Court Opinion

ID: 2792420
Source: CourtListenerOpinion
Date Created: 2015-04-09 16:05:01.538344+00
Date Added: 2024-06-11T11:29:00.937928
License: Public Domain

This opinion will be unpublished and
                         may not be cited except as provided by
                         Minn. Stat. § 480A.08, subd. 3 (2014).

                              STATE OF MINNESOTA
                              IN COURT OF APPEALS
                                    A14-0869

                                   Gerald J. Hansen,
                                      Appellant,

                                           vs.

                            N'compass Solutions Inc., et al.,
                                   Respondents.

                                 Filed April 6, 2015
                  Affirmed in part, reversed in part, and remanded
                                 Halbrooks, Judge

                            Hennepin County District Court
                              File No. 27-CV-12-20218

Thomas J. Conley, Law Office of Thomas J. Conley, LLC, Minneapolis, Minnesota (for
appellant)

Jeffrey W. Thone, Courtney M. Strean, Drew L. McNeill, Stephenson, Sanford, Pierson
& Thone, P.L.C., Wayzata, Minnesota (for respondents)

      Considered and decided by Halbrooks, Presiding Judge; Johnson, Judge; and

Larkin, Judge.

                        UNPUBLISHED OPINION

HALBROOKS, Judge

      In this shareholder dispute, appellant and cross-respondent Gerald Hansen argues

that the district court erred by finding that he failed to produce sufficient evidence to

support his statutory claim for equitable relief.      Respondents and cross-appellants
N’compass Solutions, Inc., Christopher Flaherty, Christopher Pinc, and Kristi Paul assert

that the district court erred by finding that they did not prove damages arising out of

Hansen’s breach of his noncompete agreement and by entering judgment in Hansen’s

favor for the outstanding balance due to Hansen for the purchase of his shares.

      We affirm the district court’s determination that Hansen failed to prove his

statutory claim and its finding that N’compass did not prove damages from the breach of

the noncompete agreement. But we reverse the district court’s entry of judgment against

N’compass for the outstanding balance due for the purchase of Hansen’s shares and

remand for entry of an amended judgment that enforces but does not accelerate the terms

of the promissory note.

                                         FACTS

      N’compass is a closely held Minnesota corporation that provides technology

services. Hansen co-founded N’compass in 2000 with Flaherty, Pinc, and non-party

Keith Meierhofer. In 2012, N’compass had five shareholders: Hansen, Flaherty, Pinc,

Paul, and Meierhofer. In addition to being a co-founder, shareholder, and a director,

Hansen was also chief executive officer (CEO) from 2009 until May 17, 2012, when his

employment was terminated and he was removed from the board. In addition to being

shareholders, Pinc was chairman of the board of directors, Paul was a director, and

Flaherty was a director and became CEO after Hansen’s discharge.

      In 2009, Hansen, Flaherty, Pinc, and Meierhofer executed a shareholder

agreement.    The shareholder agreement expressly stated that N’compass made no

                                            2
commitment to the shareholders’ future employment or advancement in the company.

The shareholder agreement also contained a noncompete provision:

             [F]or a period of one year after the transfer of his [s]hares,
             each [s]hareholder shall not . . . directly or indirectly compete
             with the [c]ompany’s business during such one year period in
             the geographic area where the [c]ompany had conducted its
             business prior to the transfer . . . .

      In 2011, N’compass merged with Kristi Paul’s company.                Paul became a

shareholder and entered into an employment agreement with N’compass. The agreement

provided that Paul’s employment could be terminated under certain circumstances, after

written notice, and following a 90-day cure period. It also provided Paul with a 12-

month severance agreement if she was discharged without cause.

      Associated Bank was N’compass’s lender. As a condition for its line of credit, the

bank required that N’compass maintain a minimum tangible net worth. During the time

that Hansen was CEO, the bank had become concerned with N’compass’s losses of

profitability and net worth. In March 2012, Hansen and the chief financial officer (CFO)

met with the bank. The bank indicated that its credit department would not agree to a

routine extension of the line of credit, given the company’s financial situation, but it

agreed to a temporary credit extension.         The CFO testified at trial that Hansen’s

aggressive approach had created conflict between the company and the bank.

      In 2012, Flaherty, Pinc, and Paul became concerned with the leadership of the

company and the situation with the bank. During his testimony at trial, Hansen conceded

that morale among N’compass employees had declined due to staff reductions over the

previous few years. Hansen also testified that the company lost revenue and business

                                            3
during his tenure as CEO. But Hansen explained that he did not unilaterally make the

staff-reduction and financial decisions; instead, the executive team collectively made

those decisions.

       On May 8 and 9, 2012, Flaherty, Pinc, and Paul decided to remove Hansen as

CEO and terminate his employment. Flaherty, Pinc, and Paul never met with Hansen to

discuss their concerns or to give Hansen an opportunity to cure his performance issues.

Flaherty, Pinc, and Paul acted under the amended articles of incorporation, which

allowed a majority of the board to take action through a signed writing rather than a

formal board meeting. On May 17, Pinc told Hansen that his employment was being

terminated. Pinc gave Hansen a letter providing five reasons for the termination:

               (1) the continuing deterioration of the revenue and business of
               N’compass; (2) N’compass covenant defaults and the
               breakdown and non-renewal of the corporate banking
               relationship; (3) the declining morale of the employees;
               (4) the need to decrease expenses and increase the
               profitability of the [c]ompany; and (5) general loss of trust of
               a majority of the Board of Directors.

On June 4, Pinc sent Hansen a letter with an offer of a three-month severance package.

Hansen did not respond to the offer, and N’compass revoked the offer on June 15, 2012.

       While Hansen was CEO, N’compass provided services to GovDelivery, a non-

party company. In late 2011 and early 2012, N’compass entered into discussions with

GovDelivery to start a large data-center project. In July 2012, two months after his

termination from N’compass, Hansen began providing services to GovDelivery on a data-

center project.     On October 1, 2013, Hansen became a full-time employee of

GovDelivery.

                                              4
       Pursuant to the shareholder agreement, N’compass initiated purchase of Hansen’s

shares in the company after his employment was terminated. N’compass initially offered

to purchase Hansen’s shares at a price of $.09 per share, but Hansen argued that the price

was artificially low and unreasonable. Because the parties could not agree on the value

of the company or a single appraiser, N’compass followed the procedure prescribed by

the shareholder agreement and hired an appraiser to determine the value of the shares.

Eventually, Hansen agreed to a purchase price of $.195 per share.           Based on this

agreement, N’compass provided Hansen with a promissory note for $156,000 to be paid

in four annual installments, beginning on September 28, 2013. Instead of making the

first $39,000 payment to Hansen, N’compass deposited $22,749.50 into its counsel’s trust

account.1   When Hansen did not receive the $39,000 installment from N’compass,

Hansen’s counsel sent a notice of default on the promissory note via e-mail to

N’compass’s counsel on October 3, 2013.

       Hansen sued N’compass, Flaherty, Pinc, and Paul, alleging violations of Minn.

Stat. §§ 302A.251, .751 (2014), and common-law breach of fiduciary duty. N’compass

counterclaimed, alleging breach of noncompete obligations, breach of fiduciary duty, and

unjust enrichment.

       Following a court trial, the district court entered judgment (1) denying Hansen’s

claim for relief under Minn. Stat. § 302A.751 because he failed to prove that Flaherty,

Pinc, and Paul acted in an illegal, fraudulent, or unfairly prejudicial manner, or otherwise

1
  The amount of $22,749.50 reflects the $39,000 installment amount minus one-half of
the appraisal fee.

                                             5
breached their fiduciary duties; (2) denying Hansen’s claims for COBRA benefits,

uncompensated paid time off, and cash surrender value of a life insurance policy;

(3) finding that N’compass proved that Hansen violated the noncompete provision in the

shareholder agreement but failed to prove lost profits as a result of Hansen’s breach;

(4) awarding N’compass damages because N’compass proved that Hansen gained

improper benefits through company transactions; (5) denying N’compass’s unjust-

enrichment claim; and (6) ordering N’compass to immediately pay Hansen the full

purchase price of his shares, plus interest, less damages suffered by N’compass.

       Hansen and N’compass each moved the district court for amended findings

pursuant to Minn. R. Civ. P. 52.02. The district court denied both motions. This appeal

and cross-appeal follow.

                                     DECISION

                                             I.

       Hansen argues that the district court erred by determining that he failed to prove

that he is entitled to equitable relief under Minn. Stat. § 302A.751. The statute provides

that a district court may grant “any equitable relief it deems just and reasonable in the

circumstances” if it is established that the directors or those in control of a closely held

corporation have acted (1) fraudulently, (2) illegally, (3) in a manner unfairly prejudicial,

or (4) in breach of their fiduciary duty to act in an honest, fair, and reasonable manner

toward one or more shareholders. Minn. Stat. § 302A.751, subd. 1(b)(2)-(3), 3a. We

review a district court’s denial of equitable relief for an abuse of discretion. Bolander v.

Bolander, 703 N.W.2d 529, 553 (Minn. App. 2005), review dismissed (Minn. Nov. 15,

                                             6
2005). “A district court abuses its discretion if its decision is against the facts in the

record or if its ruling is based on an erroneous view of the law.” State ex rel. Swan Lake

Area Wildlife Ass’n v. Nicollet Cnty. Bd. of Cnty. Comm’rs, 799 N.W.2d 619, 625 (Minn.

App. 2011) (citation and quotations omitted). A district court’s “findings of fact ‘shall

not be set aside unless clearly erroneous.’” Pedro v. Pedro, 489 N.W.2d 798, 801 (Minn.

App. 1992) (quoting Minn. R. Civ. P. 52.01), review denied (Minn. Oct. 20, 1992).

“Clearly erroneous means manifestly contrary to the weight of the evidence or not

reasonably supported by the evidence as a whole.” Id. (quotation omitted).

Fraudulently or Illegally

       Hansen argues that the district court applied the wrong legal standard by requiring

Hansen to establish the elements of common-law fraud and actual misrepresentation in

order to prevail under his statutory claim. The district court found that Hansen “did not

provide sufficient evidence that Defendants acted fraudulently or illegally. [Hansen] did

not attempt to establish the 11 common law tort elements for fraud, . . . or suggest that

Defendants made misrepresentations to support a claim for statutory fraud under Minn.

Stat. § 302A.751.”

       The legislature has not defined the term “fraudulently” as used in section

302A.751, and we do not find any cases interpreting the use of the word in that section.

Hansen has not alleged any facts to support his allegation that N’compass acted

fraudulently. In his complaint, Hansen merely alleged that “[i]n his role as a shareholder,

[Hansen] has been damaged because the directors have acted fraudulently and illegally.”

Hansen conceded at trial that during his time as CEO the company suffered from

                                            7
deteriorating revenue and business, problems with Associated Bank, and declining

employee morale. On appeal, he asserts that N’compass’s reasons for firing him were

untrue because he was not solely responsible for the company’s problems. We conclude

that the district court’s findings are not clearly erroneous and that it did not abuse its

discretion when it determined that N’compass did not act fraudulently. Further, the

district court did not abuse its discretion when it found that N’compass did not act

illegally because Hansen did not assert any facts in support of his claim that N’compass

acted illegally.

Unfairly Prejudicial Manner

       A district court may grant equitable relief to a shareholder in a closely held

corporation when the directors or those in control of the corporation have acted in a

manner that is unfairly prejudicial toward the shareholder in his capacity as a shareholder

or as an employee. Minn. Stat. § 302A.751, subd. 1(b)(3). Unfairly prejudicial conduct

is “conduct that frustrates the reasonable expectations of all shareholders.” Gunderson v.

Alliance of Computer Prof’ls, Inc., 628 N.W.2d 173, 184 (Minn. App. 2001), review

granted (Minn. July 24, 2001), and appeal dismissed (Minn. Aug. 17, 2001). “[W]hether

a shareholder’s reasonable expectations have been frustrated is essentially a fact issue.”

Id. at 186.

       Shareholder-employees of a closely held corporation “commonly have an

expectation of continuing employment” and therefore discharge of a shareholder-

employee may be grounds for equitable relief.         Id. at 189.    But a shareholder’s

expectation of continuing employment is not reasonable “when the shareholder-

                                            8
employee’s own misconduct or incompetence causes the termination of employment.”

Id. at 192. To determine whether a shareholder’s expectations are reasonable, “courts

may rely on written or oral agreements among shareholders or between shareholders and

the corporation.” Id. at 185. Written agreements should be honored to the extent they

reflect the terms of the parties’ bargain. Id. at 186; see also Minn. Stat. § 302A.751,

subd. 3a (“[A]ny written agreements . . . between or among shareholders . . . are

presumed to reflect the parties’ reasonable expectations.”). But written agreements “are

not dispositive of shareholder expectations in all circumstances,” and shareholder

expectations can “arise from understandings that are not expressly stated in the

corporation’s documents.” Gunderson, 628 N.W.2d at 186.

      Here, the shareholder agreement states, “All Shareholders employed by the

Company . . . acknowledge that . . . [n]o commitment has been made by the Company

regarding Employee/Shareholders’ future employment or advancement in the Company.”

The agreement also states that “the Shareholders represent and agree that . . . any

investment by a Shareholder in the Company shall not create a reasonable expectation of

continued employment for purposes of Minnesota Statutes [s]ection 302A.751.”

      Hansen argues that he had a reasonable expectation of notice and opportunity to

cure before being discharged because N’compass had given other shareholders and

employees those opportunities. Hansen asserts that one prior shareholder was given five

weeks’ notice and an opportunity to cure his performance issues before his employment

termination became final. Hansen also asserts that Paul’s employment agreement created

a new standard for employee/shareholder termination and, as a result, he reasonably

                                           9
expected that “he and his fellow employee/shareholders would be entitled to notice, the

opportunity to cure, and one year’s severance if terminated without cause.”

       The district court found that the shareholder agreement reflected Hansen’s

reasonable expectations as a shareholder and that Hansen had “failed to produce

sufficient testimony or evidence indicating that his reasonable expectations as a

shareholder or employee were violated.” The district court found that N’compass did not

act in an unfairly prejudicial manner toward Hansen.

       The facts in the record support the district court’s findings. The circumstances

surrounding Hansen’s discharge are distinguishable from the circumstances surrounding

the discharges of other shareholders and employees. Importantly, none of the other

discharged employees was a party to the 2009 shareholder agreement. Specifically

regarding the argument of a “new standard” being created by Paul’s employment

agreement, testimony at trial revealed that Paul negotiated unique contractual rights

because of the risks she faced by selling her company to N’compass. Paul testified that

she entered into the unique agreement “[b]ecause I wanted to remain with the team of

N’compass, I had formed relationships but I hadn’t worked with them yet. I needed to be

protected.” In addition, Pinc testified that he believed that they only had 15 to 30 days to

make a decision regarding the future of N’compass due to the company’s financial

situation, and therefore they could not offer Hansen a “cure” period. The record also

demonstrates that, during Hansen’s leadership, N’compass lost value, employee morale

declined, and the relationship with Associated Bank deteriorated.

                                            10
        Based on the terms of the shareholder agreement and the evidence in the record,

we conclude that the district court’s factual findings are not clearly erroneous. The

district court acted within its discretion in determining that N’compass did not act in an

unfairly prejudicial manner toward appellant in his capacity as a shareholder or as an

employee.

Fiduciary Duty to Act Honestly, Fairly, and Reasonably

        Hansen argues that the district court erred when it found that Flaherty, Pinc, and

Paul did not breach their fiduciary duty to act honestly, fairly, and reasonably. When

determining whether to order equitable relief, Minnesota law requires that the district

court

              take into consideration the duty which all shareholders in a
              closely held corporation owe one another to act in an honest,
              fair, and reasonable manner in the operation of the
              corporation and the reasonable expectations of all
              shareholders as they exist at the inception and develop during
              the course of the shareholders’ relationship with the
              corporation and with each other.

Minn. Stat. § 302A.751, subd. 3a. Caselaw also explains that shareholders in a closely

held corporation have “a fiduciary duty to deal openly, honestly and fairly with other

shareholders.” Evans v. Blesi, 345 N.W.2d 775, 779 (Minn. App. 1984), review denied

(Minn. June 12, 1984).      The common-law fiduciary duty between shareholders is

frequently defined as a “duty of good faith and fair dealing.” Gunderson, 628 N.W.2d at

185; see also Pedro, 489 N.W.2d at 801 (“In a fiduciary relationship the law imposes

upon them highest standards of integrity and good faith in their dealings with each

other.”). Whether or not a fiduciary duty has been breached is generally a question of

                                            11
fact. Berreman v. W. Publ’g Co., 615 N.W.2d 362, 367 (Minn. App. 2000), review

denied (Minn. Sept. 26, 2000).

       The district court found that the shareholder agreement expressly provides that

Hansen’s employment could be terminated and his ownership interest involuntarily

removed with or without cause, that the shareholder agreement did not entitle Hansen to a

severance package, and that his employment could be terminated through a valid written

action pursuant to the terms of the amended articles of incorporation. The district court

also found that N’compass was not required to provide notice to Hansen before

terminating his employment and that the final valuation of Hansen’s shares was

consistent with the shareholder agreement.       Therefore, the district court found that

Flaherty, Pinc, and Paul fully complied with their duties under the shareholder

agreement, the articles of incorporation, and Minnesota law.

       Hansen contends that Flaherty, Pinc, and Paul breached their fiduciary duty to him

based on several grounds. The first is their refusal to redeem his shares for a fair value.

But the record demonstrates that N’compass followed the valuation procedure as outlined

in the shareholder agreement to determine an appropriate purchase price for the shares.

       Second, Hansen argues that Flaherty, Pinc, and Paul failed to deal openly with him

because they met to discuss terminating his employment without informing him, and after

they made the decision, they did not give him an opportunity to discuss the situation or

cure his performance issues. But the record demonstrates that Flaherty, Pinc, and Paul

acted pursuant to the amended articles of incorporation, which allowed them to take

action through a signed writing rather than a formal board meeting, and pursuant to the

                                            12
shareholder agreement, which expressly stated that N’compass made no commitment to

shareholders’ future employment.

       Third, Hansen argues that Flaherty, Pinc, and Paul attempted to use corporate

counsel to execute their plan to terminate his employment. Although they ultimately

retained personal counsel as advised by corporate counsel, Hansen asserts that Flaherty,

Pinc, and Paul breached their fiduciary duty by using corporate funds to pay for their

personal legal representation.

       But none of these claims rises to the level of a breach of fiduciary duty, which we

typically reserve for more egregious factual circumstances. E.g., Pedro, 489 N.W.2d at

801-02 (concluding that a breach of fiduciary duty occurred when appellants (1) hired a

private investigator to follow respondent, (2) fabricated accusations of neglect and

malfeasance, (3) threatened to fire respondent if he did not “forget about the

discrepancies in the financial records,” and (4) admitted to acting in an unfairly

prejudicial manner); Evans, 345 N.W.2d at 779-80 (concluding that appellant breached

his fiduciary duty by shouting at respondent, threatening to dissolve the company, and

acting in an abrasive and intimidating manner to convince respondent to resign). We

therefore conclude that the district court’s finding that Flaherty, Pinc, and Paul did not

breach their fiduciary duty to Hansen was not clearly erroneous and that the district court

did not abuse its discretion by finding that Hansen failed to prove a basis for relief under

section 302A.751.

                                            13
                                            II.

      In its cross-appeal, N’compass argues that the district court erred by finding that it

failed to prove damages arising out of Hansen’s breach of his noncompete obligations.

The district court found that the noncompete covenant in the shareholder agreement was

a reasonable restriction and therefore enforceable. The district court also found that

Hansen breached the shareholder agreement by competing against N’compass when he

began working for GovDelivery. But the district court found that N’compass did not

meet its burden to recover damages because N’compass did not sufficiently prove its lost

profits as a result of Hansen’s breach of the noncompete covenant.

      The question of damages is a question of fact. Pulkrabek v. Johnson, 418 N.W.2d

514, 516 (Minn. App. 1988), review denied (Minn. May 4, 1988). Findings of fact “shall

not be set aside unless clearly erroneous.” Cherne Indus., Inc. v. Grounds & Assocs.,

Inc., 278 N.W.2d 81, 88 (Minn. 1979). “In order to overturn a [district] court’s findings,

this court must be left with a definite and firm conviction that a mistake has been made,

notwithstanding the evidence to support such findings.” Id.

      Damages awarded for a breach of a noncompete covenant “are measured by the

business loss suffered as a consequence of the breach.” Faust v. Parrott, 270 N.W.2d

117, 120 (Minn. 1978).

             Damages do not flow from the breach of a covenant not to
             compete as a matter of course. They must be proved. To
             establish damages, [the injured party] must establish by a
             preponderance of the evidence that (a) profits were lost,
             (b) the loss was directly caused by the breach of the covenant
             not to compete, and (c) the amount of such causally related

                                            14
              loss is capable of calculation with reasonable certainty rather
              than benevolent speculation.

B & Y Metal Painting, Inc. v. Ball, 279 N.W.2d 813, 816 (Minn. 1979).

       But “there are circumstances in which the defendant’s gain may be useful in

determining the loss sustained by plaintiff.” Id. The Minnesota Supreme Court has held

that “where an employee wrongfully profits from the use of information obtained from

his employer, the measure of damages may be the employee’s gain.” Cherne Indus., Inc.,

278 N.W.2d at 94. Similarly, in B & Y Metal Painting, the supreme court concluded that

“[b]y applying plaintiff’s profit margin to the amount of decrease in sales . . . , the lost

profits . . . can be calculated with reasonable certainty.” 279 N.W.2d at 817. N’compass

contends that this is a circumstance where the district court should have used Hansen’s

gain to calculate N’compass’s damages.

       But the district court stated that, unlike in Cherne Industrial and B & Y Metal

Painting, “N’compass’s causally related lost profits cannot be calculated to a reasonable

degree of certainty without benevolent speculation as to N’compass’s profit margin.”

The district court also noted that “[n]o evidence or testimony regarding N’compass’s

usual profits or profit margins was provided.” And N’compass concedes that it did not

offer any evidence showing its standard profit margin.

       Caselaw supports the district court’s finding that, based on this record,

N’compass’s lost profits cannot be calculated to a reasonable degree of certainty. In

Faust, the Minnesota Supreme Court held that the petitioners failed to prove lost profits

when they introduced evidence of sales by their competitor but failed to introduce

                                            15
evidence of the “actual profit” the competitor received.           270 N.W.2d at 120-21.

Similarly, in Deutz & Crow Co. v. Anderson, this court held that the “damages are the

difference between what [a company’s] profits were and what its profits would have

been,” and the respondent was “entitled to the benefit of the contract and no more.” 354

N.W.2d 482, 489 (Minn. App. 1984). We therefore conclude that the district court did

not clearly err by finding that N’compass did not prove damages.

                                              III.

       N’compass also argues that the district court erred by entering judgment against

N’compass for the outstanding balance due to Hansen under a promissory note for the

purchase of his shares. N’compass issued the promissory note on September 28, 2012,

promising to pay Hansen $156,000 in four installments. The note indicates that each

installment would be in the amount of $39,000, plus accrued interest, the first installment

would be due on September 28, 2013, and each installment thereafter would be due

annually in 2014, 2015, and 2016. The note states:

                If notice of default is given to Maker of (i) any non-payment
                of any of the above installments of principal or interest . . .
                and Maker has not made such payment within ten (10) days
                of such notice’s receipt or has not cured such other default
                within thirty (30) days of such notice’s receipt, then Holder of
                this note may, without prior notice to Maker, elect to declare
                the unpaid balance of this note, including interest hereon, to
                be immediately due and payable.

       The promissory note does not specify what is required to give “notice,” but it

incorporates the provisions of the shareholder agreement. And the shareholder agreement

requires that

                                              16
              notice . . . shall be in writing and signed by the person giving
              it and shall be deemed to have been duly given (i) on the date
              when delivered either personally to the party or an affiliate of
              the party, or by facsimile, or (ii) on the third day after either
              party mailed certified mail return receipt requested, first class
              postage paid or sent by private express carrier . . . to the
              addresses shown on Schedule 1 or on the records of the
              Company.

Consequently, certain conditions are required before the payment obligations under the

note can be accelerated: (1) default, (2) proper notice of default, (3) receipt of notice, and

(4) failure to cure default within the applicable time frame.

       On September 27, 2013, counsel for N’compass sent a letter to Hansen’s counsel,

stating that the company would not be paying him the first installment “because of

Hansen’s breaches of the shareholder agreement, including, but not limited to his breach

of the noncompete provisions and his failure to pay half of the appraisal fee.” The letter

stated that N’compass deposited $22,749.50 into its counsel’s trust account, which

represented the first installment of $39,000 less the amount Hansen owed for the

valuation of the shares. On October 3, 2013, Hansen’s counsel sent a letter by e-mail to

N’compass’s counsel, stating that he was giving notice of default on the promissory note.

       N’compass asserts that the issues of default or acceleration under the promissory

note were never raised in Hansen’s pleadings, and therefore the district court improperly

entered judgment on the promissory note.          N’compass concedes that testimony and

evidence were submitted regarding nonpayment of the first installment of the promissory

note and the amount due under the note during the court trial. But N’compass argues that

the issue of whether Hansen is entitled to a legal remedy of acceleration under the terms

                                             17
of the note was not raised. Hansen did not raise acceleration of the promissory note in his

complaint,2 but the promissory note was entered into evidence during the trial and

testimony was given regarding the amount due under the note. And it is undisputed that

N’compass did not make the first payment. We conclude that the promissory note was

properly at issue before the district court.

       Next, N’compass argues that the district court did not make sufficient findings to

support an acceleration of the promissory note. We agree. District courts are obligated

to make specific findings of fact pursuant to Minn. R. Civ. P. 52.01. “Findings are

necessary to permit meaningful appellate review; failure to make adequate findings will

result in remand.” Nat’l Union Fire Ins. Co. v. Evenson, 439 N.W.2d 394, 398 (Minn.

App. 1989), review denied (Minn. July 12, 1989).

       The district court concluded that Hansen is “entitled to $156,000, the purchase

price for his shares, less any damages due to [N’compass].” The district court found that

N’compass is entitled to recover the following from Hansen: one-half share of the

appraisal fee; three months of Hansen’s car payments; Hansen’s expense account overage

from 2010-2012; and unauthorized charges on Hansen’s vehicle account from 2010-

2012. These damages amounted to a total of $23,954.84. We affirm the district court’s

calculation of damages in favor of N’compass.

       But with respect to acceleration of the note, the district court did not make any

findings regarding (1) what constituted “default”; (2) what constituted “notice”;

2
  The first installment under the promissory note was not due until a year after Hansen
filed his complaint and one month before the court trial.

                                               18
(3) whether Hansen provided adequate notice of default to N’compass; (4) whether

N’compass received notice of default; and (5) whether N’compass failed to cure the

default following receipt of notice. In fact, the district court expressly declined to make a

finding of default. In its order denying the parties’ motions for posttrial relief, the district

court stated, “Without going so far as to say that [N’compass is] in breach of the Note, it

is undisputed that [N’compass] withheld from [Hansen] the first installment due under

the Note.”

       Because the district court did not make a finding of N’compass’s default or

otherwise make sufficient findings necessary to accelerate payment under the shareholder

agreement and the promissory note, we reverse the district court’s order of acceleration of

payment and remand for entry of an amended judgment, in which the installment terms of

the promissory note are enforced but not accelerated.

       Affirmed in part, reversed in part, and remanded.

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