Contracts are a staple, and sometimes, they provide a stable practice for lawyers.  Lawyers negotiate, draft, interpret and amend them and, when something goes awry, litigate over them.  The federal and state appellate courts in Minnesota recently ruled upon five contract cases. The quintet reflects the rich diversity the courts face in adjudicating contract disputes.  A trio of 8th U.S. Circuit Court of Appeals decisions dealt with different contract topics.

Severance dispute

In Hallmark Cards v. Murley, 703 F.3d 456 (8th Cir. Jan. 15, 2013), an employee who breached a confidentiality clause in a severance agreement was held liable by a jury for damages of $860,000 for disclosing confidentiality data to a competitor, consisting of refunding a $735,000 severance payment and $125,000 paid to her for subsequent consulting by the competitor. The 8th Circuit grudgingly affirmed the bulk of the award, rejecting a challenge to a jury instruction regarding an “adverse” inference that could be drawn from the deletion from the employee’s computer of some important documents.

The adverse inference instruction raised “an issue of first impression,” which the court was inclined to resolve in favor of the employee in the absence of a clear record of “wrongdoing.” In order to give such an instruction, the trial court must make “explicit findings of bad faith and prejudice,” which was lacking in this case. But the error was “harmless” because of the “overwhelming evidence” of impropriety, which the trial judge took into consideration.

While upholding the verdict as to refunding the severance payment, it reversed the portion of the award attributed to the $125,000 post-severance consulting fees because that would put the employer “in a better position” than had there been no breach.

Breach of contract

A bankrupt Minnesota salesman was not entitled to sue for breach of contract for unpaid future salary and commissions remaining for two years under an employment agreement in Longaker v. Boston Scientific Corp. 2013 WL 1776416 (8th Cir. April 26, 2013). Although they were guaranteed, the future payments were “contingent” at the time the salesman filed for bankruptcy. Therefore, the ruling by the Bankruptcy Court in Minnesota that the claimant lacked standing was correct because the property belonged to his bankrupt estate.

But a partial concurrence and dissent by Judge Donald Bye would have allowed the salesman to receive the payments, rather than have them go to his creditors, because these earnings are attributable to “post-petition services” that belong to the bankrupt. This characterization would give the claimant “standing” to pursue his contract claim for post-petition salary commissions.

Provable damages

A breach of contract claim also was negated in Reuter v. JAX Ltd., Inc., 711 F.3d 918 (8th Cir. April 3, 2013). The diversity case was brought by a Minnesota inventor of a board game, claiming failure to inform the inventor of unauthorized licensing and sales of the games. U.S. District Court Judge Susan Richard Nelson in Minnesota denied the claim on grounds that the inventor did not have any provable damages due to the failure to show a causal connection to any lost profit, while also denying the claimant’s requested amendment of the complaint to assert a breach of contract.

The 8th Circuit affirmed the refusal to allow the breach claim to be pleaded. The motion to amend was untimely because it occurred after the deadline for filing motions. Further, the amount would have failed the “futility doctrine.” Because the claimant lacked “any damages,” a claimed breach was not “material,” and thus, not actionable.

Association appeal

An appeal by a condominium association in Dakota County of a breach of contract judgment against it to replace a condominium exterior patio door was rejected in Pahl v. Lexington Riverside Condo Ass’n., 2013 WL 1187982 (Minn. App. March 25, 2013)(unpublished).

The Dakota County District Court ruled in favor of the homeowner’s claim that the association’s Declaration, which constituted a binding contract with its members, required the association to pay for the replacement of the doors. The Minnesota Court of Appeals affirmed, holding that the evidence showed that a binding agreement existed for the costs to be borne by the association, not the individual owner.

The assertion that the terms of the Declaration were ambiguous as to who was obligated to pay for the replaced doors was not dispositive. The “extrinsic evidence” presented at trial showed that a binding contract was entered, which imposed responsibility on the association for “repairing or replacing” the exterior doors.

Employment enigma

An enigma over a truck driver’s claimed oral employment contract calling for a guarantee of $750 weekly wages and 25 percent of the gross income he provided was resolved largely in favor of his employer in Schroeder v. Kubes¸ 2013 WL 1285476 (Minn. App. April 1, 2013)(unpublished). After a bench trial, a Rice County District Court judge awarded the driver about $3,300 in wages, but denied overtime compensation and attorney’s fees.

The appellate court affirmed, holding that the employer satisfied its burden of proof, as required under Minn. Stat. sec. 181.56 for oral contracts, that it did not agree that the wages would equal $750 per week. The overtime claim was properly denied because of “insufficient evidence” that the driver worked in excess of 48 hours per week, as required under the state overtime law, Minn. Stat. sec. 177.25.

These cases show the diversity of contract claims addressed by the courts in the federal court and the state court systems.

Originally published by Minnesota Laywer 6/27/13.