Court Opinion

ID: 2720630
Source: CourtListenerOpinion
Date Created: 2014-08-25 21:03:45.31269+00
Date Added: 2024-06-11T15:43:09.150060
License: Public Domain

This opinion will be unpublished and
                            may not be cited except as provided by
                            Minn. Stat. § 480A.08, subd. 3 (2012).

                                 STATE OF MINNESOTA
                                 IN COURT OF APPEALS
                                       A14-0061

                                     County of Hennepin,
                                         Appellant,

                                              vs.

                               1010 Metrodome Square, LLC,
                                       Respondent.

                                 Filed August 25, 2014
                    Affirmed in part, reversed in part, and remanded
                                     Hudson, Judge

                               Hennepin County District Court
                                 File No. 27-CV-12-13364

Michael O. Freeman, Hennepin County Attorney, Jay L. Arneson, Assistant County
Attorney, Minneapolis, Minnesota (for appellant)

Daniel N. Rosen, Anthony G. Edwards, Parker Rosen, LLC, Minneapolis, Minnesota (for
respondent)

         Considered and decided by Hudson, Presiding Judge; Stauber, Judge; and Kirk,

Judge.

                           UNPUBLISHED OPINION

HUDSON, Judge

         On appeal in this contract dispute, appellant argues that the district court erred by

concluding that (1) the parties had not impliedly extended their contract for chilled water;

(2) appellant was unjustly enriched by chilled-water payments made by respondent; and
(3) a contract for steam and chilled water is not governed by the Uniform Commercial

Code (UCC). Respondent filed a related appeal arguing that the district court erred in its

calculation of preverdict interest. We affirm in part, reverse in part, and remand.

                                         FACTS

       Appellant Hennepin County owns and operates the Hennepin County Energy

Center (HCEC), which distributes steam and chilled water to various downtown

Minneapolis buildings for heating and cooling purposes. Respondent 1010 Metrodome

Square, LLC (1010), owns the building at 1010 South Seventh Street in Minneapolis.

Basant Kharbanda is 1010’s president. When 1010 purchased the building in 2000, it

was subject to a 20-year contract with HCEC for steam and chilled water that was set to

expire on November 18, 2006. In addition, U.S. Bank was leasing the building; U.S.

Bank vacated the space by the end of 2005, and thereafter the building’s heating demands

were minimal and it had no cooling need.

       In June 2005, Kharbanda met with Barbara Sutey, HCEC’s then director of public

works management support. He informed Sutey of the reduced needs of the building and

asked that the 1986 steam and chilled-water contract be terminated. The two agreed that

the contract would terminate as scheduled on November 18, 2006, and Sutey agreed to

send Kharbanda a new contract. Under the new contract, clients were billed separately

for a “demand charge” and a “consumption charge” for steam and chilled water. The

demand charge guaranteed availability of a certain amount of steam or chilled water

while the consumption charge reflected the actual quantity of steam or chilled water

delivered to a particular building. It was also possible under the new contract to bill a

                                             2
customer separately for steam or chilled water, depending on the needs of a particular

building. Sutey sent Kharbanda a letter summarizing the meeting, confirming that the

1986 contract would expire on November 18, 2006 and stating that “[i]t is the desire of

Hennepin County to continue to supply steam and chilled water to you, but under the

terms of our standard contract for non-county customers. A draft of that contract will be

sent to you for your review.” A copy of the new contract was never sent, and Sutey

retired shortly thereafter.

       Kharbanda met with Sutey’s successor, Maurice Gieske, on October 30, 2006.

The district court found that Kharbanda again informed HCEC that the 1010 building had

greatly reduced steam needs and no further need for chilled water because it was vacant.

Kharbanda agreed to a one-year extension of the 1986 contract after Gieske informed him

that HCEC would not provide steam to the building beyond November 18, 2006 unless

Kharbanda agreed to extend the entire contract. Gieske followed up by sending a letter to

Kharbanda summarizing the meeting. The letter stated that the contract extension would

terminate on November, 18, 2007, that the steam and chilled-water demand charges were

reduced “based on [Kharbanda’s] request given the vacant status of the building,” and

again stating “[i]t is the desire of Hennepin County to continue to supply steam and

chilled water to you, but under the terms of our standard contract for non-county

customers. Prior to November 18, 2007, a draft of the new contract will be sent to you

for your review.” Kharbanda testified that Gieske told him that he would send a new

contract for steam only. A draft of the new contract was never sent.

                                            3
       Between November 2007 and May 2011 HCEC continued to bill 1010 for steam

and chilled water at the rate specified in Gieske’s 2006 letter. 1010 paid all the bills, but

the building never consumed any chilled water. The district court found that Kharbanda

credibly testified that he protested the chilled-water bills several times, the first time after

a year-end audit at the end of 2008. Kharbanda testified that Gieske told him he would

look into the issue, consult with the legal department, and correct any overpayment that

was made. A similar conversation took place after Kharbanda’s 2009 year-end audit.

Kharbanda testified that throughout 2010 he called HCEC several times to protest the

charges, but he was never able to speak with Gieske. Gieske denies that Kharbanda ever

disputed the chilled-water bills. Kharbanda chose to stop all payments to HCEC in May

2011 and sent a letter stating: “[a]s you are aware we have been using bare minimum

amounts of steam and chilled water for this building on a month to month contract[.] . . .

In the past 5 years you have billed us and we have paid over $700,000 in steam costs and

over $350,000 for chilled water. I ask you to refund at least the chilled water payments

because as we have not used a drop of chilled water in 5 years . . . I have tried to talk to

somebody in your office but did not get very far e.g. Julie, Carla, Kathy etc.” HCEC

continued to bill 1010 for steam and chilled water until March 2012.

       HCEC sued 1010, alleging breach of contract, quantum meruit, and promissory

estoppel, seeking payment for steam and chilled-water charges from 2011-12. HCEC

also sought a declaratory judgment that the 1986 contract was extended by implication

from November 18, 2007 through December 31, 2011. The district court concluded that

the evidence did not show that the portion of the 1986 contract for chilled water had been

                                               4
impliedly extended beyond November 18, 2007, and that the quantum meruit and

promissory estoppel claims as to the chilled-water payments failed. But the district court

concluded that the parties impliedly agreed to a continuation of steam services. The

district court found that 1010 owed steam demand and consumption charges from May

2011-March 2012 for a total of $87,093.12.

       1010 counterclaimed to recover steam and chilled-water overpayments, which the

district court construed as an action for money had and received. The district court

concluded that 1010 was not entitled to any refund for steam payments, but that 1010 was

entitled to a refund of $226,708 for chilled-water payments because HCEC was unjustly

enriched by the payments. HCEC argued that the four-year statute of limitations under

the UCC should apply to limit the amount it owed to 1010, but the district court rejected

this argument, concluding that the contract for steam and chilled water was one for

services rather than goods. The district court, after offset, ordered that HCEC pay 1010

$139,614.88. The district court also awarded preverdict interest to 1010 under Minn.

Stat. § 549.09 (2012) in the amount of $5,807.41 dating from the time the counterclaim

was served.

       HCEC appeals the award of chilled-water payment refunds, arguing that the

district court erred by concluding that the parties had not impliedly extended the 1986

contract as to chilled water and by concluding that HCEC was unjustly enriched by

1010’s payments.     In the alternative, HCEC argues that the district court erred by

concluding that the contract for steam and chilled water was a contract for services rather

                                             5
than goods. By notice of related appeal, 1010 argues that the district court erred in its

calculation of preverdict interest.

                                      DECISION

                                             I

       HCEC argues that the district court clearly erred by finding that the parties did not

impliedly extend the 1986 contract for chilled water beyond November 18, 2007. In the

absence of an express agreement, “the law may imply a contract from the circumstances

or acts of the parties.” Bergstedt, Wahlberg, Berquist Assocs., Inc. v. Rothchild, 302

Minn. 476, 479, 225 N.W.2d 261, 263 (1975).              “It is the objective thing, the

manifestation of mutual assent, which is essential to the making of a contract.” Id.

“Whether a contract is to be implied in fact is usually a question to be determined by the

trier of fact as an inference of facts to be drawn from the conduct and statements of the

parties.” Id. at 479–80, 225 N.W.2d at 263. Because relevant facts are in dispute, we

review the district court’s findings as to the existence of an implied contract under a

clearly erroneous standard. See Minn. R. Civ. P. 52.01; cf. TNT Props., Ltd. v. Tri-Star

Developers, LLC, 677 N.W.2d 94, 101 (Minn. App. 2004) (stating that when the relevant

facts are undisputed, the existence of a contract is a question of law reviewed de novo).

“Findings of fact are clearly erroneous only . . . if the reviewing court is left with the

definite and firm conviction that a mistake has been made.” Fletcher v. St. Paul Pioneer

Press, 589 N.W.2d 96, 101 (Minn. 1999) (quotation omitted).             When determining

whether a finding is clearly erroneous, this court views the evidence in the light most

favorable to the district court’s findings and defers to the district court’s opportunity to

                                             6
assess witness credibility. In re Pamela Andreas Stisser Grantor Trust, 818 N.W.2d 495,

507 (Minn. 2012).

      HCEC argues that the district court erred by finding that the 1986 contract was not

impliedly extended as to chilled water because of 1010’s actions following the

termination date in November 2007: (1) 1010 did not install its own heating or cooling

system; (2) 1010 continued to request and receive steam every heating season; (3) 1010

continued to pay steam demand and consumption charges as well as chilled-water

demand charges; (4) 1010 marketed the building as having its heating and cooling needs

met by HCEC; and (5) 1010 never sent written communication to HCEC protesting the

chilled-water bills or expressing a desire to terminate the contract until May 2011.

HCEC argues that the only evidence supporting the district court’s decision was the

“strongly disputed testimony” that Kharbanda made several complaints to Gieske about

the chilled-water payments in 2009 and 2010. Notably, HCEC does not seem to dispute

the district court’s finding that HCEC knew prior to the expiration of the 1986 contract

that 1010 did not want or need chilled water based on Kharbanda’s face-to-face meetings

with Sutey and Gieske.

      The district court found that there was no legal requirement that Kharbanda object

to the chilled-water bills in writing and gave “no significance” to the fact that 1010 did

not install its own heating and cooling operations because it was plausible that 1010

would not make this kind of expenditure when it could not find a tenant for the building.

The district court also found, with respect to 1010’s marketing materials, that heating and

                                            7
cooling information was just one specification among many in its materials for potential

tenants.

       HCEC also emphasizes that Kharbanda was not a party to this lawsuit. HCEC

claims that the knowledge of Kharbanda’s wife, who paid 1010’s bills during the

pertinent time periods, should be imputed to 1010; thus, the district court ignored the

critical fact” that 1010 was at all times aware of what it was paying HCEC. But the

district court credited Kharbanda’s testimony that he protested the charges and that he

reasonably believed he would receive a refund for any overpayment due to the general

business practices of HCEC. Kharbanda testified that Gieske told him “if there is a

discrepancy [in billing] it’ll be definitely fixed. And I believed him because all the Excel

Energy and everybody if we overpay they always refund back.” Gieske also testified that

HCEC’s practice is to refund or credit customers when they make an overpayment. Thus,

the delay between the dates 1010 made chilled-water payments and the dates Kharbanda

protested is not a critical fact because 1010 reasonably believed it would receive a refund

of any overpayment.

       HCEC also argues that Kharbanda’s May 2011 letter, which states “we have been

using bare minimum amounts of steam and chilled water for this building on a month to

month contract,” is proof that the parties had an implied contract. We disagree. The

letter contradicts Kharbanda’s testimony, which the district court found credible, that he

expected to be reimbursed for the chilled-water payments. The 1986 contract provided

that the contract would only continue if neither party gave written notice of termination

of the contract. That is not what happened here; Gieske signified in writing that HCEC

                                             8
intended to terminate the contract on November 18, 2007. In addition, Gieske testified

that HCEC would not have entered into a month-to-month contract because it “would not

fit with the way [HCEC] operate[s].”

       Finally, HCEC argues that this case is similar to Bergstedt, in which the supreme

court affirmed the district court’s determination that an implied contract existed. 302

Minn. at 481, 225 N.W.2d at 264.         In Bergstedt, a partnership consulted with an

architectural firm to add additional stories to a parking ramp. Id. at 477, 225 N.W.2d at

262. Unlike this case, both parties’ actions in Bergstedt continuously manifested intent

for the architecture firm to create plans for the parking garage; the firm was never given a

reason to doubt the partnership’s understanding of the arrangement. See id. Here, the

district court credited Kharbanda’s testimony that he continuously protested the chilled-

water bills. The evidence sufficiently supports the district court’s finding that no implied

contract for chilled water existed because there was no mutual assent indicating that both

parties had a continued desire to be bound by the 1986 contract. See id. at 479, 225

N.W.2d at 263.

                                             II

       HCEC argues that the district court erred by concluding that HCEC was unjustly

enriched by 1010’s chilled-water payments. The district court’s equitable determination

is reviewed for an abuse of discretion. See City of N. Oaks v. Sarpal, 797 N.W.2d 18, 24

(Minn. 2011). This court may reverse the district court’s ruling unless it is based on an

erroneous view of the law or against the facts in the record. Id.

                                             9
       The district court concluded that 1010’s counterclaim for a refund of its chilled-

water payments constituted “an action for money had and received.” An action for

money had and received is analogous to one for unjust enrichment. See Cady v. Bush,

283 Minn. 105, 110, 166 N.W.2d 358, 361–62 (1969) (stating that “[t]he theory of unjust

enrichment or money had and received . . . has been invoked . . . in . . . situations where it

would be morally wrong for one party to enrich himself at the expense of another.”).

              To establish an unjust enrichment claim, the claimant must
              show that the defendant has knowingly received or obtained
              something of value for which the defendant in equity or good
              conscience should pay. Unjust enrichment claims do not lie
              simply because one party benefits from the efforts or
              obligations of others, but instead it must be shown that a party
              was unjustly enriched in the sense that the term unjustly could
              mean illegally or unlawfully.

Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 838 (Minn. 2012)

(quotation omitted). “Unjust enrichment requires that: (1) a benefit be conferred by the

plaintiff on the defendant; (2) the defendant accept the benefit; (3) the defendant retain

the benefit although retaining it without payment is inequitable.” Zinter v. Univ. of

Minn., 799 N.W.2d 243, 247 (Minn. App. 2011). “An action for unjust enrichment may

be based on failure of consideration, fraud, mistake, and situations where it would be

morally wrong for one party to enrich himself at the expense of another.” Anderson v.

DeLisle, 352 N.W.2d 794, 796 (Minn. App. 1984), review denied (Minn. Nov. 8, 1984).

       HCEC argues that it was not unjustly enriched by 1010’s chilled-water payments

because 1010 received “ample consideration for the payments made,” as 1010 was able to

market its building to tenants as having heating and cooling provided by HCEC. In

                                             10
addition, HCEC points out that it allocated a fixed amount of chilling capacity to 1010

that it could have marketed to other customers.        But the district court credited

Kharbanda’s testimony that he made it clear 1010 did not need chilled water as early as

2006. Further, HCEC employees twice promised Kharbanda they would send a new

contract reflecting the changed needs of the building, but never did so.      And after

Kharbanda’s protests in early 2009-10, HCEC continued to allocate chilled water to 1010

and did not return Kharbanda’s calls or attempt to remediate the situation. The district

court found that Kharbanda was paying the chilled-water bills under the reasonable

impression that he would be refunded for any overpayment based on his understanding of

HCEC’s normal course of business. We see no abuse of discretion in the district court’s

determination that 1010 “paid chilled water charges when it had no obligation to do so”

and that HCEC “received the money under circumstances in which in equity and good

conscience it should pay back to [1010].”

                                            III

      HCEC argues that the sale of steam and chilled water to 1010 constituted a sale of

goods rather than services; therefore, the four-year statute of limitations under

Minnesota’s version of the UCC would limit 1010’s recovery of chilled-water payments

to those made after July 24, 2008. See Minn. Stat. § 336.2-725 (2012). Whether a

transaction is governed by the UCC is a question of law reviewed de novo. Duxbury v.

Spex Feeds, Inc., 681 N.W.2d 380, 386 (Minn. App. 2004), review denied (Minn.

Aug. 25, 2004).

                                            11
       Minnesota has adopted the “predominant factor” test to determine whether a

contract that involves both services and goods is governed by the UCC. Valley Farmers’

Elevator v. Lindsay Bros. Co., 398 N.W.2d 553, 555–56 (Minn. 1987), overruled on

other grounds by Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn. 1990).                   If the

“substantial or predominant purpose of the contract” is the sale of goods, the transaction

is governed by the UCC. Id. “‘Goods’ means all things . . . which are movable at the

time of identification to the contract for sale other than the money in which the price is to

be paid.” Minn. Stat. § 336.2-105 (2012).

       Gieske testified that the steam and chilled water leaves HCEC, is circulated out to

the 1010 building, and then returns to HCEC; thus, the district court concluded that the

contract for steam and chilled water was a contract for services because no title for the

steam and chilled water passed between the parties. See Minn. Stat. § 336.2-106(1)

(2012) (defining “sale” as “the passing of title from the seller to the buyer for a price”).

The district court also compared the sale of steam and chilled water to electricity, noting

that jurisdictions are split as to whether electricity is a good or a service under the UCC.

See ZumBerge v. N. States Power Co., 481 N.W.2d 103, 107–08 (Minn. App. 1992)

(noting that “the decision to treat electricity as subject to Article 2 is a legal question as

yet unsettled in Minnesota. Other jurisdictions which have considered the issue . . . are

not in agreement”), review denied (Minn. Apr. 29, 1992).

       Here, although the parties’ contract was titled “service agreement,” HCEC

allocated a specific amount of steam and chilled water to 1010, and the amount 1010

actually utilized was measurable. The definition of goods simply requires that the goods

                                             12
be “movable at the time of identification to the contract for sale,” and the parties do not

dispute that the steam and chilled water was movable in the sense that it travelled

between HCEC and 1010. See Minn. Stat. § 336.2-105. Accordingly, we reverse the

district court and conclude that the original contract between the parties was

predominantly for goods. 1010 filed its counterclaim on July 24, 2012. On remand, the

district court should recalculate 1010’s damages to include only those chilled-water

payments made after July 24, 2008, consistent with the four-year statute of limitations

under Minn. Stat. § 336.2-725.

                                            IV

      On related appeal, 1010 argues that the district court erred in its calculation of

preverdict interest. The availability of preverdict interest is a legal issue reviewed de

novo. Duxbury, 681 N.W.2d at 390. We affirm the district court’s award of preverdict

interest under Minn. Stat. § 549.09, but on different grounds. See Myers v. Price, 463

N.W.2d 773, 775 (Minn. App. 1990) (stating that an appellate court will affirm judgment

if it can be sustained on any grounds), review denied (Minn. Feb. 4, 1991). Section

549.09, subdivision 1(b), provides guidelines for calculating preverdict interest and

applies in all cases except “as otherwise provided by contract or allowed by law.” Since

the parties argued this case, this court released Hogenson v. Hogenson, which holds that

the phrase “as otherwise . . . allowed by law” requires that when a particular claim allows

for preverdict interest under common law, interest should be calculated under the

common law, rather than section 549.09. Hogenson v. Hogenson, ___ N.W.2d ___, 2014

WL 3892109, at *4 (Minn. App. Aug. 11, 2014).

                                            13
       Applying Hogenson to this case, the question is whether a claim for money had

and received, or unjust enrichment, allowed for preverdict interest at common law. Here,

1010 argues that interest on its unjust enrichment claim should be calculated under the

common law, which would permit interest calculated from the date each payment for

chilled water was made at a rate of 6% under Minn. Stat. § 334.01 (2012). But 1010

conceded at oral argument that it could not identify any case that authorized such a

calculation for unjust enrichment claims. Rather, 1010 compares this case to General

Mills, Inc. v. State, 303 Minn. 66, 226 N.W.2d 296 (1975), arguing that the cases are

analogous because both involve government actors. But General Mills concerned the

narrow “issue of a taxpayer’s right to interest on the refund of illegally levied personal

property taxes.” Id. at 67, 226 N.W.2d at 298. Further, in that case the supreme court

concluded that interest would accrue from the date the taxpayer demanded a refund, not

from the date payments were made; thus, it does not support 1010’s proposed calculation.

Id. at 71, 226 N.W.2d at 300.

       Because 1010 has provided no common-law authority for awarding preverdict

interest on unjust-enrichment claims, 1010 has not shown that the district court’s

calculation of interest under Minn. Stat. § 549.09 was incorrect, including the 4% interest

rate for awards against government entities. See Hogenson, 2014 WL 3892109, at *4-*5

(concluding that, when preverdict interest for a claim was not provided for under

common law, it should be calculated under Minn. Stat. § 549.09); Minn. Stat. § 549.09,

subd. 1(c)(1) (noting interest rate applicable on certain judgments against the state or its

political subdivision).   However, on remand, the preverdict interest on the unjust-

                                            14
enrichment claim should be recalculated in accordance with the reduced amount of

damages under the four-year statute of limitations discussed above.

      Affirmed in part, reversed in part, and remanded.

                                           15