Court Opinion

ID: 3206563
Source: CourtListenerOpinion
Date Created: 2016-05-25 13:04:59.440356+00
Date Added: 2024-06-11T14:28:53.863844
License: Public Domain

STATE OF MICHIGAN

                            COURT OF APPEALS

NORTHWOODS MANUFACTURING, INC.,                                      UNPUBLISHED
                                                                     May 24, 2016
               Plaintiff-Appellee,

v                                                                    No. 326551
                                                                     Dickinson Circuit Court
GREG LINSMEYER, JEFFREY PEARSON, and                                 LC No. 12-017234-CB
NIAGARA FABRICATION, INC.,

               Defendants-Appellants,

and

JEFFREY WOLLER,

               Defendant.

Before: GLEICHER, P.J., and SAWYER and M. J. KELLY, JJ.

PER CURIAM.

        Defendants Greg Linsmeyer, Jeffrey Pearson, and Niagara Fabrication, Inc., appeal as of
right from a judgment entered in favor of plaintiff Northwoods Manufacturing, Inc., following a
bench trial in this case involving breach of fiduciary duty, conversion, and conspiracy. We
affirm.

                                             I. FACTS

        Defendants argue that the trial court erred by finding that defendants Linsmeyer and
Pearson owed a fiduciary duty to Northwoods. They also raise several arguments relating to the
trial court’s award of damages for breach of fiduciary duty and conversion. This Court reviews a
trial court’s findings of fact for clear error and reviews its conclusions of law de novo. See
Chapdelane v Sochocki, 247 Mich. App. 167, 169; 635 NW2d 339 (2001). “A finding is clearly
erroneous if there is no evidentiary support for it or if this Court is left with a definite and firm
conviction that a mistake has been made.” Chelsea Investment Group LLC v Chelsea, 288 Mich
App 239, 255; 792 NW2d 281 (2010). The existence of a legal duty is a question of law. Oja v
Kin, 229 Mich. App. 184, 187; 581 NW2d 739 (1998).

       Northwoods Manufacturing, Inc., is a metal fabrication company that was formed by
Jonathan Pipp in 1994. Northwoods fabricates parts at its facility that range in size from small
                                                -1-
brackets to large hydraulic tanks weighing in the tens of thousands of pounds. Pipp set up a
limited liability company, KHP, to purchase a building to lease space to Northwoods for
assembly of larger products and to provide rental space for other tenants. When Pipp semi-
retired and began spending significant amounts of time in Florida in 2007, Linsmeyer was
elevated to vice president and general manager of the company. Pipp turned over the day-to-day
operations of the company to Linsmeyer in 2008 and gave him authority to make decisions and
purchases on behalf of the company. Pearson, who had previously worked with Linsmeyer at a
different company, was Northwoods’ sales manager.

        Le-Q, a company owned by Timothy Quick and a subcontractor to Northwoods, leased
space in the KHP building to assemble ovens for International Thermal Systems (ITS) that were
too large to be assembled at Le-Q’s own facility. Le-Q did not have the manpower to handle all
of the work for ITS, and so introduced ITS to Northwoods in the summer of 2010. Northwoods
began performing a substantial amount of work for ITS in the fall of that year.

       In April 2011, Linsmeyer and Pearson purchased a building in Niagara, Wisconsin.
Sometime in early 2011, Quick asked Linsmeyer about continuing to lease space at Northwoods
but, according to Quick, Linsmeyer told him that space was not available. Pipp testified,
however, that he had told Linsmeyer that Le-Q could continue to lease space because Pipp
wanted to keep Le-Q on site to ensure continuing business with ITS. According to Quick,
Linsmeyer indicated that he had a building that was being refurbished as a fabrication shop and
Le-Q could lease space in the building. Le-Q moved into the Niagara building as a tenant
sometime between April and June 2011. Quick purchased a 20 percent share of the building in
2012 and became partners with Linsmeyer, Pearson, and Mike Collins. Le-Q was folded into
Niagara Fabrication and continued to operate in name only.

        Linsmeyer moved three Northwoods’ projects—the Kuttner project, the ITS oven project,
and the SGI hopper project—to the Niagara building for completion. Pipp knew that Linsmeyer
had purchased a building for the purpose of leasing space to tenants, and believed that the
Northwoods projects were being completed at the Niagara building with labor performed by
Northwoods’ employees. Pipp did not know that Linsmeyer and Pearson were operating a
fabrication business or that Niagara Fabrication had employees working on Northwoods’
projects. Pipp discovered the existence of Niagara Fabrication in May 2012 and terminated
Linsmeyer’s employment. Pearson resigned shortly thereafter. Pipp subsequently learned
Linsmeyer and Pearson were quoting bids on behalf of Niagara Fabrication for Northwoods’
customers, that Linsmeyer and Pearson had developed a business plan to operate their own
fabrication business while employed at Northwoods, and that Linsmeyer was using Northwoods’
credit accounts to purchase items for the benefit of Niagara Fabrication. Northwoods sued,
alleging that Linsmeyer and Pearson breached their fiduciary duties and converted Northwoods’
property.1

1
  Northwoods also alleged that Woller conspired with Linsmeyer and Pearson to do so, but the
trial court found that plaintiff did present sufficient evidence to support the conspiracy claims.

                                               -2-
                                          I. ANALYSIS

                             A. BREACH OF FIDUCIARY DUTY

                                    1. DUTY AND BREACH

        It has long been the rule in Michigan that directors and officers owe a fiduciary duty to
corporations and corporate shareholders. MCL 750.1541a(1); Wagner Elec Corp v Hydraulic
Brake Co, 269 Mich. 560, 564; 257 N.W. 884 (1934); Prod Finishing Corp v Shields, 158 Mich
App 479, 485; 405 NW2d 171 (1987). The trial court did not clearly err in finding that
Linsmeyer was an officer who owed a fiduciary duty to Northwoods. Linsmeyer was the vice
president and general manager of Northwoods and was in charge of running the day-to-day
operations of the company. Defendants have pointed to no authority to support their assertion
that corporate records must confirm a corporate officer’s title and, therefore, we consider this
argument abandoned. Mettler Walloon, LLC v Melrose Twp, 281 Mich. App. 184, 221; 761
NW2d 293 (2008).

        Defendants also argue that no evidence was presented to support the trial court’s finding
that Pearson was a corporate officer who owed a fiduciary duty to Northwoods. However, the
trial court did not find that Pearson was an officer or director. Rather, the trial court found that
Pearson, as the sales manager for Northwoods, owed the company a fiduciary duty as an agent of
the company. See Prod Finishing Corp, 158 Mich. App. at 486-487. Defendants do not
challenge this finding.

        Defendants argue that Northwoods failed to meet its burden of proof to establish that
Linsmeyer’s and Pearson’s breaches of their fiduciary duties caused damages to Northwoods.
First, they simply assert that they “stressed in their closing argument” that there was “no
sufficient evidence in the record to support a finding that either Linsmeyer or Pearson caused
Northwoods $80,500 in lost profit damages.” Other than citing a nonbinding unpublished
decision of this Court recognizing the distinction between the elements of a breach of fiduciary
duty claim, and quoting a portion of their closing argument, defendants have failed to provide
any analysis or otherwise develop this argument. “An appellant may not merely announce his
position and leave it to this Court to discover and rationalize the basis for his claims.” See
People v Kelly, 231 Mich. App. 627, 640-641; 588 NW2d 480 (1998).

                                        2. CAUSATION

        Defendants also argue that the trial court erred by awarding Northwoods damages for
overpaid labor performed by Niagara Fabrication employees on Northwoods’ projects because
Northwoods failed to elicit any evidence to rebut Linsmeyer’s testimony that Northwoods did
not have enough manpower to complete the jobs. However, as defendants acknowledge, and the
trial court found, Northwoods’ president testified that Northwoods could have had its own
employees do the work. Additionally, as the trial court found, although Linsmeyer testified that
he had the authority to hire additional employees for Northwoods, he instead contracted the
business to Niagara Fabrication. In light of the evidence, the trial court did not clearly err in

                                                -3-
finding that Northwoods suffered damages for overpaid labor. Chapdelane, 247 Mich. App. at
169.

        Defendants also argue that the trial court erred by finding that Northwoods suffered
damages as a result of defendants’ failure to inform Northwoods about the opportunity to sell
scrap metal from Northwoods’ hopper project, and to instead sell the scrap metal for the benefit
of Niagara Fabrication. They contend that Northwoods failed to prove that the business
opportunity was in line with Northwoods’ business or that Northwoods had any connection to the
scrap metal. A fiduciary has a duty to notify his or her principal of a business opportunity which
the corporation is financially able to undertake, which is, from its nature, in the line of the
corporation’s business and is of practical advantage to it, and which is one in which the
corporation has an interest or a reasonable expectancy. Prod Finishing Corp, 158 Mich. App. at
485-486. Linsmeyer’s testimony established the connection between Northwoods and the scrap
metal generated from Northwoods’ SGI hopper project, and Pipp testified that Northwoods
typically sells the scrap that it generates. Even accepting Linsmeyer’s testimony that
Northwoods was not in the scrap business, the evidence supported a finding that the opportunity
to scrap the metal removed from Northwoods’ project was in the line of Northwoods’ business
and that Northwoods would have a reasonable expectation to be offered the business opportunity
by its serving vice president and general manager. The trial court’s findings were not clearly
erroneous.

                                         3. DAMAGES

        Defendants argue that Northwoods is not entitled to damages for lost profits because (1)
the claim is based solely on speculation without any evidentiary support; (2) Northwoods failed
to prove alleged necessary contingencies to establish lost profits; (3) Northwoods’ expert offered
no opinion as to lost revenues; and (4) Northwoods failed to provide evidence of lost profits. We
disagree.

       In Health Call of Detroit v Atrium Home & Health Care Servs, Inc, 268 Mich. App. 83,
96; 706 NW2d 843 (2005), this Court discussed damage principles:

               The general rule is that remote, contingent, and speculative damages
       cannot be recovered in Michigan in a tort action. A plaintiff asserting a cause of
       action has the burden of proving damages with reasonable certainty, and damages
       predicated on speculation and conjecture are not recoverable. Damages, however,
       are not speculative simply because they cannot be ascertained with mathematical
       precision. Although the result may only be an approximation, it is sufficient if a
       reasonable basis for computation exists. Moreover, the law will not demand that
       a plaintiff show a higher degree of certainty than the nature of the case permits.
       [L]ost profits are recoverable as damages on proper proof . . . . [W]hen the nature
       of a case permits only an estimation of damages or a part of the damages with
       certainty, it is proper to place before the jury all the facts and circumstances
       which have a tendency to show their probable amount. Furthermore, the certainty
       requirement is relaxed where damages have been established but the amount of
       damages remains an open question. Questions regarding what damages may be

                                               -4-
       reasonably anticipated are issues better left to the trier of fact. [Internal quotation
       marks and citations omitted.]

        “In order to recover prospective profits, a plaintiff must establish proof of lost profits
with a reasonable degree of certainty.” Joerger v Gordon Food Serv, Inc, 224 Mich. App. 167,
175; 568 NW2d 365 (1997). “[E]ven if lost profits are difficult to calculate and speculative to
some degree, they are still allowed as an item of loss.” Health Call, 268 Mich. App. at 104. The
type of uncertainty that will bar recovery of damages is “uncertainty as to the fact of damage and
not as to its amount.” Bonelli v Volkswagen of America, Inc, 166 Mich. App. 483, 511; 421
NW2d 213 (1988).

       Defendants first argue that Northwoods’ expert relied on speculative lost revenue
information provided by Northwoods’ president, Thomas Betters, when calculating lost profits.
They contend that Betters failed to substantiate the claim that Northwoods lost $2.35 million in
revenue during 2012.2

        Contrary to defendants’ assertion, the estimate of lost revenue was not based on
speculation and conjecture. Betters testified that he generated historical sales by customer
reports from the company’s internal accounting system and that the reports contained detailed
sales to ITS from January 2010 through November 2013. Betters testified that the industry was
quite steady and that Northwoods’ performance was steady during this period, except for the
drop in sales from the three major customers. He believed that Northwoods’ financial
performance actually got better, with gross margins up about three percent and fixed expenses
remaining the same. Putting aside those three customers, revenues remained about the same.
Based on the historical information contained in the reports, Betters calculated lost revenue for
all three customers in the amount of $2.35 million. Northwoods’ expert used this revenue figure
in calculating lost profits.

        Defendants also challenge the expert’s use of Betters’s revenue analysis and contend that
the expert should have performed his own revenue analysis. The expert testified that the scope
of his work was to review the analysis prepared by Betters and to give his opinion regarding lost
profits based on Betters’s estimate of lost revenues. The expert did, however, review the
analysis provided by Betters and determined the information to be reasonable based on actual
financial information obtained from Northwoods’ CPA, the history of the company, and industry
standards.

        In any event, the trial court did not use the expert’s calculations and instead made its own
calculation of damages for lost profits:

               Plaintiff has shown a significant and uncharacteristic loss in sales from
       I.T.S. in 2012. . . . Plaintiff had total sales from I.T.S. in 2010 of $295,088;
       $849,142 in 2011; $4,700 in 2012 and $369,441 in 2013. The Court does not find

2
 The estimate of lost revenue includes lost sales to plaintiff’s three major customers. The trial
court awarded lost profit damages only with respect to ITS and, therefore, we focus solely on
evidence regarding ITS.

                                                -5-
       the Plaintiff has proven lost profits attributable to Defendants[’] breach of
       fiduciary duty beyond the end of May 2012. Between January 2011 and May
       2011 Plaintiff had total sales from I.T.S. of $326,703. In 2012 Plaintiff only had
       $4,700 in total sales for a difference of $322,003.00. Accepting Plaintiff[’]s
       expert’s testimony as accurate on the industry standard and Plaintiff’s historical
       standard profit margin of 25%, this results in a loss of profits for Plaintiff of
       $80,500.

Defendants have produced no evidence to contradict plaintiff’s evidence on which the trial court
based its calculation of lost profits. Under the circumstances, the lost profits were shown with a
reasonable degree of certainty and were not merely speculative.

        Defendants next argue that Northwoods failed to present evidence that it would have
otherwise earned the lost revenue but for the alleged breach of fiduciary duty. They contend that
Northwoods failed to prove that the work was available and that Northwoods would have been
awarded such work but for the actions of defendants. In support of this contention, defendants
rely, without any analysis, on a statement in Body Rustproofing, Inc v Mich Bell Telephone Co,
149 Mich. App. 385, 391; 385 NW2d 797 (1986), that “all the various contingencies by which
such [lost] profits would probably be affected should be taken into account by the jury.”
Defendants contend that Betters’s testimony that he did not inquire whether ITS was issuing
orders at the time that Northwoods allegedly lost business, and his acknowledgement that various
factors can affect the business that a customer is doing at a given time, required Northwoods to
offer evidence that these contingencies were satisfied with respect to its alleged lost profits.

        In Body Rustproofing, an advertiser sought to recover damages based upon the omission
of its advertisements from the yellow pages directories because of an error on the part of the
telephone company. Id. at 387. Both parties submitted evidence on the issue of damages. The
plaintiff introduced evidence of a decline in the plaintiff’s profits for the year when the ads were
omitted, as compared to the previous year when the ads had been published in the directory, with
an adjustment in the decline in profits to account for the decrease in new car registrations in the
area that year. Id. at 388-389. The defendant introduced evidence that the plaintiff’s loss of
profits was due to the decrease in new car sales and in the increase in the price of the services the
plaintiff was selling, and that the plaintiff had not established any loss attributable to the
omission of the ads. Id. at 389. The jury returned a verdict of no cause of action. Id. On
appeal, the plaintiff argued that the trial court erred by giving the defendant’s requested jury
instruction, the substance of which was as follows: “To the extent that the plaintiff relies upon
prior years of sales compared with the subject year’s sales to determine the loss of business or
profits, plaintiff must have shown the extent to which the prior year’s sales were derived from
classified directory advertising.” Id.

       The Body Rustproofing Court held that the instruction was erroneous, reasoning as
follows:

              The disputed instruction in this case went to the issue of damages. The
       measure of damages for a breach of contract such as the one at bar is that which
       would place the injured party in as good a position as he would have been in if the
       promised performance had been rendered. Lost profits, if properly proven, are an
       appropriate element of damages. Before lost profits are recoverable, they must be
                                                -6-
       proven with a reasonable degree of certainty as opposed to being based on mere
       conjecture or speculation.

               However, “[t]he law does not require impossibilities” and does not require
       a higher degree of certainty than the nature of the case permits. Therefore, when
       the nature of a case permits only an estimation of damages or a part of the
       damages with certainty, it is proper to place before the jury all the facts and
       circumstances which have a tendency to show their probable amount. In order for
       past profits to be safely taken as a measure of future profits, all the various
       contingencies by which such profits would probably be affected should be taken
       into account by the jury and allowed such weight as the jury, in the exercise of
       good sense and sound discretion, believes they are entitled to. [Id. at 390-391
       (citations omitted).]

         Northwoods presented evidence that the industry and the business it was able to
generate were steady. Northwoods also established that it could produce the same large ovens
for ITS that Niagara Fabrication was producing after Linsmeyer and Pearson left. And evidence
of increased sales obtained by Niagara Fabrication from ITS in 2012 showed that ITS work was
available. Defendants have not identified any other “contingencies” that Northwoods should
have addressed.

        Defendants also argue that the trial court erred by relying on the expert’s testimony as it
pertained only to gross profit instead of net profit. We disagree. “Damages for lost profits must
be based on the loss of net, rather than gross, profits.” Getman v Mathews, 125 Mich. App. 245,
250; 335 NW2d 671 (1983). Here, the expert testified that Northwoods’ historical net profits
were akin to its gross profits because the company did not have a lot of “below the line”
expenses. Defendants have failed to demonstrate that the trial court clearly erred by relying on
the expert’s historical profit percentages in calculating net lost profits. Chapdelane, 247 Mich
App at 169.

                                       B. CONVERSION

         Defendants argue that the trial court erred by finding that $5,000 of Northwoods’ funds
given by Pearson to Craig Nushart was not repaid to Northwoods because Linsmeyer testified
that the money was repaid to Northwoods via a credit in a Miron Construction purchase order.
However, Linsmeyer’s testimony was stricken by the trial court for lack of foundation, and
defendants presented no other evidence regarding the alleged credit in a purchase order. Betters
testified that his review of Northwoods’ financial records produced no evidence that the $5,000
had ever been repaid. The trial court did not clearly err in finding that Northwoods presented
adequate evidence that the money was not repaid. Id.

       Defendants also argue that the trial court erred by awarding damages for a truck pull that
was purchased by Linsmeyer using a Northwoods’ credit card and was given to Mike Derr, an
employee of Metso Minerals, because Pipp testified that Linsmeyer had authority and discretion
to make the purchase and that the purchase was for the benefit of Northwoods. However, Pipp’s
testimony established that Linsmeyer’s authority to spend was limited and that he viewed
Linsmeyer’s purchase of a $4,800 truck pull as a gift for Derr as unapproved and unethical.
Further, Linsmeyer’s testimony that Niagara Fabrication was given approximately $600,000 of
                                               -7-
work from Metso Minerals after Linsmeyer left Northwoods, whereas Northwoods’ sales to
Metso Minerals dropped from $530,209 in 2011, to $97,353 in 2012, and to zero in 2013,
suggests that it was Niagara Fabrication and not Northwoods that benefited from giving the truck
pull to Derr. Given this evidence, the trial court did not clearly err in finding that Linsmeyer
wrongfully used Northwoods’ funds to purchase the truck pull without Northwoods’ consent and
for the benefit of Niagara. Id.

       In light of our conclusion that the trial court did not err in its award of damages for
conversion, we need not address defendants’ argument that the treble damages must be reversed
as defendants’ argument assumes a reversal of the trial court’s decision with respect to these
damages.

       Affirmed.

                                                           /s/ Elizabeth L. Gleicher
                                                           /s/ David H. Sawyer
                                                           /s/ Michael J. Kelly

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