John S. Drewitz, Respondent,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A17-0690

John S. Drewitz,
Respondent,

vs.

Motorwerks, Inc., et al.,
Defendants,

R. Jack Walser,
Appellant.

Filed December 4, 2017
Affirmed
Connolly, Judge

Hennepin County District Court
File No. 27-CV-04-008927

Paul W. Chamberlain, Rya n R. Kuhlmann, Chamberlain Law F irm, Wayzata, Minnesota
(for respondent)

Michael H. Streater, Bryce D. Jasper, Briggs and Morgan, P.A., Minneapolis, Minnesota
(for appellant)

Considered and decided by Connolly, Presiding Judge; Jesson, Judge; and Florey,
Judge.

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U N P U B L I S H E D O P I N I O N
CONNOLLY, Judge
In this appeal after a remand from our court, appellant argues that the district court
erred, under both statutory and common law, when awarding respondent attorney fees.
Respondent cross-appeals, arguing that the district court erroneously denied his motion to
amend his complaint to seek punitive damages. We affirm.
FACTS
This case has a long procedural history, which is summari zed in our most recent
decision involving these parties, Drewitz v. Motorwerks, Inc., 867 N.W.2d 197 (Minn. App.
2015) (Drewitz VI), review denied (Minn. Sept. 15, 2015). The facts relevant to this appeal
are set forth below.
On July 24, 2013, respondent John Drewitz obtained a $7.9 million verdict against
Motorwerks, Inc., for unpaid distributions plus preverdict interest . In 2006, w hile final
resolution of Motorwerks’ liability was p ending before the Minnesota Supreme Court,
appellant Jack Walser, a director of Motorwerks, and another director sold substantially all
of Motorwerks’ assets to a third party for nearly $33 million. Pursuant to the purchase
agreement, Motorwerks, appellan t, and the other director agreed to indemnify the third
party against any liability related to respondent’s lawsuit. After the sale closed, appellant
agreed to indemnify the other director against any liability related to respondent’s lawsuit.
When respondent initiated efforts to collect, the writ of execution upon the judgment
was returned unsatisfied. Respondent then discovered that appellant had distributed nearly
all of the income from the asset sale to himself and the other director. Appellant received
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more than $17 mi llion and a $70,000 BMW convertible. After the 2006 distribution s,
Motorwerks retained only $225,000 in cash, which dwindled to $169,108 by the end of
2006, and the valuation of its assets dropped from nearly $20 million to $690,6 57.
Motorwerks made additional distributions in 2007, 2010, and 2012, totaling nearly
$600,000. As majority shareholder, appellant received distributions in the amount s of
$325,600 in 2007, $80,0 00 in 2010, and $59,083 in 2012. Motorwerks was left with no
funds.
After discovering these events, respondent moved to amend his complaint to add
judgment-enforcing claims against appellant individually. The district court granted
respondent’s motion, but later dismissed his claims on summary judgment. On appeal from
that dismissal, this court reversed the dismissal, directed the district court to enter summary
judgment in favor of respondent on his claim for breach of fiduciary duty to a creditor, and
remanded to the district court to determine “whatever equitable remedy it deems necessary
under the circumstances to rectify [appellant’s] breach of fiduciary duty.” Drewitz VI, 867
N.W.2d at 210.
On remand, respondent moved for entry of summary judgment against appellant for
breach of fiduciary duty. Respondent also moved to amend his judgment to add appellant
as a joint debtor to the judgment against Motorwerks , for attorney fees, and for leave to
amend the pleadings to claim punitive damages pursuant to Minn. Stat. §§ 549.191-.20
(2016). On January 11, 2016, the district court granted respondent’s motion to enter
judgment against respondent, but denied respondent’s motion to amend the pleadings to
add a claim for punitive damages because it was not supported by an accompanying
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affidavit, it was beyond the district court’s remand authority to determine equitable relief,
and it was untimely and would prejudice appellant by prolonging the case.
The district court then stayed entry of judgment against appellant, set a discovery
schedule, and held an evidentiary hearing to determine the appropriate equitable relief and
attorney fees for appellant’s breach of fiduciary duty. After the hearing, the court amended
the $7.9 million judgment against Motorwerks by adding appellant as a jo int judgment
debtor and awarding respondent $340,918.66 in attorney fees and costs. The district court
ruled that respondent had sufficiently ple aded a claim for equitable relief under both
common-law breach of fiduciary duty and Minn. Stat. § 302A.751, subd. 1(c) (2016), and
that under § 302A.751, subd. 4 ( 2016), the court had discretion to award attorney fees if
the court found that appellant had “acted arbitrarily, vexatiously, or otherwise not in good
faith.”
D E C I S I O N
Appellant challenges the award of at torney fees, and respondent cross -appeals the
denial of his motion to add a punitive-damages claim. Appellate courts will not reverse a
district court’s grant or denial of attorney fees absent an abuse of discretion. Carlson v.
SALA Architects, Inc. , 732 N.W.2d 324, 331 (Minn. App. 2007) , review denied (Minn.
Aug. 26, 2007). The district court has the authority to impose sanctions, including attorney
fees, under statute and as part of its inherent power. Peterson v. 2004 Ford Crown Victoria,
792 N.W.2d 454, 462 (Minn. App. 2010). Statutory construction is a question of law that
this court reviews de novo. Swenson v. Nickaboine, 793 N.W.2d 738, 741 (Minn. 2011).
We review a district court’s order denying a motion to amend a complaint to add punitive
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damages for an abuse of discretion. Bjerke v. Johnson, 727 N.W.2d 183, 196 (Minn. App.
2007), aff’d 742 N.W.2d 660 (Minn. 2007).
I.
The district court determined that Minn. Stat. § 302A.751, subd. 4 provided grounds
for awarding respondent attorney fees. Minn. Stat. § 302A.751, subd. 4 gives district courts
discretion to award fees:
If the court finds that a party to a proceeding brought under this
section has acted arbitrarily, vexatiously, or otherwise not in
good faith, it may in its discretion award reasonable expenses,
including attorneys’ fees and disbursements, to any of the other
parties.

In 2015, this court recognized that respondent’s breach-of-fiduciary-duty claim was
the type of claim expressly authorized by M inn. Stat. § 302A.751, subd. 1(c) , because
respondent, as a creditor of Motorwerks, executed a judgment against Motorwerks that was
returned unsatisfied. Drewitz VI, 867 N.W.2d at 205 n.3. After a bench trial on remand,
the district court concluded that appellant acted arbitrarily, vexatiously, or otherwise not in
good faith, which entitled respondent to attorney fees under Minn. Stat. § 302A.751, subd.
4. Appellant does not challeng e the fac tual bases for awarding attorney fees under the
statute. Instead, he argues : (1) the fee award was beyond the scope of the remand,
(2) Minn. Stat. § 302A.751, subd. 1(c), cannot apply to corporate distributions, and (3) he
did not have proper notice of respondent’s attorney-fees claim.
Appellant argues that because this court’s 2015 remand instructions did not allow
respondent to present a claim for attorney fees, the district court went beyond its remand
instructions in allowing the claim. A district court’s compliance with remand instructions
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is reviewed for abuse of discretion. Janssen v. Best & Flanagan, LLP , 704 N.W.2d 759,
763 (Minn. 2005). District courts may “act in any way not inconsistent with the remand
instructions provided.” Id.
The remand instructions were as follows:
On remand, the district court, sitting as a court of equity, may
fashion whatever equitable remedy it deems necessary under
the circumstances to rectify [] [appellant’s] breach of fiduciary
duty. This includes, but i s not limited to, amending the
judgment against Motorwerks to include [appellant] as a party
from whom [respondent] can seek recovery of his $7.9 million
award.

Drewitz VI, 867 N.W.2d at 210.
This remand language is permissive. It explicitly states that the district court was
not limited to adding appellant as a joint debtor of the judgment. Additionally, this c ourt
expressly stated that these circumstances authorized a claim under Minn. Stat. § 302A.751,
subd. 1(c). Id. at 205 n.3. Since subdivision 4 of that same statute gives a district court
discretion to award attorney fees when “a party to a proceeding under this section has acted
arbitrarily, vexatiously, or otherwise not in good faith,” the district court’s fee award under
that statute wa s consistent wi th this court’s 2015 analysis. Thus, the district court had
discretion to find a party acted “arbitrarily, vexatiously, or otherwise not in good faith,”
and to award “reasonable expenses, including attorneys’ fees and disbursements. . . .”
Minn. Stat. § 302A.751, subd. 4.
Appellant next argues that Minn. Stat. § 302A.751 (2016) cannot apply to situations
involving corporate distributions because Minn. Stat. §§ 302A.551-.559 (2016) explicitly
supersede all other statutes; thus, appellant argues that his conduct should have been
7
governed exclusively by sections 302A.551-.559. Minn. Stat. § 302A.551, subd. 1 ,
provides:
(a) The board may authorize and cause the
corporation to make a distribution only if the board determines,
in accordance with subdivision 2, that the corporation will be
able to pay its debts in the ordinary course of business after
making the distribution and the board does not know before the
distribution is made that the determination was or has become
erroneous.

(b) The corporation may make the distribution if it is
able to pay its debts in the ordinary course of business after
making the distribution.

(c) The effect of a distribution on the ability of the
corporation to pay its debts in the ordinary course of business
after making the distribution shall be measured in accordance
with subdivision 3.

(d) The right of the board to authorize, and the
corporation to make, distributions may be prohibited, limited,
or restricted by, or the rights and priorities of persons to receive
distributions may be established by, the articles or bylaws or
an agreement.

Minn. Stat. § 302A.559, subd. 1, provides:

In addition to any other liabilities , a director who is
present at a meeting and fails to vote against, or who consents
in writing to, a distri bution made in violation of section
302A.551, subdivision 1, paragraph (a), or 4, or a restriction
contained in the articles or bylaws or an agreement, and who
fails to comply with the standard of conduct provided in
section 302A.251, is liable to the corp oration, its receiver or
any other person winding up its affairs jointly and severally
with all other directors so liable and to other directors under
subdivision 3, but only to the extent that the distribution
exceeded the amount that properly could have been paid under
section 302A.551.

(Emphasis added). Minn. Stat. § 302A.551, subd. 3(d) , states, “Sections 302A.551 to
8
302A.559 supersede all other statutes of this state with respect to distr ibutions . . . .”
Consequently, appellant argues that this is the exclusive remedy. We disagree.
First, we note that § 302A.559, subd. 1 , specifically provides “in addition to any
other liabilities.” Second, Minn. Stat. § 302A.751, subd. 1(c), and sections 302A.551-.559
are all part of Minn. Stat. § 302A (2016). The language that appellant relies on does not
supersede other sections of the same statute; rather, it supersedes other statutes.
Finally, appellant argues that the district court erred by concluding that respondent’s
complaint fulfilled the notice-pleading standard to allow him to pursue a claim for violation
of Minn. Stat. § 302A.751, subd. 1(c), because: (1) appellant did not have proper notice of
this claim and (2) respondent never moved to amend the pleadings to add this claim to his
amended complaint . Minnesota’s notice-pleading standard requires a “short and plain
statement of the claim showing that the pleader is entitled to relief.” Minn. R. Civ. P. 8.01;
see Hansen v. Robert Half Int’l, Inc., 813 N.W.2d 906, 917-18 (Minn. 2012) (holding that
“Minnesota is a notice-pleading state that does not require absolute specificity in pleading,
but rather requires only information sufficient to fairly notify the opposing party of the
claim against it.”). “In determining whether a complaint states a claim, the test is whether
the facts alleged, liberally construed, entitled plaintiff to any relief, either legal or
equitable.” Wells Fargo Home Mortg., Inc. v. Newton, 646 N.W.2d 888, 899 (Minn. App.
2002), review denied (Sept. 25, 2002) . The question before t his court is whether
respondent met a legal standard, which is a question of law that we review de novo. Harlow
v. State Dep’t of Human Servs., 883 N.W.2d 561, 568 (Minn. 2016).
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In his second amended complaint, under Count VII “Breach of Fiduciary Duty to
Creditor of Insolvent Corporation” respondent alleged:
52. When a corporation is insolvent, or on the verge of
insolvency, its directors and officers become fiduciaries
of the corporate assets for the benefit of creditors under
Snyder Electric Co. v. Fleming, 305 N.W.2d 863, 869
(Minn. 1981).

53. As fiduciaries, corporate directors and officers cannot
by reason of their special position treat themselves to a
preference over other creditors.

54. As the controlling shareholder-director of Motorwerks,
Inc., [appellant] breached a fiduciary obligation to
judgment creditor [respondent] by transferring
corporate assets to himself which made Motorwerks,
Inc. insolvent and unable to pay the judgment debt owed
to [respondent].

55. Therefore, the transfers of corporate assets to
[appellant] which made the corporation insolvent must
be set aside, and the funds should be used to pay
judgment creditor [respondent] pursuant to Snyder
Electric.

Respondent’s complaint also included the following requests for relief:
8. For a finding that [appellant has] acted arbitrarily,
vexatiously, or not in good faith, and ordering an award
to [respondent] of all costs, disbursements, interest and
attorney’s fees incurred by him in connection with this
proceeding as authori zed by Minn. Stat. § 302A.751,
[s]ubd. 4.

. . . .

11. On Amended Complaint Count Seven, for an Order
holding the transfers of corporate assets to [appellant]
which made the corporation insolvent shall be set aside,
and the funds shall be applied toward satisfaction of the
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judgment entered in favor of [respondent] under Snyder
Electric Co. v. Fleming, 305 N.W.2d 863 (Minn. 1981).

This language satisfies the requirements of rule 8.01. It is a short and plain statement of
respondent’s claim that he is entitled to judgment against appellant for money owed under
respondent’s judgment against Motorwerks, and it demands a finding of bad faith to
support an award of attorney fees under section 302A.751, subd. 4.
Further, the district court, after concluding that resp ondent could bring a claim for
attorney fees, did not immediately award them. Rather, it held a hearing and allowed the
parties to present evidence on the issue. Indeed, before the district court held the
evidentiary hearing on the attorney-fees issue, it ordered and received briefing regarding
the scope of the issues to be addressed. Appellant presented the district court with the same
lack-of-notice argument. Consequently, appellant suffered no prejudice.
The district court did not err by awarding respondent attorney fees under Minn. Stat.
§ 302A.751, subd. 4. Because we affirm on the statutory grounds, we decline to reach the
common-law issue.
II.
Respondent argues that the district court erred by denying his motion to amend his
complaint to seek punitive damages. The district court denied respondent’s motion on
three different grounds, including that the motion was untimely and prejudicial.
A district court has discretion to allow amendment of a complaint, and this court
will reverse that decision only for a clear abuse of discretion. Cherne Contracting Corp.
v. Wausau Ins. Cos. , 572 N.W.2d 339, 344 (Minn. App. 1997), review denied (Minn.
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Feb. 19, 1998). When deciding whether to allow the amendment, t he district court may
consider the proposed amendment’ s timing in relation to the stage of proceedings. See
Meyer v. Best Western Seville Plaza Hotel , 562 N.W.2d 690, 694 (Minn. App. 1997)
(holding a party must act with due diligence when attempting to amend complaint), review
denied (Minn. June 26, 1997).
The district court found that respondent’s motion on remand was untimely and
prejudicial because respondent failed to seek punitive damages around the time that
respondent moved to amend his complaint to add the judgment -enforcing claims against
appellant. We agree. Respondent moved to assert these claims after deposing appellant
and realizing that appellant had distributed Motorwerks’ assets to himsel f and another
director. As the district court n oted and appellant now argues, the facts that respondent
relied upon in his August 2013 mo tion to amend his complaint to add the breach -of-
fiduciary-duty claim against appellant were the same facts that he reli ed upon to support
his punitive-damages motion filed in October 2015. Respondent failed to seek punitive
damages between the time he became aware of the factual basis for his claim in July 2013
and the time the parties cross -moved for summary judgment in March 2014, a period of
nine months.
The district court also concluded that allowing respondent’s motion would prejudice
appellant because adding a claim for punitive damages would require the reopening of
discovery, motion practice, and trial, causing additional delay in finally resolving this case.
We review a district court’s finding of prejudice for an abuse of discretion. See e.g., State
v. St. Paul Fire and Marine Ins. Co. , 434 N.W.2d 6, 9 (Minn. App. 1989). Respondent
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argues that the punitive-damages issue could have been fully litigated while the district
court considered the appropriate equitable relief; however, the district court stated that ,
compared to the punitive -damages issue, there would be minimal, if any, delay and
discovery necessary to resolve the equitable relief issue. The district court did not abuse
its discretion by finding that respondent’s motion was untimely and would unreasonably
delay the case and prejudice appellant.
Affirmed.