Minnesota

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

COURT OF APPEALS OF MINNESOTA

Nos. C8-94-2394, C1-95-528

1995.MN.21257

July 25, 1995

THOMAS GERBIG, PLAINTIFF, COUNTERCLAIM DEFENDANT, CROSS-CLAIMANT AND THIRD PARTY PLAINTIFF, RESPONDENT (C8-94-2394), APPELLANT (C1-95-528),

v.

A. T. GEARMAN, ET AL., DEFENDANTS, COUNTERCLAIMANTS AND CROSS-CLAIM DEFENDANTS, APPELLANTS (C8-94-2394), RESPONDENTS (C1-95-528), AND GLENN A. WHITTINGTON AND ALLAN T. QUELLO, THIRD-PARTY DEFENDANTS.

Appeal from District Court, Hennepin County; Hon. Harold Kalina, Judge. D. C. File No. 93010247.

For Thomas Gerbig, plaintiff, counterclaim defendant, cross-claimant and third party plaintiff, Respondent (c8-94-2394), Appellant (c1-95-528): Vernon J. Vander Weide, Aaron F. Biber, Head, Seifert & Vander Weide, Minneapolis, Mn.

For A. T. Gearman, et al., defendants, counterclaimants and cross-claim defendants, Appellants (c8-94-2394), Respondents (c1-95-528): Thomas L. Steffens, Timothy J. Dolan, Thomas L. Steffens & Associates, Edina, Mn.

Considered and decided by Parker, Presiding Judge, Randall, Judge, and Harten, Judge. Parker, Judge (concurring specially)

The opinion of the court was delivered by: Harten

HARTEN, Judge

These are consolidated appeals. Defendants below appeal from an adverse judgment on claims brought against them by Thomas Gerbig and on their counterclaims. We affirm. In the other appeal, Gerbig challenges the trial court's denial of attorney fees. On that appeal, we affirm in part, reverse in part, and remand. *fn1

FACTS

The story begins on May 18, 1989, when Gerbig loaned Mecanotron Corporation (Mecanotron) $275,000. The loan was guaranteed by A.T. Gearman, Wheelock Enterprises, Inc. (Wheelock), and A & G Enterprises (A&G). A&G was a limited partnership, of which Gearman was the general partner and his family members were the only limited partners. The promissory note provided that in the event of default, Gerbig would be entitled to all costs of collection, including reasonable attorney fees. Mecanotron defaulted, and on October 31, 1991, Gerbig obtained a $331,591 judgment against Mecanotron, Gearman, Wheelock, and A&G, which judgment included principal, accrued interest, and attorney fees incurred in obtaining the judgment.

On January 15, 1992, the district court issued an asset order prohibiting Mecanotron, Gearman, and A&G from transferring any nonexempt assets and requiring Gearman to disclose all such assets to Gerbig. On March 13, 1992, Mecanotron and Super Dupes, Inc. entered into a purchase agreement whereby Super Dupes would acquire Mecanotron and business would be continued under the name Robotics and Automation Corporation (RAC). A condition of the acquisition was that Gerbig release Mecanotron and RAC from the judgment and asset order.

On May 14, 1992, Gerbig, RAC, Mecanotron, and Gearman executed an agreement (the 1992 Agreement) whereby Gerbig released Mecanotron and RAC from the judgment and asset order. In consideration for this release, (1) RAC paid Gerbig $50,000, to be applied against the judgment; (2) A&G transferred to Gerbig certain real estate in satisfaction of the judgment against A&G; (3) RAC issued Gerbig 400,000 shares of common stock; and (4) Gearman and Glenn Whittington (an officer of Mecanotron/RAC) transferred in escrow to Gerbig 400,000 shares of RAC common stock held by them. If Gerbig did not recover the full amount of the judgment by March 31, 1995, the shares in escrow were to be sold to satisfy the balance of the judgment. The 1992 Agreement also provided that RAC would sell its stock in two private placements of 400,000 shares each at a price of 50 cents or more per share and take certain steps required for public (secondary) trading of RAC stock. Finally, the 1992 Agreement provided that the release of Mecanotron and RAC did not operate to release Gearman from the judgment.

In June 1993, Gerbig sued Gearman, RAC, a Gearman family trust, and members of Gearman's family, alleging violations of the asset order, violations of the Uniform Fraudulent Transfer Act (UFTA), and fraud in connection with the transfer of certain RAC stock to family members and the trust. RAC filed a counterclaim against Gerbig, alleging, in part, breach of fiduciary duty and tortious interference with prospective contractual relations. RAC also brought third-party claims against Allan Quello, a former officer and director of RAC. Gerbig eventually brought additional claims against RAC, Gearman, and Whittington, alleging that these defendants fraudulently induced Gerbig to execute the 1992 Agreement, that they breached that agreement, and that they committed securities violations.

The resulting bench trial involved 17 days of testimony, 14 witnesses, over 260 exhibits, and generated over 3,000 pages of transcript. The trial court found for Gerbig on his claims, dismissed the defendants' claims against Gerbig and Quello, and ordered that certain assets, including RAC stock held by Gearman family members and the family trust, be transferred to Gerbig. The trial court subsequently amended its findings to deny Gerbig's request for attorney fees. The court also fixed the amount of judgment at $215,086.72; this figure was calculated from the original $331,591 judgment, plus interest at the legal rate, less amounts already paid on the judgment. These appeals result.

DECISION

A trial court's findings of fact should not be set aside unless clearly erroneous, and this court must give due regard to the opportunity of the trial court to judge the credibility of the witnesses. Minn. R. Civ. P. 52.01. This court will reverse a trial court's findings only if, upon review of the entire evidence, it is "left with the definite and firm conviction that a mistake has been made." Gjovik v. Strope, 401 N.W.2d 664, 667 (Minn. 1987).

1. Gerbig's Claims Against Defendants. Defendants challenge adverse findings and conclusions by the trial court with respect to Gerbig's claims. The trial court found that Gearman transferred 200,000 shares of RAC stock to his daughter in July 1992; 918,400 shares to the family trust in July 1992; 200,000 shares to his son in November 1992; and another 365,000 shares to the family trust in February 1993. The trial court found that Gearman had been entitled to those shares as consideration for forgiving a debt owed by Mecanotron. The trial court found that the debt had originally been owed to Norwest Bank, but that Gearman had purchased the note from the bank. The trial court concluded that Gearman willfully violated the asset order by making those transfers and also that Gearman's failure to disclose all nonexempt assets as required by the asset order constituted fraud and resulted in a securities violation.

Defendants assert that Gearman did not violate the asset order by transferring nonexempt assets. Defendants argue that A&G, not Gearman, purchased the loan from Norwest Bank and that therefore A&G was entitled to the shares issued by RAC. Defendants point to a 1992 proxy statement, which stated that in return for the cancellation of debts owed by Mecanotron, A&G would be issued stock by RAC. Gearman testified that when he saw that the shares had been issued in his own name, he directed Quello to cancel those certificates and reissue the shares. Defendants claim that even if Gearman purchased the loan in his own name, this loan constituted only a small part of the forgiven indebtedness; consequently, A&G--to whom Mecanotron was also indebted--was entitled to the majority of the shares issued by RAC. Defendants contend that because A&G owned the shares, any transfers to the trust or Gearman's family were not prohibited by the asset order.

There is sufficient evidence, however, to support the trial court's findings and conclusions. The relevant UCC filing indicates that Gearman took over the loan and security interest from Norwest in his own name. Quello testified that he originally issued the shares in Gearman's name at Gearman's direction, and that the shares were issued because Gearman had forgiven the loan purchased from Norwest. Quello also testified that Gearman asked him to reissue the shares to the trust and family members because outstanding judgments prevented Gearman from holding the shares in his own name. The 1992 proxy statement, on which defendants rely, stated that in conjunction with the acquisition of Mecanotron, "A.T. Gearman has agreed to cancel any indebtedness due him." (Emphasis added.) Mecanotron's own records indicated that it owed Gearman over $300,000 as recently as July 1991. In addition, defendants have not shown that A&G paid Gearman any consideration for the right to have the RAC shares issued to it in exchange for forgiveness of a debt owed to Gearman. Finally, the trial court explicitly found that Gearman was not credible in his testimony that he repeatedly confused himself with A&G.

Defendants also argue that Gearman did not violate the asset order by failing to disclose assets to Gerbig. Gearman apparently never disclosed that there were shares of RAC stock that Gerbig could attach because Gearman purportedly believed that those shares were properly owned by A&G--and therefore were outside the scope of the asset order. In finding that the transfers violated the asset order, however, the trial court properly concluded that the shares were within the scope of the order. Accordingly, the trial court did not clearly err in ruling that Gearman violated the asset order by failing to disclose those assets.

Defendants also challenge the trial court's conclusion that the transfers to the trust and family members violated the UFTA, Minn. Stat. §§ 513.41-.51 (1994). The UFTA provides that a transfer made by a debtor is fraudulent as to a creditor if the transfer was made "with actual intent to hinder, delay, or defraud any creditor." Id. § 513.44(a)(1). A transfer is also fraudulent if (1) the debtor did not receive a reasonably equivalent value in exchange and the debtor was insolvent at the time of or as a result of the transfer; or (2) in the case of a transfer to an insider for an antecedent debt, the debtor was insolvent and the insider had reasonable cause to believe that the debtor was insolvent. Id. § 513.45. Violation of the UFTA entitles a creditor to levy execution on the assets transferred. Id. § 513.47.

We conclude that the trial court's findings with respect to this issue were not clearly erroneous. The finding that Gearman acted with intent to hinder, delay, or defraud is supported by the following evidence: the transfers were to statutorily-defined insiders; Gearman testified that he was the "beneficial owner" of shares owned by the trust and family members; the transfers were not disclosed; the transfers consumed nearly all of Gearman's assets; Gearman was concealing assets; Gearman did not receive equivalent value in return; and Gearman was insolvent. See id. § 513.44(b) (listing factors that may be considered in determining actual intent). Particularly damaging is Quello's testimony that the shares could not be issued in Gearman's name because of outstanding judgments.

There is also sufficient evidence that the transfers were not made for adequate consideration. Gearman testified that the shares were given to his son and daughter as gifts. Although defendants claim that the shares were issued to the trust in exchange for a debt owed to the trust, the trial court specifically found that such a claim was not credible because Gearman could not recall the specific details of any such debt. Even if the transfer to the trust was for an antecedent debt, the transfer was fraudulent under section 513.45(b) because the trust was an insider and had notice--through Gearman, a trustee--of Gearman's insolvency. Further, any transfer of the shares from Gearman to A&G was not supported by any apparent consideration.

Finally, there is ample evidence of insolvency. Gearman himself testified that he held no assets in his own name, and he was still subject to the first judgment at the time of the transfers.

Defendants challenge the trial court's conclusion that Gerbig immediately could have levied on Gearman's assets. Defendants claim that under the 1992 Agreement, Gerbig was required to suspend his efforts to collect on the judgment until March 31, 1995, at which time the value of the 400,000 shares he received would be determined to see if the judgment would be satisfied.

The 1992 Agreement provided specifically that Gearman was not released from the judgment. There was also testimony that the 400,000 shares were not given to Gerbig in the 1992 Agreement to satisfy the judgment against Gearman. According to Quello, who was instrumental in drafting the 1992 Agreement, Gerbig was given the shares to effect a release of Mecanotron and RAC, thereby making it possible for the acquisition to take place. Consequently, Gerbig would not recover twice because the shares were not intended to satisfy the judgment. Quello testified that the value of the stock at the time of the 1992 Agreement was speculative; if the stock went up and the value of the 400,000 shares exceeded the amount owed on the judgment, Gearman would be released. Quello conceded that, if the value of the stock rose dramatically, Gerbig might recover more than the amount of the judgment; in that event, however, all of the principals, including Gearman and Quello, would receive a windfall.

Defendants also argue that the fact that the 400,000 shares were worth 50 cents per share supports their argument that the shares were intended to satisfy the judgment. Defendants rely on various private placements of RAC stock at 50 cents per share as evidence of the stock's value. The evidence shows, however, that these placements were subject to rescission because securities laws were violated in the process; consequently, the trial court did not clearly err in rejecting 50 cents per share as the value of the stock. In addition, the trial court's finding that the shares were of little or no value is supported by Gearman's own testimony concerning the value of the stock at the time of the transfers to the trust and his family. Moreover, Gerbig notes that because RAC breached the 1992 Agreement by failing to implement public trading and make the required private placements (see below), no market has developed for the shares. The trial court did not clearly err in finding that because Gearman was not released from the judgment, Gerbig was free to continue to collect on the judgment.

Defendants also challenge the trial court's conclusion that Gerbig may rescind the 1992 Agreement (and therefore immediately levy on Gearman's assets). The trial court found that RAC breached the 1992 Agreement by entering into a separate agreement with SMC Group (SMC), failing to carry out two private placements of RAC stock to raise needed capital, failing to take steps to initiate a public market in its shares, and selling its shares in the first private placement in violation of securities laws.

Defendants argue that Quello was responsible for the failed private placements and the securities violations resulting from the first placement. They do not dispute, however, that the private placements were not completed lawfully, as required by the 1992 Agreement.

Defendants also argue that the 1992 Agreement did not require that public trading of RAC stock be implemented by any specific date. But the 1992 Agreement required that certain steps be taken for the implementation of public trading so that the value of Gerbig's 400,000 shares would increase; this fact suggests that public trading was to be implemented within a reasonable time. In addition, the SMC agreement contemplated that outstanding shares would be redeemed and the company would be "taken private," which indicates that RAC had ended any efforts to implement public trading.

Defendants argue that the SMC transaction did not constitute a breach of the 1992 Agreement. Whittington and Quello testified, however, that under the terms of that transaction, SMC could receive 666,667 shares in exchange for a loan of $100,000, which amounted to 15 cents per share. Moreover, as stated above, the transaction contemplated the redemption of outstanding shares. Defendants also contend that the deal was never consummated because shareholder approval was not obtained; the SMC agreement, however, did not require such approval to be effective.

These breaches were material because they prevented Gerbig's stock from increasing in value, as contemplated by the 1992 Agreement. The trial court did not clearly err in finding that RAC materially breached the 1992 Agreement. Gerbig is therefore entitled to rescind it. See Johnny's Inc. v. Njaka, 450 N.W.2d 166, 168 (Minn. App. 1990) (rescission is justified by a material breach of contract).

The trial court concluded that rescission of the 1992 Agreement was also proper because Gearman and RAC committed fraud in inducing Gerbig to enter into it. There was ample evidence before the trial court that Gearman had repeatedly told Gerbig that there were no assets upon which Gerbig could execute, and those statements proved fraudulent in light of the transfers made by Gearman to the trust and family members. Gearman had a duty to disclose the presence of such assets--by virtue of the asset order--to prevent Gerbig from being misled concerning the issuance of these shares. See M.H. v. Caritas Family Servs., 488 N.W.2d 282, 288 (Minn. 1992) (omission is actionable as negligent misrepresentation if duty to disclose exists). The trial court did not clearly err in finding fraud with respect to these statements; accordingly, Gerbig is entitled to rescind the 1992 Agreement. See Dupont v. Haggard, 235 Minn. 31, 33, 49 N.W.2d 186, 187 (1951) (rescission available as a remedy for fraud). *fn2

Finally, the trial court concluded that both RAC and Gearman violated Minn. Stat. § 80A.01 in connection with the sale of the 400,000 RAC shares to Gerbig. See id. (unlawful for person to commit fraud in connection with the sale or purchase of securities). *fn3 The trial court did not err in concluding that Gearman committed fraud; consequently, we uphold its conclusion that Gearman violated section 80A.01. *fn4

In summary, we hold that the trial court did not err in concluding that Gearman violated the asset order and the UFTA; that Gerbig is therefore entitled to levy on Gearman's assets; that Gerbig may presently levy upon those assets because he did not agree to suspend collection of the judgment; and that Gerbig may rescind the 1992 Agreement because of the breach by RAC, and the fraud and securities violations committed by Gearman. We note that this case was very complex and hinged on the credibility of the various witnesses, and we defer to the trial court's ability to judge credibility.

2. Claims against Gerbig. Defendants next challenge the trial court's dismissal of claims against Gerbig for tortious interference with prospective business relations and breach of fiduciary duty. These claims arose from RAC's failed negotiations with Final Touch, a window-washing company searching for a robot manufacturer.

Defendants argue that Gerbig tortiously interfered with RAC's relationship with Final Touch by submitting a bid for his own company to build one of the robots. We conclude, however, that there was sufficient evidence that Gerbig did not intentionally and improperly interfere with that relationship. See United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 632-33 (Minn. 1982) (citing Restatement (Second) of Torts § 766B (1979)). Defendants have not shown that Gerbig was responsible for RAC's unsuccessful negotiations with Final Touch. Michael Lange, Final Touch's CEO, testified that he became frustrated with the termination of Jesse Ray, his contact at RAC, and that he ended his relationship with RAC for lack of confidence. Lange also testified that he was primarily interested in Gerbig as an investor and that he continued to solicit bids from other companies. In essence, Lange wanted nothing to do with either RAC or Gerbig's company when he learned of the parties' relationship to each other; the existence of that relationship does not constitute improper interference by Gerbig. We affirm the dismissal of defendants' tortious interference claim.

We also reject defendants' claim that Gerbig breached a fiduciary duty to RAC when he submitted his bid. A director occupies a fiduciary relationship with the corporation and may not appropriate a business opportunity properly belonging to the corporation. Miller v. Miller, 301 Minn. 207, 219, 222 N.W.2d 71, 78 (1974). Under the applicable two-part test, liability demands a showing that (1) the opportunity was within the corporation's "line of business" and (2) the director acted unfairly in acquiring the opportunity. Id. at 224, 222 N.W.2d at 81. For the same reasons set out above with respect to the tortious interference claim, defendants have not satisfied the second prong by showing that Gerbig acted unfairly with respect to this opportunity. See id. at 226, 222 N.W.2d at 81-82 (factors to be considered include the director's relationship to the management and control of the corporation, whether the opportunity came to him in his capacity as director, and whether he exploited corporate facilities or assets). We affirm the trial court's dismissal of this claim.

3. Claims against Quello. Defendants challenge the trial court's dismissal of their claim that Quello breached his fiduciary duty to RAC. They allege that Quello gave Gerbig confidential information about the SMC transaction. They also contend that Quello failed to meet with Gerbig to attempt to renegotiate the terms of warrants held by Gerbig or to persuade Gerbig to exercise those warrants; defendants claim that Quello's failure to meet with Gerbig led in part to SMC's abandonment of the proposed tender offer.

Gerbig and Quello both testified, however, that they did meet concerning the RAC warrants and that Gerbig rejected this entreaty because he did not want to give RAC any more money. Gerbig also testified that he only generally knew of a deal pending with another company and that he did not learn any details about the SMC transaction until just before trial. Quello testified that the SMC transaction was put together without his input and that he advised Gearman against continuing the relationship with SMC because he did not think the terms were beneficial to RAC.

Defendants also contend that Quello interfered with RAC's relationship with Final Touch. The evidence indicates, however, that Quello met with Final Touch regarding financing for that company and that he referred Gerbig to Final Touch only as a potential investor. RAC, on the other hand, was not in a position to invest, and its relationship with Final Touch concerned only robot manufacturing. Because there was sufficient evidence that Quello did not act against the interests of RAC, we affirm the trial court's dismissal of the breach of fiduciary duty claim.

Defendants also challenge the trial court's dismissal of their claim that Quello committed securities violations. Defendants claim that the violations committed by RAC in making the first private placement of its stock were directly attributable to Quello. Quello testified that the other directors authorized his dealings with unlicensed agents and were provided with copies of the incomplete disclosures before they were filed (one of which Whittington signed). The evidence was sufficient that Quello was acting within the scope of his authority as an officer of RAC and that the violations were therefore properly attributable to RAC. We affirm the dismissal of this claim.

4. Exclusion of Evidence. Finally, defendants claim that the trial court twice erred in excluding evidence. We will not disturb a trial court's exclusion of evidence unless it constitutes an abuse of that court's broad discretion and is prejudicial so as to require a new trial. Uselman v. Uselman, 464 N.W.2d 130, 138 (Minn. 1990).

Defendants first challenge the trial court's exclusion of testimony relating to lost profits regarding the failed Final Touch negotiations. In light of our affirmance with respect to the claims against Gerbig, however, defendants cannot have been prejudiced by any error excluding damage evidence.

Defendants also assert that the trial court committed reversible error when it excluded exhibit BBBB, a summary of loans made to Mecanotron by Gearman and A&G. *fn5 Defendants argue that the summary qualified under the "business records" exception to the hearsay rule. See Minn. R. Evid. 803(6). We disagree. Although the ledger entries concerning these loans were made in the ordinary course of business, the summary of those entries (exhibit BBBB) was made once, at the request of Gearman. See id. (exception applies to records made according to the regular practice of a business activity). In addition, the summary was not made at or near the time of the loans, as required by the exception. See id. Finally, any error in admitting this evidence was harmless in light of the evidence that Gearman was entitled to receive the RAC shares eventually transferred to Gearman's family and the family trust.

5. Gerbig's Challenge to Denial of Attorney Fees. In his appeal (C1-95-528), Gerbig challenges the trial court's refusal to award attorney fees. Gerbig contends that the terms of the promissory note issued in 1989 entitle him to attorney fees incurred since the first judgment, including those incurred in the present action. The note provided that "upon occurrence of an event of default * * *, Maker agrees to pay all costs of collection, including reasonable attorney fees." Gerbig claims that because the present action was undertaken in an attempt to collect the first judgment, he is entitled to attorney fees pursuant to the note's express terms.

In refusing to award fees, the trial court relied on the merger rule, concluding that defendants' obligation became based on the 1991 judgment, not on the note. See Twenty Assocs. v. First Nat'l Bank & Trust Co., 200 Minn. 211, 219, 273 N.W. 696, 700 (1937) (under the merger rule, judgment extinguishes the original cause of action and the prevailing party has a new cause of action on the judgment). Gerbig contends that the merger rule does not preclude an award of postjudgment attorney fees. See Stein v. Spainhour, 196 Ill. App. 3d 65, 553 N.E.2d 73, 76, 142 Ill. Dec. 723 (Ill. App. Ct. 1990) (merger bars relitigation of the same cause of action; it does not preclude attorney fees under the contract, which issue is ancillary to the primary cause of action). But see Woodcraft Constr. v. Hamilton, 56 Wash. App. 885, 786 P.2d 307, 308 (Wash. Ct. App. 1990) (attorney fee provision of note merged into the judgment on the note and ceased to exist; therefore, there was no contractual basis for fees in subsequent action).

No Minnesota case has directly addressed the relationship between the merger rule and a contractual attorney fee provision. Language in a few cases, however, suggests that postjudgment attorney fees are permitted pursuant to such a provision, even in a separate, subsequent action. In Agri Credit Corp. v. Liedman, 337 N.W.2d 384 (Minn. 1983), the trial court awarded attorney fees pursuant to provisions in the promissory notes at issue in the case; in setting the amount of fees, the trial court considered the difficulty of collecting the judgment in the future in light of the debtor's insolvency and the possibility of future litigation over fraudulent conveyances. Id. at 386. The supreme court noted that the trial court had considered the factors set out in a previous case, including the likelihood of future services. Id. (citing Obraske v. Woody, 294 Minn. 105, 109-10, 199 N.W.2d 429, 432 (1972)). The supreme court reversed the award as it related to future fees, however, because such fees had not yet been paid or incurred, as explicitly required by the notes. Id. at 387. The court then stated that

Agri Credit, should it incur further attorney fees and expenses in attempting to collect the judgment or in attempting to set aside any alleged fraudulent conveyance, would not be barred from seeking reimbursement when such fees have been incurred or paid by it.

Id.; see also O'Donnell v. McGee Trucks, Inc., 294 Minn. 110, 114, 199 N.W.2d 432, 434 (1972) (difficulty in collecting on the judgment and anticipation of future legal services may be considered in awarding fees pursuant to provision in promissory note); Southwest Fidelity State Bank v. Apollo Corporate Travel, Inc., 360 N.W.2d 668, 671 (Minn. App.

Here, Gerbig did incur postjudgment attorney fees in attempting to set aside fraudulent conveyances; consequently, the language of Agri Credit suggests that he is entitled to an award of fees as a cost of collection pursuant to the note. We conclude that the merger rule does not preclude the recovery of postjudgment attorney fees pursuant to a fee provision in the original promissory note. *fn6

We caution that Gerbig should be compensated under the note provision only for those fees incurred in bringing his own claims, not for those incurred in defending the counterclaims. These latter claims did not arise from the 1992 Agreement or from attempts to collect on the first judgment; rather, they concerned allegations of unrelated conduct. Cf. Potter v. American Bean & Grain Corp., 388 N.W.2d 22, 25 (Minn. App. 1986) (plaintiff entitled to fees incurred in defending counterclaims where counterclaims involved the sale for which the note was issued) pet. for rev. denied (Minn. Aug. 13, 1986). Accordingly, we reverse and remand for an award of reasonable attorney fees consistent with the above. *fn7

Gerbig also contends that he is entitled to attorney fees under Minn. Stat. § 549.21 (1994), which grants a court discretion to award fees when a party has acted in bad faith, asserted a frivolous claim, or asserted an unfounded position solely to delay or harass Id., subd. 2. Gerbig further claims that he is entitled to fees under rule 11 because defendants' pleadings were interposed for improper purposes. See Minn. R. Civ. P. 11.

We affirm the trial court's refusal to grant fees on these grounds. The trial court heard the evidence and it specifically found that defendants did not bring their counterclaims "in bad faith or for frivolous reasons." Moreover, as the trial court noted, an award of bad faith attorney fees is precluded because each of defendants' claims survived summary judgment. See Uselman v. Uselman, 464 N.W.2d 130, 144 (Minn. 1990) (party who survives dispositive motions before trial should not be subject to sanctions predicated on surviving claims); Hampton Bank v. River City Yachts, Inc., 528 N.W.2d 880, 891 (Minn. App. 1995) (rationale of Uselman, which concerned sanctions under rule 11, applies also to fees under section 549.21), pet. for rev. denied (Minn. Apr. 27, 1995).

Affirmed (C8-94-2394).

Affirmed in part, reversed in part, and remanded (C1-95-528).

18 JULY 1995

James C. Harten

PARKER, Judge (concurring specially)

I write specially only for the purpose of suggesting that Minn. Stat. § 80A.23 be relied upon as an alternative ground for awarding attorney fees. This has been difficult litigation requiring expertise in commercial and securities law. The existence of section 80A.23 has been useful in encouraging those attorneys competent to handle such cases to undertake arduous tasks even in the face of anticipated difficulty in collection on any judgment. Such laborers are worthy of their hire.

Edward J. Parker, Judge.

July 18, 1995.

Opinion Footnotes

*fn1 To avoid confusion, the defendants below (appellants in appellate case No. C8-94-2394 and respondents in case No. C1-95-528) will be referred to as "defendants" here.

*fn2 The trial court also found that RAC committed fraud by representing that two private placements would be lawfully made and that public trading would be implemented. These representations were false because those requirements of the 1992 Agreement were never satisfied. We believe, however, that there was insufficient evidence that RAC had the requisite intent. Although a fraud action cannot be premised on statements as to future facts, misrepresentations concerning the declarant's present intent are actionable. Vandeputte v. Soderholm, 298 Minn. 505, 508, 216 N.W.2d 144, 147 (1974). There is no showing that RAC, at the time of the representations during negotiations, did not intend to satisfy those requirements. RAC's failure to satisfy the requirements is better addressed as a breach of the 1992 Agreement. This conclusion does not alter the outcome of this appeal, however.

*fn3 By notice of review filed in Gerbig's appeal, defendants argue that Gerbig did not properly amend his complaint just before trial to assert this claim. We reject this argument. Defendants failed to raise this issue in their motion for a new trial. See Kulkay v. Allied Central Stores, Inc., 398 N.W.2d 573, 579 (Minn. App. 1986) (issue concerning amendment of pleadings may not be considered on appeal if not raised in a motion for new trial), pet. for rev. denied (Minn. Feb. 13, 1987). In addition, the trial court's findings and conclusions indicate that it did grant Gerbig leave to raise his various claims. See Minn. R. Civ. P. 15.02 (pleadings may be amended to conform to the evidence presented at trial).

*fn4 Again, because we conclude that RAC did not commit fraud, it cannot have violated section 80A.01.

*fn5 A copy of this exhibit was absent from the record.

*fn6 In light of this holding, we need not consider whether Gerbig is entitled to fees under Minn. Stat. § 80A.23 (1994) (civil liability for securities violations) or the language of the order for judgment in 1991.

*fn7 Gerbig sought $297,756.91 in fees. Defendants argue that such an award would be excessive and unreasonable. The trial court is charged with examining the submissions of Gerbig's attorneys and awarding only a reasonable amount of fees.

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