Case Name: David FRANKSON, Respondent, v. DESIGN SPACE INTERNATIONAL, et al., Appellants
Court: Minnesota Court of Appeals
Jurisdiction: Minnesota
Decision Date: 1986-01-21
Citations: 380 N.W.2d 560
Docket Number: No. C5-85-708
Parties: David FRANKSON, Respondent, v. DESIGN SPACE INTERNATIONAL, et al., Appellants.
Judges: Heard, considered and decided by the court en banc consisting of POPOVICH, C.J., and PARKER, FOLEY, WOZNIAK, LANSING, HUSPENI and CRIPPEN, JJ.
Reporter: North Western Reporter 2d
Volume: 380
Pages: 560–575

Head Matter:
David FRANKSON, Respondent, v. DESIGN SPACE INTERNATIONAL, et al., Appellants.
No. C5-85-708.
Court of Appeals of Minnesota.
Jan. 21, 1986.
Certification Granted Feb. 19, 1986.
Wellington H. Law, Christopher S. Hay-hoe, Paul C. Wolf, Edina, for respondent.
Allen I. Saeks, James V. Roth, Minneapolis, for appellants.
Heard, considered and decided by the court en banc consisting of POPOVICH, C.J., and PARKER, FOLEY, WOZNIAK, LANSING, HUSPENI and CRIPPEN, JJ.

Opinion:
OPINION
CRIPPEN, Judge.
Respondent David Frankson, an employee of appellant Design Space International (DSI) since 1974, was discharged by DSI on November 17,1980. Frankson subsequently sued appellant for defamation, termination in breach of an employment contract, and unpaid salary and commissions. DSI counterclaimed, alleging that Frank-son breached covenants not to compete and not to divulge trade secrets and claiming Frankson engaged in unfair competition and deceptive trade practices.
At the close of the evidence at trial, the judge directed a verdict for Frankson on all counterclaims. The trial court jury found that Frankson was employed at will and that DSI did not breach employment agreements in determining Frankson's compensation or terminating his employment. However, the jury found that Frankson was entitled to receive $28,196.27 for the reasonable value of his services in excess of salary and commissions already paid.
The jury also found that statements contained in Frankson's termination letter were untrue and made with actual malice. The jury awarded $70,000 in damages resulting from the defamation and an additional $125,000 in punitive damages.
DSI appeals from the judgment based on the jury's verdict and from the trial court's directed verdict on DSI's counterclaims. We affirm. For reasons noted in our opinion, we certify the case to the supreme court.
FACTS
Frankson began working for DSI in 1974. DSI sells and leases modular units and trailers for use as offices and living quarters, primarily for on-site construction projects. Frankson's employment was governed by a series of written contracts. These contracts were for the term of employment and one year thereafter; Frank-son and other employees typically signed new contracts only when given pay raises or duty changes. The contract of the parties in effect when DSI terminated Frank-son in November 1980 was dated February 1, 1980.
When Frankson signed the February 1980 contract, he was moving into the job of Major Projects Manager, but he retained the title of Branch Sales Manager. DSI had not yet found a replacement for him in the Branch Sales Manager position. The contract states Frankson was both Branch Sales Manager and Major Projects Sales Representative.
In addition to his salary, Frankson earned sales commissions. The terms governing commissions were contained in a separate document entitled "Compensation Plan" and are not set out in the employment agreement of February 1980. The Compensation Plans were revised annually. They contained the following clause:
The maximum cumulative commission payable for one or more contracts with one customer, during the fiscal year, shall not exceed $5,000.
In September 1979, Frankson signed a statement indicating that he had reviewed and accepted his latest Compensation Plan. However, Frankson typed in his own exception to the Plan and requested that DSI's president acknowledge the exception by signing and returning the document. The exception was a waiver of the $5000 limit noted above. DSI's president, Ray Wool-dridge, never signed or returned the document.
The job of Major Projects Manager was a promotion for Frankson. The Major Projects program was aimed at larger sales and lease contracts, specifically those exceeding $100,000 or those involving in excess of 25 units per year. It also included federal government contracts and contracts involving exportation of units outside the United States. Frankson was concerned about the limit on his commissions per customer because a major project typically involved only one customer but could include several large contracts and could require most of his time. Frankson testified that he signed the 1979 Plan because at the time he was not yet into the Major Projects program. Anticipating his advancement, he added the exception requesting the waiver of the $5000 limit.
Frankson discussed the issue with his supervisor, company Vice President William Lindelow, who reassured him that a new Compensation Plan for major projects would have a much higher limit or no limit at all.
In May 1980, a new employment agreement and a Compensation Plan for Major Projects was distributed to Frankson. The Compensation Plan contained no limit on commissions earned. However, that Plan never took effect because two days after Frankson received it he was directed to return the new documents unsigned. Apparently, the Compensation Plan had gone out prior to approval by DSI's president.
Frankson received a revised Compensation Plan on July 31, 1980. This Plan was to cover August 1, 1980 through July 31, 1981. The Plan contained a $10,000 limit on commissions earned through sales to a single customer. Frankson signed the Plan on August 6, 1980.
Frankson was unhappy about the $10,000 limit on commissions and again talked to Lindelow about it. Frankson had been working on a major project with a customer named Montana Power and had sold $2,319,627 in contracts to them during the six months before he received the Compensation Plan containing the $10,000 limit. He had not consummated many other contracts during this period, so he was concerned about receiving "full" commissions on his sales to Montana Power. Lindelow testified he cautioned Frankson "many times" about putting all his efforts into the Montana Power project and that Wool-dridge would decide the amount of commission that Frankson would be paid.
Lindelow advised Frankson to prepare a memo showing his sales made to Montana Power and the commissions payable on those sales. When Lindelow received the memo in late August 1980, he wrote "OK to pay" on it, signed it, and forwarded it to Ray Wooldridge. Wooldridge did not agree to pay the full commission, which totaled $28,196.27.
The DSI compensation committee discussed the commission dispute and proposed to pay Frankson $10,000, $5000 more than the limit DSI proposed for Frankson's September 1979 Compensation Plan. Major Projects sales personnel had in the past operated under compensation plans that differed from the standard plan and Frank-son had been in Major Projects full time since early 1980. Frankson refused to accept the $10,000 when it was tendered to him.
On November 17, 1980, Lindelow and DSI's personnel manager, Edward Burns, went to Frankson's office and presented him with a letter of termination. The letter gave the reason for discharge as "failure to increase business as a Major Projects Sales Representative." The letter was dictated by Burns, typed by his secretary, placed in Frankson's personnel file, and also distributed to Lindelow and Wool-dridge. Frankson then brought suit against DSI.
At trial, Frankson presented quarterly sales performance statistics showing that he was first among Major Projects Managers in September 1980. He presented evidence that had his sales figures been included in the quarterly figures for the quarter ending in October 1980, he would have again been first, with sales of 71,120 square feet. The second place person sold only 15,532 square feet. As of September 1980, Frankson also showed that he was first in sales for 1980 through September, and that he had an outstanding sales record when he was Branch Sales Manager.
Besides evidence of his past sales achievements, Frankson presented evidence of the sales projects he worked on in 1980. He submitted a list of 10 projects he was working on in February 1980. He listed four other projects that he worked on in the summer of 1980. He testified that he attended sales conventions and trade shows to get leads for potential sales.
DSI presented some testimony to refute Frankson's evidence about his performance record. Lindelow testified that Frankson's sales for the third quarter of 1980 were all from the large Montana Power contract. He stated that the Montana Power transaction had actually taken place five months before the sales figures were released, so the figures did not reflect Frankson's performance m the months immediately before his termination. He testified that in the fiscal year beginning September 1980, Frankson had no sales.
After leaving DSI, Frankson did not look for another sales job, but he started his own business in early 1981. The business, called Space Mobile and Modular Structures, is similar in nature to DSI. Their size and financial bases are, however, dissimilar. Frankson, who started with $5000, has not earned a profit in his business. He operates the business out of his home.
DSI is owned by Gelco, a multi-national firm, and it is a division of Transport International Pool, Inc., which had $173 million in sales in 1984. DSI alone had $40 million in sales in 1984.
Appellant claims that by starting this company within a year of his termination, Frankson violated the non-compete clause in his contract with them. DSI also claims that Frankson's use of the word "SPACE" constitutes unfair competition. In addition, appellant claims that Frankson made use of confidential information in violation of a covenant not to divulge trade secrets and that Frankson engaged in deceptive trade practices. DSI did not produce evidence of damages, lost sales, use of trade secrets, or deceptive trade practices.
' ISSUES
1. Was the defamatory statement published?
2. Was there sufficient evidence of malice to overcome the qualified privilege?
3. Was there sufficient evidence to support the jury's award of $70,000 in damages resulting from defamation?
4. Was there sufficient evidence to support the jury's award of $125,000 in punitive damages?
5. Did the trial court err in its evidentia-ry rulings?
6. Did the trial court err in directing a verdict for Frankson on DSI's counterclaims?
ANALYSIS
1, The elements of a common law defamation action are well settled. In order for DSFs statement to be defamatory (1) it must have been communicated to someone other than Frankson, (2) it must be false, and (3) it must tend to harm Frankson's reputation and to lower him in the estimation of the community. See Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 255 (Minn.1980). Since the defamation affected Frankson in his business, trade, profession, office or calling, it constitutes defamation per se, satisfying the third element, and is actionable without any proof of actual damages. See id.
DSI does not challenge the jury's decision that its statement about Frankson was untrue and does not dispute the trial judge's conclusion that the statement was defamatory per se. It contends, however, that Frankson failed to show that the statement was published or communicated such as to make the defamation actionable. DSI argues that "in-house" publication, particularly where limited to the personnel director, his secretary, and DSI's president and vice-president, does not constitute publication for defamation purposes.
An in-house communication of a defamatory statement is a publication. Hebner v. Great Northern Railway Co., 78 Minn. 289, 290-91, 80 N.W. 1128, 1128 (1899). In Hebner, the plaintiff had been discharged by defendant and went to his ex-employer to get a copy of his service record. When the plaintiff arrived at the defendant's office, the book containing these records was brought into the office and a clerk read the reason for plaintiff's discharge in the presence of another clerk, the defendant, and the plaintiff. The trial court held that this was sufficient publication. Id. See also McKenzie v. Burns International Detective Agency, Inc., 149 Minn. 311, 183 N.W. 516 (1921). In McKenzie, a defamatory statement was found by implication to be published when the only listeners were the plaintiff and his ex-employer's manager. Publication was not questioned or discussed by the supreme court in the course of its opinion on the issue of whether the statement was protected by privilege. Id. at 312-13, 183 N.W.2d at 516-17. Other cases since McKenzie have followed the method of analysis used there. See, e.g., McBride v. Sears, Roebuck & Co., 306 Minn. 93, 96-97, 235 N.W.2d 371, 374 (1975) (communications between employer's agents made in the course of investigating or punishing employee misconduct, when made upon a proper occasion and for a proper purpose, are privileged).
Not all jurisdictions agree that in-house communications such as occurred in this case constitute publication. See Annot., 62 A.L.R.3d 1207, 1218-21 (1975). The Minnesota rule, however, is the more prevalent position, and it enjoys important additional support. Restatement (Second) of Torts says in part:
The dictation of a defamatory letter to a stenographer who takes shorthand notes is itself a publication of a libel by the person dictating the letter even though the notes are never transcribed nor read by the stenographer or any other person.
Restatement (Second) of Torts § 577 comment h (1977). In addition, Professor Pros-ser writes:
There may be publication to any third person. It may be made to the defendant's own agent, employee or officer, even where the defendant is a corporation. The dictation of defamatory matter to a stenographer generally is regarded as sufficient publication, although it may be privileged.
W. Prosser and W. Keeton, Prosser and Keeton on the Law of Torts § 113, at 798-99 (5th ed. 1984) (citing, inter alia, Pullman v. Walter Hill & Co., 1 Q.B. 524, 60 L.J.B. 209 (1891); Rickbeil v. Grafton Deaconess Hospital, 74 N.D. 525, 23 N.W.2d 247 (1946); Ostrowe v. Lee, 256 N.Y. 36, 175 N.E. 505 (1931); Arvey Corp. v. Peterson, 178 F.Supp. 132 (E.D.Pa 1959); Gambrill v. Schooley, 93 Md. 48, 48 A. 730 (1901); Berry v. City of New York Ins. Co., 210 Ala. 369, 98 So. 290 (1923)).
The court in the Rickbeil case, where the only publication was dictation to a stenographer, stated the rule succinctly:
Publication of defamatory matter is the communication of the same to a third person. The action may be maintained even if published to one person only. To publish is to intentionally exhibit the defamatory words to one other than the libelee. No words more definitely convey the idea requisite in law to support an action for writing defamatory words.
Rickbeil, 74 N.D. at 533, 23 N.W.2d at 251.
We conclude that the dictation of the defamatory letter by Burns to his secretary and the distribution of the letter to a personnel file and to two officers, Lindelow and Wooldridge, constituted publication of the defamatory statement.
2. The defamatory statements were qualifiedly privileged. In the employment context, an employer has the privilege to describe the reason for an employee's discharge. See Stuempges, 297 N.W.2d at 257. However, the jury found that the statements were made with actual malice, a fact that defeats the privilege. See id. n. 4.
When reviewing jury verdicts, the appellate court's role is limited. Testimony is considered in the light most favorable to the prevailing party, and a verdict will only be disturbed if it is manifestly and palpably contrary to the evidence. Where, as here, the jury must consider the demeanor of the witnesses, review is even more limited. Id. at 256 (cites omitted).
The Minnesota Supreme Court, citing McKenzie, has held that common law malice is established by proving "ill will or improper motive" toward a plaintiff. Jadwin v. Minneapolis Star & Tribune Co., 367 N.W.2d 476, 481 n.5 (Minn.1985). In the present case, the trial court gave the jury lengthy instructions on the identification of malice. The trial judge described malice in several different ways, including knowledge of falsity, reckless disregard of truth or falsity, bad faith with intent to injure, ill will and improper motive, and willful, wanton and reckless disregard of Frankson's rights and interests.
Portions of the trial judge's instructions are an overstatement of the applicable standard, since knowledge of falsity and reckless disregard of the truth or falsity need only be shown to overcome the First Amendment publication privilege. See New York Times Co. v. Sullivan, 376 U.S. 254, 279-80, 84 S.Ct. 710, 725-26, 11 L.Ed.2d 686 (1964). The overstatement indicates that the jury found evidence of a greater degree of malice than needed to show that fact for purposes of respondent's claim.
We conclude the evidence here was sufficient to sustain the jury's verdict on malice. The jury heard extensive direct evidence on respondent's job performance and on the dispute regarding his compensation. It heard ample evidence that DSPs statement about Frankson was false, and DSI has not appealed on the sufficiency of proof for a jury finding on that fact. The testimony is adequate to support inferences that DSI officials chose in bad faith to hurt Frankson when they documented and preserved the false statement that Frankson did not produce sales.
DSI argues that the failure of Frankson to show any communication outside DSI compels the conclusion that there was no bad faith, no intent to injure, and no improper motive. We cannot agree. To define malice as a matter of law solely by distinguishing among different forms of actionable publication is tantamount to a mandate for proof that publication is actually injurious, a proposition in direct conflict with the primary concept that business defamation is actionable per se, without the sometimes impossible demonstration of actual damage. See Stuempges, 297 N.W.2d at 255.
3. Because the statements made by DSI were defamatory per se as def-amations of Frankson's business reputation, general damages are presumed. See Stuempges, 297 N.W.2d at 259. The appel late courts tend to leave the amount to be awarded to the jury's discretion. Id. In this case, Frankson chose not to pursue sales employment elsewhere, but instead opened his own business. He testified that he knew he would not be hired by any company because DSI's stated reason for terminating him was his failure to increase business. It was for the jury to assess the weight and credibility of this testimony. Moreover, the jury received an instruction on Frankson's duty to mitigate damages, which would operate to lessen their award to Frankson because he in fact did not seek other employment. The jury nevertheless chose to believe Frankson's assessment of his earning prospects and awarded $70,000.
Appellant points to cases where publication was much more extensive or where evidence of actual pecuniary loss was much greater than in the present case, but damage awards were much smaller. In Stuempges, for example, where plaintiff proved a causal relationship between the defamation and his inability to find employment, the jury awarded only $17,250 in actual damages, $10,500 in compensatory damages, and $10,000 in punitive damages. 297 N.W.2d at 254.
We find appellant's argument that the damage award is excessive to be unconvincing. A wide range of damage awards is inevitable in varying fact situations considered by different juries. Cf. Advanced Training Systems, Inc. v. Caswell Equipment Co., 352 N.W.2d 1, 11 (1984) (jury award of $75,000 in actual damages and $250,000 in punitive damages not excessive for libel). The jury's decision here was not manifestly or palpably contrary to the evidence so as to warrant disturbing the amount of the damage award.
4. The amount of punitive damages is a decision almost exclusively within the province of the jury. The standard for disturbing the award is that it must be so excessive as to be unreasonable. Stuempges, 297 N.W.2d at 259. Punitive damages are recoverable in cases of defamation per se without proof of actual damages. Id.
Minnesota statutes list several factors that measure punitive damage awards. See Minn.Stat. § 549.20, subd. 3 (1984). The trial court aptly summarized the factors to the jury as follows:
First, the seriousness of the hazard to the plaintiff arising from the defendant's publication of the defamatory statement.
Second, the profitability of the publication of the defamatory statement to the defendant.
Third, the duration of time involved in the publication of the defamatory statement.
Fourth, the degree of the defendant's awareness of the hazard in publishing the defamatory statement and its awareness of the excessiveness of such statement.
Fifth, the attitude of the defendant in regard to the publication of the defamatory statement.
Sixth, the number and level of employees involved in causing the publication of the defamatory statement.
And, finally, seventh, the financial condition of the defendant.
DSI is a profitable corporation owned by Gelco, an extremely large and profitable corporation. DSI's awareness of the exces-siveness of its defamatory statement may also have influenced the jury. The disparity between the alleged reason for termination and Frankson's sales record, plus the questionable testimony at trial by Lin-delow and Burns that the commission dispute was not even discussed at the meeting where they decided to terminate Frankson may have increased the jury's desire to punish the wrongdoer.
There was an absence of evidence showing that DSI intended to use the defamatory statement to keep Frankson from obtaining employment. However, the fact that DSI falsely documented an employee's record, and the fact that DSI would fire one of its top sales employees because he demanded performance on an oral agreement on commissions presents a sufficient case for punitive damages. Moreover, DSPs wealth shows that, unless the puni tive damages are high, they will not serve their deterrent purpose. The jury's award of punitive damages cannot be disturbed.
5. Appellant alleges several evi-dentiary errors by the trial court. First, DSI contends that the trial court erred in excluding evidence regarding the eventual fruit of efforts started by Frankson but unfinished when he was discharged. Appellant contends this decision deprived the jury of evidence to rebut Frankson's evidence that he was a top sales employee. Counsel made no offer of proof about eventual fruitlessness of Frankson's sales efforts and it is apparent that this evidence had no bearing on the truth of DSFs discharge statement at the time it was made. DSI's counsel had a full opportunity to cross-examine Frankson about his successes and failures through the time he was discharged.
Second, DSI argues that because the evidence showed that Frankson admitted he knew Lindelow did not have the authority to negotiate the commission amounts with him, it was error to submit the question of Lindelow's apparent authority to the jury. Frankson's testimony is not as unambiguous as appellant asserts. In fact, Lindelow's own testimony about his authority and his representations to Frankson was also ambiguous.
Third, appellant claims that evidence concerning communications between Frankson and the DSI management regarding the terms and conditions of his employment was inadmissible parol evidence. In addition, the Frankson employment agreement says that the "foregoing contains the entire Agreement of the parties hereto, and no modification thereof shall be binding upon the parties unless such modification is in writing and signed by the parties hereto or unless otherwise provided herein." The evidence showed that DSI did not adhere to this paragraph.
The parol evidence rule only excludes evidence that is prior to or contemporaneous with a written contract. See Ortendahl v. Bergmann, 343 N.W.2d 309, 312 (Minn.Ct.App.1984). The communications that appellant questions occurred after Frankson was in DSI's employ and after he had signed more than one employment agreement. Further, the crucial discussions did not concern the terms of the employment agreement, but those of the Compensation Plan. Because the September 1979 Plan was never signed by both parties, and because of Frankson's continuing objection to the $5000 limit contained in that Plan, it is doubtful that any agreement existed to which the parol evidence rule may be applied. Finally, the terms of the August 1980 Plan that Frankson did sign and agree to are not at issue in this case.
Fourth, appellant contends that because Frankson's claim was predicated upon an express contract, there can be no recovery under a theory of quantum meru-it. This agreement ignores the fact that Frankson's quantum meruit claim was submitted as an alternative to the breach of contract claim. Whether or not there was an agreement between Frankson and DSI regarding the amount of Frankson's commissions was a fact question decided by the jury. When the jury failed to find a breach of the contract, it properly turned to Frank-son's equitable claim for the reasonable value of his services. See Ritchel v. Remington, 155 Minn. 154, 156, 193 N.W. 32, 33 (1923) (where full agreement as to compensation has not been made, the employee may recover the reasonable value of his services).
Fifth, appellant argues that it was error to admit the testimony of two other Major Projects Managers on the issue of the reasonable value of Frankson's services. The evidence was relevant because persons in similar positions within the organization are in the best position to know what value the company gives to the position. At trial, the court sustained DSI's objections to this testimony to the extent that it required further foundation to be established regarding the witnesses' personal knowledge of the information requested. The trial court correctly stated that, with a proper foundation, the two were then entitled to give their opinion, and the jury would then give the testimony the credibility and weight that it felt was warranted.
6. DSI did not present any evidence to substantiate their counterclaims. The trial court properly directed a verdict for Frankson on these claims.
7. The application of defamation law to the facts here has important consequences. The issues here on publication and malice have not been specifically addressed by the supreme court, and it should review these questions. Moreover, the supreme court has pending before it the case of Lewis v. Equitable Life Assurance Society, 361 N.W.2d 875 (Minn.Ct.App.1985), pet. for rev. granted (Minn.1985), which also involves, inter alia, an issue on malice in a claim of an employer's defamation while discharging employees. For these reasons it is appropriate to certify the case for accelerated review by the supreme court. See Minn.Stat. § 480A.10, subd. 2(b) (1984).
DECISION
The trial court did not err in its evidentia-ry rulings or in its directed verdict for Frankson on DSI's counterclaims. Appellant's distribution and filing of a false statement constituted publication for a lawful defamation claim. The jury's finding of malice and its damage awards were supported by the evidence.
Affirmed and certified.
FOLEY and HUSPENI, JJ., concur specially.
LANSING, J., concurs specially in part and dissents in part.
WOZNIAK, J., dissents.
ORDER
CERTIFICATION AND REQUEST
WHEREAS, the above-entitled appeal is now pending in this court; and
WHEREAS, this court has determined that certification of the matter to the supreme court for accelerated review pursuant to Minn.Stat. § 480A.10, subd. 2(b) (1984) is appropriate for the following reasons:
(1) The questions presented are important ones upon which the court has not, but should specifically rule,
(2) The Supreme Court has pending before it the case of Lewis v. Equitable Life Assurance Society, 361 N.W.2d 875 (Minn.Ct.App.1985), pet. for rev. granted, (Minn. March 29, 1985), which involves at least one issue presented by this case.
(3) The analysis contained in the attached opinion.
IT IS HEREBY REQUESTED that the supreme court approve the certification of this matter. Counsel for any party may file a response to this request with the Supreme Court Commissioner, 322 State Capitol, St. Paul, MN 55155 within ten days of the date of this document.
Dated January 14, 1986.
BY THE COURT
Gary L. Crippen Presiding Judge