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Bassford Remele is a full service litigation firm located in Minneapolis, Minnesota. Founded in 1882, the firm represents local, national and international clients in all areas of civil litigation and dispute resolution.
Case Law Update
Date: May 16, 2008 — Minneapolis, MN
During the weeks of May 9 and May 16, 2008, the Minnesota appellate courts released opinions on the following topics that may be of interest to our clients:
1. EMPLOYMENT LAW - WAGE AND HOUR - MINNESOTA FAIR LABOR STANDARDS ACT –
VIOLATIONS AND PENALTIES
A class action lawsuit was brought by claims representatives against their employer, Farmers Insurance Exchange (Farmers), under the Minnesota Fair Labor Standards Act (MFLSA or the Act). The MFLSA generally requires overtime compensation for hours worked in excess of 48 hours in a workweek, at a rate of at least 1.5 times the regular rate of pay. Plaintiffs claimed that Farmers violated the MFLSA by classifying them as exempt and failing to pay them overtime compensation. Farmers claimed that plaintiffs were employed in a bona fide administrative capacity and therefore were exempt from the requirements of the MFLSA.
A jury found that plaintiffs were misclassified as exempt but did not award any compensatory damages. The district court granted injunctive relief, civil penalties, and attorneys’ fees. The court of appeals held that the district court had authority to issue an injunction and impose civil penalties but that the penalties were payable to the state and the use of a multiplier in calculating attorneys’ fees was inappropriate.
The Minnesota Supreme Court affirmed in part and reversed in part, holding that: (1) misclassification alone is not a violation but the failure to make and keep the required wage and hour records is a violation; (2) the MFLSA authorizes the district courts to issue equitable relief in the form on injunctions and civil penalties when an employer has violated the Act, and compensatory damages are not a prerequisite to such remedies; (3) civil penalties are payable to the state; and (4) attorney fee awards must reflect the degree of success achieved by the plaintiffs and thus the Court remanded for recalculation of the lodestar amount and for redetermination of the attorney’s fees without the use of a multiplier.
The Court held that the district court erred in basing the award of civil penalties on misclassification because misclassification itself is not a violation of the Act. In contrast, civil penalties are appropriate for the recordkeeping violations, despite the lack of compensatory damages. The Court also held that the hours worked by plaintiffs was an improper basis for calculating civil penalties because the finding was inconsistent with the jury’s special verdict. The jury found that the employees were entitled to $0 in compensatory damages, where the jury was asked to consider how many hours in excess of 48 hours per week the employees worked. Thus, a finding that the employees did work in excess of 48 hours is inconsistent with the jury’s finding of no compensatory damages. Therefore, the Court remanded to reconsider the amount of the civil penalty without regard the misclassification violation and without regard the overtime hours worked. The Court further held that such civil penalties are payable to the state, not to the employees.
The Court also held that plaintiffs were entitled to reasonable attorneys’ fees under the MFLSA because Farmers violated the Act by failing to keep the required pay and time records. As to the reasonableness of the hours expended, the Court held that the attorneys’ fee award must reflect the degree of success obtained. Since the district court did not account for the plaintiffs’ failure to achieve the primary goal of recovering compensatory damages for unpaid overtime hours the employees worked, the Court held that an award of over $1 million in attorneys’ fees was excessive. Thus, the Court reversed and remanded for recalculation of the attorneys’ fee award.
In regard to the use of a multiplier for the attorneys’ fee award, the Court stressed that an upward adjustment of the lodestar amount is warranted in rare cases and must be supported by specific evidence in the record and detailed findings. The Court determined that the district court did not provide a sufficient explanation for the use of a multiplier. In addition, the Court noted that the results obtained, the complexity of the litigation, and the duration of litigation should be fully reflected in the lodestar amount and should not again be considered with regard to a multiplier. Therefore, the Court reversed and remanded for redetermination of the attorney’s fees award without the use of a multiplier.
Milner v. Farmers Ins. Exchange, A06-178 (Minn. 5/15/08).
[Bassford Remele, A Professional Association, successfully represented Farmers Insurance Exchange in this matter.]
2. INSURANCE COVERAGE - TITLE INSURANCE POLICY - TRUSTEE'S PREFERENCE ACTION
Rechtzigel agreed to transfer property in Apple Valley to Pulte Homes in exchange for property in Jackson County. Rechtzigel contracted with Like-Kind Exchange Services (“Like-Kind”) to facilitate an exchange of property pursuant to 26 U.S.C. § 1031. Rechtzigel purchased title insurance from Fidelity. At closing Rechtzigel deeded the Apple Valley property to Like-Kind, which then deeded it to Pulte Homes. Pulte Homes paid Like-Kind $600,000 which was then paid to the sellers of the Jackson property. The deed for the Jackson property was transferred directly to Rechtzigel.
Thereafter Like-Kind filed for bankruptcy. The bankruptcy trustee initiated a preference action demanding that $600,000 be returned to the bankruptcy estate under 11 U.S.C. § 547(b)(4)(A). Fidelity refused Rechtzigel’s request to defend it against the trustee’s claims under the title insurance policy. Rechtzigel settled with the trustee and then sued Fidelity alleging that it breached its duty to defend.
The Minnesota Court of Appeals held there was no duty to defend because the trustee’s claims sought only the money that was transferred, not the Jackson property itself. There was therefore never any threat to the marketability of title to the Jackson property. The Court also held that Like-Kind never had possession of or an actual interest in the Jackson property because title was transferred directly to Rechtzigel at closing. Thus, the trustee could not have included the Jackson property in the preference action. Because the trustee did not take any action that would create a lien or encumbrance on the Jackson property or otherwise affect the property’s marketability, no coverage was afforded under the title insurance policy.
Rechtzigel v. Fidelity Nat’l Title Ins. Co. of New York, A07-0645 (Minn. Ct. App. 5/6/08).
3. CONSTRUCTION LAW - STATUTORY NEW HOME WARRANTIES – STATUTE OF REPOSE –
CONTRIBUTION AND INDEMNITY
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Minn. Stat. § 541.051 as amended in 2007 allows claims for contribution and indemnity after the 10-year statute of repose runs on claims arising from an improvement to real property. The 2007 amendment applies retroactively.
After settling a homeowner’s breach of warranty claim, a general contractor sued a stucco subcontractor for contribution and indemnity. The district court granted summary judgment on grounds that the claim was barred by the 10-year statute of repose § 541.051. The home was substantially completed in October 1994. The underlying lawsuit was commenced on May 4, 2004, and that case was settled on April 7, 2005. This case was commenced on May 3, 2006.
While the appeal from summary judgment was pending, § 541.051 was amended “effective retroactively from June 30, 2006.” The amended statute allowed claims for indemnification and contribution after the 10-year repose period.
The Minnesota Court of Appeals held that there was clear intent on part of the legislature to allow for retroactive claims, and that the retroactive application of the statute revived the appellant’s claim. The Court rejected the contention that any retroactive legislation that divests a private vested interest is unconstitutional, holding that there is no vested interest until a final judgment has been entered. Since the summary judgment had been timely appealed, there was no vested interest. Thus, the indemnification and contribution action was timely.
U.S. Home Corp. v. Zimmerman Stucco and Plaster, Inc., A07-0889 (Minn. Ct. App. 5/13/08).
4. INSURANCE COVERAGE - CGL POLICY POLLUTION EXCLUSION
Composting Concepts, Inc., (“CCI”) an operator of a compost site, was sued by nearby residents alleging that they suffered personal injuries and property damage from living organisms, mold, bacteria and bioaerosols generated by the compost materials. CCI’s insurer denied coverage based on the pollution exclusion, which precludes coverage for bodily injury or property damage “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.” “Pollutants” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”
The Minnesota Court of Appeals first refused to use extrinsic evidence in analyzing the terms of the policy. It then held that the materials from the site were “dispersed” in a gaseous state or as a fume. The Court concluded the dispersed materials were a “contaminant” or an “irritant,” and that there was no basis in the policy to distinguish organic from inorganic contaminants. Thus, the Court held that the policy unambiguously precluded coverage for personal injuries and property damage allegedly resulting from the dispersal of such materials.
Larson v. Composting Concepts, Inc., A07-676 (Minn. Ct. App. 5/13/08) (unpublished).
Editorial Staff |
C. Lundberg, C. Morris, K. Putney, R.A. Williams, |
Writers this Week: |
Paula M. Semrow, Shanda K. Pearson and Nicole A. Delaney |