novo. Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 880 (Minn.2002).

Insurance contracts are subject to the usual principles of contract interpretation. Id. Thus, if unambiguous, the language of a pplicy must be given its plain and ordinary meaning. Id. The policy must be interpreted to give effect to the intent of the parties and any ambiguity must be resolved in favor of the insured. Id. Exclusions from coverage are interpreted in the same way and are strictly construed against the insurer. Id.

I. Insured’s Own Product Exclusion

The district court concluded that the provision excluding property damage to the insured’s own product arising out of the product precluded coverage. This clause has been interpreted to bar coverage in the case of product failure. See, e.g., St. Paul Fire & Marine Ins. Co. v. Futura Coatings, Inc. 993 F.Supp. 1258, 1264 (D.Minn.1998) (concluding cost of repairs excluded where damage caused by insured’s defective product); Carpole’s Inc. v. Ins. Co. of N. Am., 544 F.Supp. 6, 7 (D.Minn.1982) (barring coverage for damage caused by insured’s liquid fertilizer shipped in defective containers).

This exclusion has also been interpreted to deny coverage for the cost of repairs necessitated by the defective product, including anticipated future repair costs. Futura Coatings, 993 F.Supp. at 1264. In Carpole’s, the district court concluded that coverage was barred not only for the defective containers, but also for the costs of cleaning up the ensuing leakage of liquid fertilizer. Id., 544 F.Supp. at 7-8; see also Jacob v. Russo Builders, 224 Wis.2d 436, 592 N.W.2d 271, 277 (App.1999) (interpreting similar policy language to exclude coverage for defective masonry in home construction and concluding that damages to interior, driveway, sidewalk, patio, and landscaping that incurred during repair of masonry were also not covered).

The damage here is based solely on Bright Wood’s defective product. The incidental damage to the finish, hardware, and weather-stripping was incurred only in order to make repairs. No evidence was introduced of damage to any product other than Bright Wood’s components, except insofar as the non-Bright Wood components incurred damage during the repair process.

This interpretation is consistent with the general scope of the commercial general liability policy. These policies are intended to cover damage arising out of an “occurrence,” which is defined in both policies as “an accident” and damage “not expected or intended” by the insured. Here, the damage to other property occurred because of repairs deliberately undertaken. The resulting damage is not an accidental occurrence.

Bright Wood has produced no evidence of damage occurring to other property except in the course of repair. A genuine issue of material fact must be established by substantial evidence. DLH, Inc. v. Russ, 566 N.W.2d 60, 69-70 (Minn.1997). We conclude that the district court did not err by granting summary judgment on this basis.

II. Sistership Exclusion

The district court also held that the so-called sistership exclusion provided a basis for denial of coverage. The theory of the sistership exclusion, which excludes coverage when a product is withdrawn, recalled, or replaced because of a known or suspected defect discovered in a similar product, is that the insurer should not be

saddled with the cost of preventing such defects or failure any more than it was intended that the insurer would pay the cost of avoiding the defect in the first place or preventing the first failure of the product to have been discovered to be in a defective or dangerous condition before the occurrence.

Atlantic Mut. Ins. Co. v. Judd Co., 380 N.W.2d 122, 124-25 (Minn.1986) (quoting 2 R. Long, Law of Liability Insurance § 11.11 (1983)). To qualify under the exclusion, the repair or replacement process must include more than product that has already failed; there is no withdrawal or recall where no attempt is made to prevent future failures. Id. at 125. Here, because Scherer could not identify which wood components would fail, it had to replace all components that could be defective, thus fitting squarely within the sistership exclusion.

Bright Wood argues that the sistership exclusion cannot apply, because the definition of “impaired property” requires that (1) the property incorporating the insured’s defective product can be restored to use by simply removing the insured’s defective product; and (2) “other property” must be essentially undamaged, except for the inclusion of the insured’s defective product. Relying on Pinkerton & Laws, Inc. v. Royal Ins. Co., 227 F.Supp.2d 1348 (N.D.Ga.2002), Bright Wood asserts that “other property” could not be restored to use and was damaged because Scherer began replacing weather stripping, cladding, and finishes.

Pinkerton, however, did not involve a situation where the insured’s product had been incorporated into a unit of property, rendering that unit of property defective. The insured in Pinkerton had improperly installed windows, which were not defective; the improper installation had resulted in damage to the windows. Id. at 1355. Here, the Scherer windows were defective only because they contained Bright Wood’s defective product; removal and replacement of Bright Wood’s components restored the windows to use. Scherer’s business decision to replace its windows with brand-new units in order to lower its labor costs does not change this situation.

Although the repair process required weather stripping, cladding, and finishes to be replaced in some instances, these components are so integral to each window unit that they cannot be considered as other property. See Transp. Corp. of Am., Inc. v. Int’l Bus. Machs. Corp., 30 F.3d 953, 957 (8th Cir.1994) (concluding “where a defect in a component part damaged the product into which that component was incorporated, economic losses to the product as a whole were not losses to ‘other property.’ ”) (quoting Minneapolis Soc’y of Fine Arts v. Parker-Klein Assocs. Architects Inc., 354 N.W.2d 816, 820 (Minn.1984)).

The damage here occurred only during the repair and replacement process. Although Bright Wood asserts that genuine issues of material fact are outstanding, it has provided no evidence of damage except during the repair and replacement process. The district court therefore did not err in granting summary judgment.

DECISION

The district court did not err in granting summary judgment excluding coverage under respondents’ policies. Bright Wood only produced evidence of damage that occurred during the repair and replacement of its defective product. Because this type of damage is excluded by its policies, the grant of summary judgment to respondent insurers was proper.

Affirmed.

       Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const, art. VI, § 10.


author: ROBERT H. SCHUMACHER, Judge.

text:
    Gloria A. HAYES, Relator, v. K-MART CORPORATION, Respondent, Commissioner of Employment and Economic Development, Respondent.
    No. C1-02-2056.
    Court of Appeals of Minnesota.
    July 22, 2003.

      Katherine L. MacKinnon, St. Louis Park, MN, for relator.
    K-Mart Corporation, Minneapolis, MN, respondent.
    Lee B. Nelson, Philip B. Byrne, M. Kate Chaffee, Department of Employment and Economic Development, St. Paul, MN, for respondent Commissioner of Employment and Economic Development.
    Considered and decided by KALITOWSKI, Presiding Judge, RANDALL, Judge, and SCHUMACHER, Judge.
   OPINION

ROBERT H. SCHUMACHER, Judge.

Relator Gloria A. Hayes appeals from respondent Commissioner of Employment and Economic Development’s determination that she was disqualified from receiving unemployment benefits because she voluntarily quit her employment without good cause attributable to her employer, respondent K-Mart Corporation. We reverse.

FACTS

Hayes began working at a K-Mart store in Minneapolis in November 1996. Pursuant to K-Mart policy, Hayes was scheduled to receive an annual wage adjustment each November. By March 2001, Hayes had not yet received her November 2000 wage adjustment. She met with the store manager, who gave her. the annual wage adjustment retroactive to the previous November, promoted her to manager of the toy department, and gave her a raise in conjunction with the promotion.

At the same meeting, Hayes informed the manager that she wanted an hourly raise in addition to the raise she received in conjunction with the promotion. The manager told Hayes the two would meet again in May and “he would do something about a raise.” Despite persistent effort, Hayes was unable to schedule a meeting with the store manager in May or after. In November 2001, Hayes received her annual scheduled pay adjustment. In June 2002, when Hayes learned of the manager’s imminent departure from the store, she again asked him about the raise. He told her he would “take care of it before he left.” The manager did not get Hayes the raise before he left.

In June 2002, Hayes quit her job because of K-Mart’s failure to give her the pay raise and because of her work load, which she considered excessive for including tasks typically assigned to other managers. Before quitting, Hayes rejected an offer of a temporary raise of $.50 per hour from the store human resources manager, who conceded at the time that she was not authorized to offer the raise.

Hayes filed a claim for unemployment benefits with the Minnesota Department of Employment and Economic Development. An unemployment law judge determined Hayes was disqualified from receiving benefits under Minn.Stat. § 268.095, subd. 1(1) (2002) because she quit her job without a good reason caused by the employer. On appeal, a representative of the Commissioner of Employment and Economic Development also concluded Hayes was disqualified from receiving unemployment benefits because neither the failure to grant a promised raise of an unspecified amount nor the requirement that Hayes perform other managers’ tasks constituted good cause to quit.

ISSUE

Did Hayes quit for good cause attributable to her employer such that she qualifies for unemployment benefits under Minn.Stat. § 268.095, subd. 1(1) (2002)?

ANALYSIS

A claimant who quits employment for a good reason caused by the employer shall not be disqualified from receiving unemployment benefits. Minn.Stat. § 268.095, subd. 1(1) (2002). A good reason caused by the employer is one “that is directly related to the employment and for which the employer is responsible” and “is significant and would compel an average, reasonable worker to quit and become unemployed rather than remaining in the employment.” Minn.Stat. § 268.095, subd. 3(a)(1), (2) (2002).

On appeal from a decision of the commissioner’s representative concerning unemployment benefits, this court reviews findings of fact in the light most favorable to the decision and will not disturb those findings as long as there is evidence in the record that reasonably tends to sustain them. Ress v. Abbott N.W. Hosp., Inc., 448 N.W.2d 519, 523 (Minn.1989). Whether an employee voluntarily quit is a question of fact for the commissioner. Shanahan v. Dist. Mem’l Hosp., 495 N.W.2d 894, 896 (Minn.App.1993). Whether a claimant is properly disqualified from the receipt of unemployment benefits is a question of law, which this court reviews de novo. See Markel v. City of Circle Pines, 479 N.W.2d 382, 384 (Minn.1992).

It is undisputed Hayes voluntarily quit; the issue is whether Hayes met her burden of proving her resignation was for good cause attributable to K-Mart. See Man v. Dep’t of Employment Servs., 256 N.W.2d 287, 290 (Minn.1977) (stating employee has burden of proving resignation was for good cause attributable to employer). Hayes argues the promise to give her a raise was part of her employment agreement with K-Mart, and the failure to grant the raise constituted a substantial breach of the employment agreement and gave her good cause to quit attributable to K-Mart. We agree.

The commissioner’s representative found the K-Mart store manager made and breached an oral promise to get Hayes a pay raise in addition to the March 2001 raise. The record supports this finding. “Good cause to quit is generally found where an employer has breached the terms of an employment agreement.” Kehoe v. Minn. Dep’t of Econ. Sec., 568 N.W.2d 889, 891 (Minn.App.1997) (citation omitted); see also Helmin v. Griswold Ribbon & Typewriter, 345 N.W.2d 257, 261 (Minn.App.1984), review denied (Minn. June 12, 1984). The employment agreement does not have to be formal or written. See Krantz v. Loxtercamp Transp., lnc., 410 N.W.2d 24, 27 (Minn.App.1987) (holding employer’s breach of oral promise that employee would not have to work weekends constitutes good cause for employee to quit); Baker v. Fanny Farmer Candy Shops No. 151, 394 N.W.2d 564, 566 (Minn.App.1986) (holding employer’s violation of oral “understanding” that employee would not have to work nights gives employee good cause to quit).

Whether a breach of promise to grant a raise gives an employee good cause to quit is a matter of first impression in Minnesota. Cf. The Gathering v. Review Bd. of Ind. Employment Sec. Div., 495 N.E.2d 207, 210 (Ind.Ct.App.1986) (holding employer’s failure to grant promised promotion and pay raise gave employee good cause to quit); Shorey v. Dep’t of Employment Sec., 135 Vt. 414, 377 A.2d 1389, 1390 (1977) (holding employee quit for good cause where employer did not grant promised raise).

K-Mart argues that the manager’s promise was not a legally enforceable provision of Hayes’s employment agreement because it lacked specificity, was not supported by consideration, and was conditioned on Hayes’s continued satisfactory performance. We disagree. An oral promise to modify particular terms of at-will employment can become part of the employment agreement if the requirements for the formation of a unilateral contract are met: communication of a definite offer and acceptance for valuable consideration. Pine River State Bank v. Mettille, 333 N.W.2d 622, 626-27 (Minn.1983).

Here, the manager’s promise of a pay raise was a term of employment suitable for inclusion in a unilateral employment contract. See Brown v. Tonka Corp., 519 N.W.2d 474, 477 n. 1 (Minn.App.1994) (discussing vacation pay as term of unilateral contract). Where the employer promises supplemental compensation, the employer’s decision to leave the amount of the supplement unspecified, or to condition the supplement on the employee’s satisfactory performance, does not render the contract unenforceable. See Wilson v. Duluth Filter Co., 311 Minn. 475, 479, 250 N.W.2d 832, 835 (1977) (holding enforceable employer’s oral offer for unspecified supplemental compensation in exchange for employee’s promise to maintain level of work performance); Hartung v. Billmeier, 243 Minn. 148, 150-51, 66 N.W.2d 784, 787-88 (1954) (holding enforceable employer’s promise of bonus of unspecified amount made after employee started working).

But Krantz and Baker are clear that where, as here, the employment agreement includes a promise concerning the terms or conditions of employment, a breach of that promise constitutes good cause to resign. See Krantz, 410 N.W.2d at 27; Baker, 394 N.W.2d at 566. We therefore hold K-Mart’s failure to grant Hayes the promised pay raise violated her employment agreement and gave her good cause to quit.

The commissioner’s representative determined that Hayes’s failure to show the specific amount of the promised raise was fatal to her benefits claim. The representative reasoned that the adverse impact of the failure to grant a promised raise is analogous to that of a wage reduction for the purposes of a good-cause analysis— that is, the analysis should focus on the amount of the promised raise to determine whether the degree of prospective financial loss caused by the failure to grant the raise is sufficient to constitute good cause to quit. This focus on the quantity of the adverse financial impact is inapposite.

It is true a substantial wage reduction can constitute good cause to quit attributable to the employer. See, e.g., Sunstar Foods, Inc. v. Uhlendorf, 310 N.W.2d 80, 84-85 (Minn.1981) (holding 25% wage decrease constituted good cause to quit). But we agree with Hayes that the failure to honor the promise, and not the amount of financial loss caused by the ungranted raise, is the dispositive factor in determining whether there was a breach of the employment agreement.

Because we hold K-Mart breached the terms of the employment agreement by failing to grant the raise, we do not address Hayes’s alternative argument that the commissioner’s representative erred by not considering whether the combined effect of the ungranted raise and K-Mart’s requirement that Hayes perform certain tasks typically assigned to other managers gave Hayes good cause to quit.

DECISION

K-Mart’s failure to grant Hayes a promised pay raise substantially breached the employment agreement, giving Hayes good cause to quit attributable to K-Mart. She is therefore not disqualified from receiving unemployment compensation benefits under Minn.Stat. § 268.095, subd. 1(1) (2002). We reverse the decision of the Commissioner of Employment and Economic Development.

Reversed.