Reach Cos. v. Newsert LLC

1

Reach Companies, LLC, Plaintiff and Counter Defendant, v. Newsert LLC, Defendant and Counter Claimant.

No. 20-cv-01129 (ECT/JFD)

United States District Court, D. Minnesota

November 10, 2022

Michael C. McCarthy and Judah Druck, Maslon LLP, Minneapolis MN, for Plaintiff Reach Companies, LLC.

Mark L. Johnson and Aaron P. Knoll, Greene Espel PLLP Minneapolis, MN, for Defendant Newsert LLC.

OPINION AND ORDER

Eric C. Tostrud, Judge United States District Court

The jury in this breach-of-contract case returned a verdict in favor of Defendant and Counter-Claimant Newsert LLC, awarding it damages of $1,196,364, and rejecting the claims asserted by Plaintiff and Counter-Defendant Reach Companies, LLC. Three post-trial motions require adjudication: (1) Newsert moves to amend the judgment to include prejudgment interest totaling $265,493.70. This motion will be granted because the requirements of Minnesota's prejudgment interest statute are met. (2) Reach moves for a new trial, essentially challenging the evidence in one respect and a jury instruction. This motion will be denied because the evidence supports the challenged portion of the jury's verdict and because the challenged instruction, along with its associated legal ruling, were correct. (3) Prompted by mid-trial cash transfers made by Reach owner and CEO John Tollefson from Reach to another Tollefson-controlled business, Newsert seeks leave to file and serve a supplemental complaint and an order of prejudgment attachment. These requests will be granted because the better answers at this stage are that Tollefson intended the transfers to hinder, delay, or defraud Newsert as judgment creditor and that an attachment order is necessary to secure satisfaction of the judgment.

I

The facts specifically relevant to the post-trial motions are as follows. Two business organizations, Reach and Newsert entered a hand-sanitizer sales agreement during the early months of the COVID-19 pandemic. ECF No. 70 at 1. Reach agreed to sell hand sanitizer to Newsert. ECF Nos. 1, 8. Their business relationship broke down after little more than a month, and each asserted contract and tort claims against the other, id., though their tort claims did not survive summary judgment, ECF No. 70 at 22. Reach claimed Newsert backed out of commitments to purchase several million dollars' worth of hand sanitizer, causing Reach significant damages. ECF No. 1. Newsert claimed that Reach failed to deliver hand sanitizer as agreed, causing Newsert significant damages. ECF No. 8.

On May 4, 2020, Newsert sent Reach a written demand for payment. ECF No. 144-1. In this demand, Newsert provided Reach with a rough calculation of Newsert's damages. See id. at 3-5. Newsert told Reach that although “[t]he damage claims do not include the extent of the total damages suffered” it would accept $567,632.55 to “swiftly resolve this dispute.” Id. at 4. Newsert also reserved the right to seek additional damages. Id. at 5. On May 8, 2020, Reach filed its complaint, thus commencing this case. ECF No. 1. Newsert then filed an answer and counterclaim on June 1, 2020, in which it alleged it had been damaged in excess of $500,000 as a result of lost profits on certain hand sanitizer orders. ECF No. 8.

Trial began on July 18, 2022. See ECF No. 124. The admitted evidence included nineteen written purchase orders. ECF No. 163 at 8; Exs. D-1-D-19; ECF No. 137. Some of these purchase orders provided that goods should be delivered “ASAP,” while some contained language with specified delivery dates. See Ex. D-18. For example, one purchase order indicated that the required ship date is “ASAP,” while the notes section states: “Must be shipped no later than 4/14, sooner is better.” Ex D-19.

Tollefson testified on July 18th, 19th, and 20th. ECF Nos. 124, 125, 126. He testified, among other things, that Newsert CEO David Serata did not have an issue with price increases. See ECF No. 164 at 228-29. Serata then testified on July 21st about Newsert's incurred damages with the aid of a spreadsheet he used to track hand sanitizer orders. ECF No. 166 at 806-10; Ex. D-144. This spreadsheet was admitted into evidence by stipulation. ECF No. 82 at 18; see ECF No. 163 at 7-8.

In a pre-trial motion in limine, Newsert sought to exclude parol evidence relating to the written purchase orders. ECF No. 106. Reach opposed this motion, arguing that the purchases fell under an exception to the parol evidence rule allowing parol evidence to explain the meaning of the terms of an incomplete or ambiguous agreement. ECF No. 120. At the Court's invitation, Reach filed a supplemental memorandum during trial in which Reach argued that its communications with Newsert should be admitted under the UCC's custom and trade exception. ECF No. 134. I determined that the purchase orders were unambiguous, and the following instruction was provided to the jury:

During trial, you heard testimony about oral and written communications between Reach and Newsert concerning the terms of their contracts. Evidence of communications or interactions that occurred before the formation of a written contract-in this case, a purchase order-may not be used or considered by you to alter, supplement, or contradict the written terms of that purchase order. In other words, the terms of the purchase order regarding price, shipping deadlines, type and quantity of goods, and any other requirements, are unambiguous and may not be modified or altered by evidence of prior oral or written communications.

After a written contract is formed, parties may agree to substitute different contract terms for the original contract terms. This is called a modification. Reach claims that the parties agreed to modifications of the parties' written contracts. To prevail, Reach must prove any modification by clear and convincing evidence. The clear-and-convincing-evidence standard is higher than the greater-of-the-weight-of-the-evidence standard. The clear-and-convincing-evidence standard requires that the truth of the facts asserted is highly probable.

ECF No. 135 at 21.

At trial, Newsert sought $2,196,364 in damages from Reach. ECF No. 166 at 904. This total consisted of:

• Unused advance payments: $240,060.

• Overcharges: $263,192.

• Lost profits: $693,112.

• Hand sanitizer Newsert was unable to sell: $1,000,000.

ECF No. 166 at 902-04. The jury returned its verdict on July 21, 2022, awarding Newsert $1,196,364. ECF No. 138. The verdict form did not itemize damages. See id. The next day, judgment was entered in favor of Newsert on its breach-of-contract claim and against Reach's breach-of-contract claim in accordance with the jury's verdict. ECF No. 139.

After trial, Newsert learned that on July 20, 2022, the day he concluded his trial testimony, Tollefson signed two checks on behalf of Reach, paying Munster Real Estate, LLC a total of $1,249,704.72. See ECF No. 180 at 12; ECF No. 165 at 444-524. Jon Tollefson owns and controls Munster. ECF No. 189-1 at 3; see ECF No. 179-2 at 2; ECF No. 187 at 2. The first check was for $884,009.97, and the second check was for $365,694.75. ECF No. 180 at 12. When those two checks cleared on July 26, 2022, Reach's bank account balance was reduced from $1,396,461.97 to $152,663.62. ECF No. 180 at 9. By the time Newsert served its statutory garnishment summons on Reach's bank, all it could collect was $66,766.49. ECF No. 180 at 2. Thus, $1,129,597.51 of Newsert's judgment remains uncollected from Reach.

II

Begin with Newsert's motion to amend the judgment in its favor to include $265,493.70 in prejudgment interest. ECF No. 149 at 1. In Minnesota, prejudgment interest awards are governed by statute. Under Minn. Stat. § 549.09 subdiv. 1(b) when a judgment is for the recovery of money, prejudgment interest is calculated “from the time of the commencement of the action . . . or the time of a written notice of claim, whichever occurs first.” Minn. Stat. § 549.09 subdiv. 1(b). This statute also provides that if a judgment is for over $50,000, “the interest rate shall be ten percent per year until paid.” Minn. Stat. § 549.09 subdiv. 1(c)(2).

There were 810 days between Newsert's May 4, 2020 written demand, ECF No. 144-1, and the July 22, 2022 judgment entered in its favor, ECF No. 139. As the judgment is for over $50,000, prejudgment interest accrues at a rate of ten percent per year. See Minn. Stat. § 549.09 subdiv. 1(c)(2). Ten percent of Newsert's $1,196,364 jury verdict comes to $119,636.40 in interest per year, or $327.77 in interest per day. This daily amount, $327.77, multiplied by the 810 days between the written demand and judgment, leaves Newsert with a total prejudgment interest award of $265,493.70.

Reach contends that prejudgment interest is not available when the amount of the claim is dependent in whole or in part on the discretion of the jury. See Baufield v. Safelite Glass Corp., 831 F.Supp. 713, 719 (D. Minn. 1993). At oral argument, Reach claimed that this contention is not based on the ascertainability rule, a common-law doctrine under which “prejudgment interest is not allowed on unliquidated claims that are not readily ascertainable by computation or by reference to generally recognized standards, or where the amount of the claim is dependent in whole or in part upon the discretion of the jury.” Id. at 719 (quoting Noble v. C.E.D.O., Inc., 374 N.W.2d 734, 743 (Minn.Ct.App. 1985)). The ascertainability rule was overturned with the passage of Minn. Stat. § 549.09. See Lienhard v. State, 431 N.W.2d 861, 865 (Minn. 1988); Gen. Mills Operations, LLC v. Five Star Custom Foods, Ltd., 845 F.Supp.2d 975, 979 (D. Minn. 2012) aff'd, 703 F.3d 1104 (8th Cir. 2013) (“[B]ecause the Minnesota Supreme Court clearly held in Lienhard that prejudgment interest...