Opinion ID: 703939
Heading Depth: 2
Heading Rank: 2

Heading: Is quantum meruit available for the post-Bloom period?

Text: 19 The post-Bloom contracts pose different issues. It is clear that Ventura performed commentating services between 1987 and 1990 pursuant to a series of contracts with Titan. It is also clear that the post-Bloom Ventura-Titan contracts included an arrangement concerning videotape royalties. Bloom specifically inquired about royalties and was told of the Titan policy. In reliance upon this purported policy, Ventura waived his rights to royalties. Titan contends that Ventura is not entitled to recovery in quantum meruit for the post-Bloom period because of the existence of express contracts waiving royalties. See Sharp, 347 N.W.2d at 271 ( 'It is fundamental that proof of an express contract precludes recovery in quantum meruit.'  (quoting Breza v. Thaldorf, 276 Minn. 180, 149 N.W.2d 276 (Minn.1967))). Thus, the question reduces to whether Ventura may avoid the express contract waiving royalties and recover these royalties under quantum meruit. We believe that the district court correctly concluded that Ventura was entitled to avoid the fraudulently induced contracts and to recover the reasonable value of the royalties. 20 We address two issues. First, we decide whether Ventura is entitled to introduce evidence of fraud when his only cause of action at trial was quantum meruit. Second, we address Titan's challenge to the sufficiency of the evidence concerning fraudulent inducement. 21 We believe that Ventura is entitled to introduce evidence of fraudulent inducement, despite the fact that this fraud theory was not pleaded. In ruling on pretrial motions, the district court granted Titan's motion to exclude evidence concerning Titan's fraudulent misrepresentation of its royalty policy as proof of Ventura's fraud theory because Ventura had failed to plead Titan's fraudulent misrepresentations of its royalty policy with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. Add. at 34-35. Although there was some confusion as to whether Ventura's pleaded fraud claim (i.e., Titan's misrepresentations concerning its marketing plans for Ventura's commentaries) survived the district court's ruling, it is clear that Ventura abandoned all fraud claims before trial. App. at 53-57. The district court denied Titan's motion to strike Ventura's quantum meruit claim and held that Ventura could present his quantum meruit theory provided that he presented credible evidence of fraudulent inducement. Add. at 37. Titan's Sixth and/or Seventh Defenses in its Answer to Ventura's Second Amended Complaint raise a covered by contract defense to Ventura's quantum meruit claim. Because Ventura had no opportunity to file a responsive pleading, Federal Rule of Civil Procedure 8(d) deems Titan's covered by contract defense to be denied or avoided (i.e., it permits Ventura to raise the fraudulent inducement issue although it was not pleaded). Fraud is only in the case because of this covered by contract defense. This fraud rescinded or set aside the contract, opening the door to his quantum meruit claim. Thus, we conclude that Ventura was entitled to introduce evidence of fraudulent inducement to avoid this defense. 22 Ventura clearly pursued only the rescission to eliminate the contract and open the door to quantum meruit before trial. On the first day of trial, as preliminary matters were being decided, counsel representing Ventura stated unequivocally that [w]e are not presenting any claim of misrepresentation or fraud in a separate cause of action. App. at 57. Ventura's counsel continued, making it clear that the only relevance of misrepresentation was to open the door to quantum meruit. 23 Thus, we conclude that the district court properly permitted Ventura to rescind the contract and recover in quantum meruit by proving fraudulent inducement to avoid Titan's covered by contract defense. We believe that Ventura's options were quite similar to those of the plaintiff in Stark v. Magnuson, 212 Minn. 167, 2 N.W.2d 814 (1942). 9 In Stark, the defendant breached a contract with the plaintiff, and the plaintiff disaffirmed the contract and sought quasi-contractual recovery. The court approved of such a course of action. Id., 2 N.W.2d at 815. We turn now to the issue whether Ventura actually proved the fraudulent inducement upon which his quantum meruit claim depends. 24 It is well established under Minnesota law that unjust enrichment and quantum meruit may arise from fraud or several other predicates. See, e.g., Holman, 457 N.W.2d at 745; Hesselgrave, 435 N.W.2d at 863; Timmer v. Gray, 395 N.W.2d 477, 478 (Minn.App.1986); Anderson v. DeLisle, 352 N.W.2d 794, 796 (Minn.App.1984). Nothing in these Minnesota cases requires that all elements of a cause of action for fraud must be proved in order to use fraud as a stepping stone for quantum meruit. However, we begin with the elements of a cause of action for fraud under Minnesota law as a useful guide. See Davis v. Re-Trac Mfg. Corp., 149 N.W.2d 37, 38-39 (Minn.1967) (listing elements of cause of action for fraud). Titan argues that the evidence was insufficient to support the necessary findings of materiality, inducement, justifiable reliance, causation and damages. We disagree. Both Ventura's and Bloom's testimony support the district court's findings. The district court found their testimony to be credible, and we must give deference to the district court's credibility determinations. Fed.R.Civ.P. 52(a) (due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses). 25 The evidence demonstrates that in 1987, Ventura hired Bloom to negotiate with Titan on his behalf. During negotiations, Glover told Bloom that Titan's policy was to pay royalties only to talent featured in their own videotapes, such as the Best of videotapes. Believing it difficult to break Titan's policy, Bloom negotiated an agreement under which Ventura agreed to perform for Titan as a commentator. The agreement did not entitle Ventura to royalties for videotapes of his performances, unless he was the featured performer. Ventura's compensation did not include any payment based on videotape sales. 26 Between 1987 and 1990, Glover and Bloom met annually, in person or by telephone, to negotiate Ventura's performance fees for each broadcast season, and occasionally for special performances. During each negotiation, Bloom asked Glover whether Titan had changed its policy regarding the payment of videotape royalties, and each time Glover reiterated that no talent received videotape royalties unless they were the featured performer on a videotape. Glover also told Ventura of this policy. Bloom and Ventura relied on Glover's statements concerning Titan's royalty policy, and understood that by entering into fee agreements they waived any right Ventura had to royalties. Despite these representations, Titan simultaneously made numerous royalty payments which were inconsistent with the purported policy of not paying royalties except to featured performers. 10 27 In light of this evidence concerning Titan's representations and its history of royalty payments, the district court concluded that from 1987 through 1990, Titan's representations to Ventura that its policy was to pay videotape royalties only to featured performers were false. The district court also found that had Ventura known that Titan did not abide by its stated policy, he would not have accepted a deal which did not compensate him for the reproduction and sale of his performances on videotape. The court further found that Ventura justifiably relied on Titan's fraudulent misrepresentations of its royalty policy, and as a result Ventura suffered damages. Thus, the district court rescinded the 1987-1990 agreements, and permitted Ventura to recover in quantum meruit. In light of the abundance of supporting evidence, we find no basis for concluding the district court's findings were clearly erroneous or lacked sufficient evidentiary support. 28 C. Did the district court abuse its discretion when it relied upon the testimony of Ventura's damages expert? 29 Titan makes two challenges to the testimony of Ventura's damages expert, Weston Anson. First, Titan argues that the district court abused its discretion when it admitted Anson's testimony that was without foundation, speculative and irrelevant. Titan also argues that the district court ignored all of the reliable, relevant evidence. Although not specifically so labeled by Titan, we interpret this second argument as a challenge to the sufficiency of the evidence relating to damages. 30 Our analysis of the admissibility of expert testimony concerning reasonable royalty rates is controlled by Federal Rules of Evidence 702 and 703. These rules require that evidence of scientific knowledge provided by an expert must be relevant and reliable. See Daubert v. Merrell Dow, --- U.S. ----, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Sorensen by and through Dunbar v. Shaklee Corp., 31 F.3d 638, 647 n. 13, 648 (8th Cir.1994). Titan's challenge to the admissibility of Anson's testimony is two-pronged. First, Titan argues that the testimony, which had to do with the market rate for royalties for licensing intellectual property, was irrelevant to the damages issue at trial. Second, in what appears to be a reliability-based challenge, Titan argues that the testimony was impermissibly speculative. We review the district court's decision to admit expert testimony for abuse of discretion. TCBY Sys., Inc. v. RSP Co., 33 F.3d 925, 929 (8th Cir.1994). 31 We believe that the district court did not abuse its discretion when it found Anson's testimony to be relevant. The relevance inquiry under Rule 401 merges the common law requirements of relevancy and materiality. See Fed.R.Evid. 401 advisory committee's note. Anson's testimony is relevant if it makes any material fact more likely than the fact would be in the absence of his testimony. See 22 Charles A. Wright & Kenneth W. Graham, Federal Practice and Procedure Sec. 5165, at 48 (1982 & Supp.1994). 32 Anson's testimony concerned a material fact. Minnesota cases generally state the amount of recovery in quantum meruit as the reasonable value of the benefit (or services) to the defendant. See, e.g., Sagl, 52 N.W.2d at 725; Frankson, 394 N.W.2d at 140; Galante, 379 N.W.2d at 726 (value of the services rendered less benefits received). Section 152 of the Restatement of Restitution, which applies in cases of conscious torts, defines the measure of recovery as the market value of the plaintiff's services irrespective of their benefit to the recipient. Restatement of Restitution Sec. 152, at 606 (1937). Thus, regardless of whether Titan's actions rise to the level of a conscious tort, Anson's testimony concerning the market value of Ventura's videotape license relates to material facts: the value of the license to Titan (the measure of recovery for nonconscious torts) and the value of royalties to Ventura (the measure of recovery for conscious torts). 33 Anson's testimony is relevant because it tended to fix the value of the license/royalty. By providing evidence of the market rate for videotape royalties, Anson's testimony (1) provided direct evidence of the market value of Ventura's license, which is the measure of Ventura's recovery if Titan's conduct was consciously tortious; and (2) assisted the jury in determining the reasonable amount that Ventura's license is worth to Titan by providing the competitive background against which Titan is operating. Titan argues that Anson's testimony is irrelevant because Glover and Bloom negotiated an arm's length deal that should be used as the measure of royalties and, alternatively, because Titan's policy which provides for a royalty rate of less than five percent should be used to determine the amount of the royalty. We reject these arguments. The proof identified by Titan simply provides evidence of a reasonable royalty rate; it does not render competing evidence irrelevant. Accordingly, we conclude that the district court did not abuse its discretion when it concluded that Anson's testimony was relevant. 34 We now turn to the related question whether Anson's testimony was reliable. Titan argues that Anson's testimony is unreliable because it is impermissibly speculative. In order to assess whether Anson's testimony is reliable, we must focus on the methodology and principles underlying the testimony, not the conclusions they generate. Sorensen, 31 F.3d at 648. Anson arrived at his estimate of damages by applying a royalty percentage to Titan's revenues from wholesale distribution of the tapes. The sales figures for the ninety videotapes upon which Ventura appeared were not available, but net profits (a more conservative measure) were established to the penny ($25,733,527.94). The main dispute concerns the royalty rate applied to this figure to generate the royalty that is the measure of damages. Titan's expert figured damages in a similar fashion, applying varying royalty percentages and formulas to base amounts keyed to sales. Anson testified that a five percent royalty was the minimum that he would be satisfied with as an agent and was the single most likely rate, but that rates could range from 3.5% to 7.5%. When applied to the profits figure, these rates yield: $865,723.00 (3.5%), $1,236,747.00 (5%), and $1,855,121.00 (7.5%). 35 We believe that Anson's methodology in arriving at the royalty percentages was reliable. Anson based his opinion as to the reasonable royalty upon a survey of thousands of licensing agreements. It is common practice to prove the value of an article (e.g., a videotape license) by introducing evidence of transactions involving other substantially similar articles (i.e., other licenses). 2 John H. Wigmore, Wigmore on Evidence Sec. 463, at 616-30 (James H. Chadbourn rev. 1979). Anson surveyed licensing agreements involving numerous sports and entertainment figures, App. at 487a (NFL), 489a (major league baseball), as well as various other types of characters. Although no individual arrangement examined by Anson was on all fours with the predicted Ventura-Titan license, in the aggregate, the licenses provided sufficient information to allow Anson to predict a royalty range for a wrestling license. We believe that this methodology is sufficiently reliable to support the admission of Anson's testimony. 36 Titan's other arguments go mostly to Anson's qualifications as an expert. Anson's qualifications are quite impressive, and certainly more so than those of some experts whose testimony this court has permitted. Compare App. at 463-69 (detailing Anson's undergraduate and graduate education and work experience) with Bennett v. Lockhart, 39 F.3d 848, 856-57 (8th Cir.1994) (affirming admission of testimony of deputy sheriff as expert concerning the likely effect of jumping from height of 25 feet into 5 feet of water), cert. denied, --- U.S. ----, 115 S.Ct. 1363, 131 L.Ed.2d 219 (1995). Titan's arguments boil down to an argument that Anson cannot be qualified and his methodology cannot be trusted because he did not personally handle Ventura's licenses. This argument is meritless. Accordingly, we find no abuse of discretion in the district court's admission of Anson's testimony. We also find no merit to Titan's challenge to the sufficiency of the evidence to support the damages award. 37 D. Did the district court clearly err when it denied Ventura's request for prefiling interest? 38 On appeal, the parties agree upon the interpretation of Minnesota law. Under the interpretation adopted by the district court, prefiling interest may be awarded under Minnesota law if the claim was liquidated or readily ascertainable by reference to objective standards. Northwest Airlines, Inc. v. Flight Trails, 3 F.3d 292, 297 (8th Cir.1993) (citing Potter v. Hartzell Propeller, Inc., 291 Minn. 513, 189 N.W.2d 499 (1971)). The district court's determination that Ventura's claim was not readily ascertainable is a factual finding reviewed for clear error. Northwest Airlines, 3 F.3d at 298. 11 Prejudgment interest has been denied where ambiguities in a commission agreement included the length of the required period preceding notice of termination, the exact sales base for the commission and the commission rate (5% vs. 7%). Bitronics Sales Co. v. Microsemiconductor Corp., 610 F.Supp. 550, 555 (D.Minn.1985) (Murphy, J.). 39 Although in this case the ultimate award of damages was made by reference to objective standards (market value), there are sufficient questions to prevent it from being readily ascertainable, thereby precluding an award of prejudgment interest. Anson's testimony established that although 5% was the most likely rate, the potential royalty rate varied between 3.5% and 7.5%. Moreover, as there was no agreement, certain payment details, such as the wholesale sales base, the categorization of tapes upon which Ventura appears in multiple roles and the time periods for accrual and payment of royalties, were also unsettled. Thus, this case presents ambiguities similar to those encountered in Bitronics. The precise royalty rate and payment details were contingencies that the jury was required to resolve. Minnesota law precludes an award of prefiling interest where the factfinder must resolve such contingencies. Hutchinson Util. Comm'n v. Curtiss-Wright Corp., 775 F.2d 231, 242 (8th Cir.1985); Unique Sys., Inc. v. Zotos Int'l, Inc., 622 F.2d 373, 379-80 (8th Cir.1980). 12 40 Minnesota cases have also found that 200% variations in damages from low to high estimate preclude an award of prefiling interest. Potter, 189 N.W.2d at 504 (no prefiling interest where range of $45,000 to $95,000); Hogs Unlimited v. Farm Bureau Mut. Ins. Co., 401 N.W.2d 381, 387 (Minn.1987) (no prefiling interest where range of $218,500 to $428,250). 13 Cases in which prefiling interest is awarded involve much less extreme variations. See, e.g., Pearson-Berke, Inc. v. McIntosh, 350 N.W.2d 378 (Minn.1984) (interest awarded where recovery varied between $4,822.50 and $6858); Polaris Indus. v. Plastics, Inc., 299 N.W.2d 414 (Minn.1980) (denial of prefiling interest on $66,758.31 of $208,391.98 verdict reversed where [w]ith the exception of about $21,000 ... the jury's award reflected item by item the exact amount of out-of-pocket expenses). Accordingly, we find that the district court did not commit clear error in denying prefiling interest where Ventura's damages estimates varied by over 200% ($865,723 to $1,855,121).