Damian Loth, Appellant,

This opinion will be unpublished and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
A18-0190

Damian Loth,
Appellant,

vs.

Gregory Hoscheit, et al.,
Respondents,

George Griffith, Defendant.

Filed August 13, 2018
Affirmed
Smith, Tracy M., Judge

Houston County District Court
File No. 28-CV-12-713

Thomas M. Manion, Lanesboro, Minnesota (for appellant)

Jacob M. Tomczik, Brian J. Kluk, McCollum, Crowley, Mo schet, Miller & Laak, Ltd.,
Bloomington, Minnesota (for respondents Gregory Hoscheit, Daren Hofschulte, Lifestyle
Medical Group, and VO2fx, Inc.)

Considered and decided by Bratvold, Pr esiding Judge; Connolly, Judge; and Smith,
Tracy M., Judge.
U N P U B L I S H E D O P I N I O N
SMITH, TRACY M., Judge
In this appeal from judgment following a be nch trial in a corporate-buyout action,
appellant asserts that the district court abused its discretion by (1) failing to grant

2
appellant’s requested equitable relief based on statutory violations and his expectation to
remain involved with respondent-companies ; and (2) accepting respondents’ expert’s
valuation opinion and rejecti ng appellant’s expert’s valua tion opinion when determining
the value of appellant’s interest in the companies. We affirm.
FACTS
In April 2007, appellant Damian Loth contacted respondent Gregory Hoscheit about
a line of compression socks, Sm oothToe, sold by Hoscheit’s employer, Osborn Medical.
Soon after, Loth began performing consulting work for Osborn Medical to improve the
SmoothToe website and to increase online marketing and sales.
On April 1, 2008, Loth, Ho scheit, and respondent Daren Hofschulte formed a
limited liability company (LLC), respondent Lifestyle Medical Group (LMG), to purchase
the SmoothToe line from Osborn Medical for $75, 000. Prior to LMG’s formation, Loth
projected that, based on his online marketing expertise, he could achieve first-year annual
sales of $500,000 to $1,000,000, a substantial increase from SmoothToe’s past annual sales
of $55,000 to $65,000. Hofs chulte contributed $300,000 in start-up funding, Hoscheit
contributed inventory and additional funds, and Loth contributed no money. Loth,
Hoscheit, and Hofschulte agreed that each owned a one-third member interest in LMG and
each held a vote. They also agreed that Hoscheit would provide da y-to-day product-line
management and knowledge, Loth would provide online- sales experience, and both
Hoscheit and Loth would be paid $75,000 annually by LMG through monthly management
fees.

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In 2008 and 2009, LMG incurred annual net losses of $179,323.93 and $60,488.07,
respectively. From 2008 to 2011, LMG averaged approximately $35,000 in annual online
sales. During that time, Loth proposed a num ber of marketing strate gies that failed to
generate his projected online sales.
In September 2010, Loth and Hoscheit formed VO2fx Inc. as a separate corporation
to raise capital for LMG because LMG’s financial statements were so poor that it could not
attract investors. Thereafter, VO2fx so ld athletic socks using the SmoothToe
specifications, but featuring a different visual design. George Griffith, who was initially a
defendant in the complaint but is not a party to this appeal, contributed $150,000 to VO2fx.
In 2010, LMG and VO2fx (together, the compan ies) generated combined online sales of
$40,000, and incurred a combined annual net loss of $146,512.34.
In 2011, the companies secured a large deal with Jarden Team Sports that generated
$275,369.08 in new sales. Despite this de al, the companies incurr ed a combined annual
net loss in 2011 of $152,412.57. In October 2011, Hoscheit informed Loth that a number
of business areas needed improvement, in cluding online sales a nd uneven workloads
among the managers.
In January or February 2012, Hoscheit learned that Jarden could not sell the VO2fx
socks and would not be orderi ng more, and that the Jarden deal, on which the companies
were relying to stay financially viable, wo uld be ending. In Fe bruary 2012, Griffith
asserted various claims against the companies and demanded satisfaction of a $50,000 loan
that he had made to VO2fx. Hoscheit became concerned about the companies’ survival
because they lacked funds to repay Griffith and, in additi on to their continued operating

4
expenses, the companies owed bank loans in excess of $200,000, wh ich were personally
guaranteed by Hoscheit and Hofschulte. According to Hoscheit, Loth’s online marketing
efforts were unsuccessful, Loth had not br ought any benefit to the companies, and
eliminating Loth’s annual $75,000 management fees would help the companies meet their
expenses, which were spiraling out of control. Hoscheit and Hofschulte then decided to
terminate Loth’s employment from the companies.
On March 6, 2012, Hoscheit, Hofschulte, Griffith, and their attorneys, met to discuss
repayment of Griffith’s $50,000 loan and his $150,000 contribution, and a lease agreement.
Loth was not included. At the meeting, Hoscheit and Hofschulte discussed making changes
to the company, including Loth ’s employment, but they testif ied at trial that they had
decided to terminate Loth prior to the meeting. On March 8, 2012, Hoscheit and Hofschulte
held a meeting with Loth and informed him that he was te rminated from working for the
companies, which they ratified by majority vote. Hoscheit a nd Hofschulte also voted on
the value of Loth’s interest in the companies and determined that his interest was worthless
because the companies had negative earnings and substantial debt.
On August 3, 2012, Loth sued Hoscheit and Hofschulte for breach of fiduciary duty
and breach of contract and for equitable reli ef, seeking a buy-out of his company shares
and attorney’s fees and costs, under Minn . Stat. § 302A.751 (2012) (MBCA), and Minn.
Stat. § 322B.833 (2012) (MLLCA). 1 Hoscheit and Hofschu lte brought a number of

1 We cite the 2012 versions of the Minnes ota Business Corporation Act (MBCA) and the
Minnesota Limited Liability Company Act (MLLCA), which were in effect at the time this
action was initiated. We note that the MLLC A has since been repealed and replaced by
the Minnesota Revised Unifor m Limited Liability Company Ac t. 2014 Minn. Laws ch.

5
counterclaims against Loth , including fraudulent-inducement and negligent-
misrepresentation claims.
Following a five-day bench tr ial in April 2015, the distri ct court found that Loth’s
services provided no benefit to the companies, he provided no day-to-day management
support, and his management fees created unn ecessary expenses that acted as a financial
drain on the struggling companies. The di strict court concluded that Hoscheit and
Hofschulte reasonably and necessarily term inated Loth’s employment to keep the
companies financially viable, but that Loth retained his one-third member interest in LMG
and his shareholder interest in VO2fx. The district court determined that Hoscheit and
Hofschulte’s conduct was not unfairly prejudicial, fraudulent, or illegal, and that equitable
relief was not warranted on that basis. However, the district court granted Loth’s buy-out
request pursuant to Minn. Stat. § 302A.751, subd. 2, and Minn. Stat. § 322B.833, subd. 2,
concluding that the shareholders and memb ers of the companies were deadlocked and
unable to break the deadlock. The district court ruled that it would determine the value of
Loth’s interest under the applicable statutory procedure if the parties were unable to agree
on the value of his interest. The district court denied all counterclaims.
After the parties failed to reach an agre ement, the district court appointed two
appraisers nominated by the pa rties to perform valuations of LMG, VO2fx, and Loth’s
interest in each as of March 8, 2012, the date of his termina tion. Lyndon Steele, Loth’s
nominated appraiser, appraised the combined fair value of LMG and VO2fx at $7,000,000

157, art. 1, at 122-85. No party argues that the new act applies. See Minn. Stat.
§ 322C.1204 (2016) (providing staggered effective dates for application of the new act).

6
and the total value of Loth’s interest at $2,175,695. Benjamin Turnquist, Hoscheit and
Hofschulte’s nominated appraiser, appraised the fair value of bot h companies at zero
dollars and concluded that Loth’s interest was worthless. Following an evidentiary hearing
at which both appraisers testified, the district court found Turnquist’s zero-dollar valuation
to be accurate and reliable, and found that Steele’s valuation was flawed in several respects.
The district court ordered that Loth receive nothing in compensation for the value of his
interest in the companies.
Loth appeals.
D E C I S I O N
I. The district court did not err in denying Loth’s requested equitable relief.

“We review the district court’s exercise of equitable relief for abuse of discretion.”
Bolander v. Bolander, 703 N.W.2d 529, 548 (Minn. App. 2005), review dismissed (Minn.
Oct. 28, 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. Nico llet Cty. Bd. of Cty. Comm’rs , 799 N.W.2d 619, 625
(Minn. App. 2011) (quotations omitted). We vi ew the record in the light most favorable
to the district court’s factual findings, and we defer to the distri ct court’s credibility
determinations. Vangsness v. Vangsness, 607 N.W.2d 468, 472 (Minn. App. 2000).
A. Hoscheit and Hofschulte’s conduct was not unfairly prejudicial.

Loth argues that the district court erred in determining that Hoscheit and Hofschulte
did not act in an unfairly prejudicial manner toward him and denying him equitable relief
on that basis.

7
Under both the MBCA and the MLLCA, a di strict court “may grant any equitable
relief it [finds] just and reasonable in the circumstances” if individuals in control of the
corporation or LLC have acted “in a manner unfairly prejudicial” toward another member
or shareholder. Minn. Stat. §§ 302A.751, su bd. 1(b)(3), 322B.833, subd. 1(2)(ii). The
district court found that Hosc heit and Hofschulte did not act in an unfairly prejudicial
manner toward Loth “as they had to make financial decisions to keep the businesses going
and that meant terminating the services of Loth from both companies.”
The record supports the district court’s finding. The evidence shows that, from 2008
to 2012, the companies paid Loth approximately $242,058.90 in management fees. During
that time, the companies’ online sales fell far short of Loth’s projections and they incurred
substantial net losses each year. In ad dition, Hoscheit and Hofschulte personally
guaranteed significant liabilities on behalf of the companies to keep them running while
Loth took on no liabilities, ma de no financial cont ributions, and provi ded no day-to-day
operations assistance. Hoscheit testified th at, in light of the companies’ losses and
significant liabilities, they need ed to eliminate Loth’s mana gement fees, from which the
companies were deriving no benefit, in order to survive. “That th e record might support
findings other than those made by the [district] court does not show that the court’s findings
are defective.” Vangsness, 607 N.W.2d at 474. Viewing the evidence in the light most
favorable to the district court’s findings, we conclude that the district court’s determination
that Hoscheit and Hofschulte did not act in an unfairly prejudicial manner toward Loth has
support in the record and that the district court did not abuse its discretion in denying him
equitable relief.

8
B. Loth’s discharge did not violate his reasonable expectation of continued
employment.

Loth next argues that the district court erred in denying him equitable relief because
Hoscheit and Hofschulte violated his reasonable expectation of continued employment by
discharging him from the companies.
“Shareholders in a closely held corpora tion typically have an expectation of
continuing employment, and the discharge of a shareholder-employee may be grounds for
equitable relief under Minn. Stat. § 302A.751.” Haley v. Forcelle , 669 N.W.2d 48, 59
(Minn. App. 2003), review denied (Minn. Nov. 25, 2003). The threshold issue is whether
the minority shareholder’s expectation of continued employmen t is reasonable. Id. In
determining whether such an expectation is reasonable, we consider several factors,
including “whether (1) the shareholder made a capital investment in the company;
(2) continued employment could be considered part of the shareholder’s investment;
(3) the shareholder’s salary could be consid ered a de facto dividend; and (4) continued
employment was a significant reason for making the investment.” Id. However, “the
shareholder’s expectation of continued employment is only reasonable if that expectation
is known and accepted by other shareholders and properly balanced against the majority or
controlling shareholders’ need for fl exibility in running the business,” id. at 59-60, and
doing so “in a productive manner,” Gunderson v. All. of Comput. Prof’ls, Inc., 628 N.W.2d
173, 191 (Minn. App. 2001), review granted (Minn. July 24, 2001), and appeal dismissed
(Minn. Aug. 17, 2001).

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Here, although the district court did not expressly address Loth’s expectation of
continued employment, the court found that his discharge “was reasonable and necessary”
for the companies to be financially viable. As noted, the record supports the district court’s
finding that Loth’s discharge was the result of a financial de cision to keep the companies
running at a time when the companies were in “survival mode.” The record also supports
the district court’s findings that Loth’s on line marketing services were not providing
benefit to the companies, he was not providing day-to-day management of the companies,
and his management fees were draining the companies’ limited resources. Moreover, it is
undisputed that, unlike Hosche it and Hofschulte, Loth made no capital investment in the
companies. On balance, th e evidence in the record su pports the determination that
Hoscheit and Hofschulte’s need to run the companies in a productive manner outweighed
the extent to which Loth could reasonably e xpect continued employment, in light of the
companies’ losses, liabilities, and low online sales. We conclude that Loth’s discharge did
not violate his reasonable expectation of continued employment and the district court did
not abuse its discretion in denying him equitable relief on that basis.
C. The district court did not err by not making explicit findings on whether
Hoscheit and Hofschulte fulfilled thei r duty to act honestly, fairly, and
reasonably.

Loth argues that the dist rict court erred because its findings do not address
Hoscheit’s and Hofschulte’s duties to act in an honest, fair, and reasonable manner for the
purposes of determining equitable relief.
For both corporations and LLCs, the district court must consider the duty that all
shareholders or members owe one another to act in an “honest, fair, and reasonable

10
manner” in the operation of th e corporation or LLC when de termining equitable relief.
Minn. Stat. §§ 302A.751, subd. 3a, 322B.833, subd. 4. Here, the district court found that
Hoscheit and Hofschulte did not act in a manner unfairly prejudicial, fraudulent, or illegal
in terminating Loth. The district court did not explicitly find that Hoscheit and Hofschulte
fulfilled their duty “to act in an honest, fa ir, and reasonable manner.” However, Loth
provides no caselaw or authority to support his argument that the district court must make
such explicit findings when determining equitable relief. Moreover, based on the district
court’s determination that Loth’s discharg e “was reasonable and necessary,” which has
support in the record, we can infer that the district court implicitly found that Hoscheit and
Hofschulte acted in an honest, fair, and reasonable manner in the operation of the
companies. See Umphlett v. Comm’r of Pub. Safety , 533 N.W.2d 636, 639 (Minn. App.
1995) (holding that implicit findings may be derived from the district court’s final
resolution of a matter), review denied (Minn. Aug. 30, 1995). Furthermore, Loth makes
no argument that the absence of explicit findings under Minn. Stat. § 302A.751, subd. 3a,
or Minn. Stat. § 322B.833, subd. 4, resulted in any prejudice. Therefore, we conclude that
the district court did not err by not ma king explicit findings on whether Hoscheit and
Hofschulte fulfilled their duty to act in an honest, fair, and reasonable manner in
determining equitable relief.
II. The district court did not err in determ ining the value of Loth’s interest in
LMG and VO2fx based on the valuations submitted by the parties’ experts.

Loth argues that the district court erred in determining the value of his interest in
LMG and VO2fx because it adopted the Turnquist appraisal, which valued the companies

11
at zero dollars, rather than the Steele appraisal, which valued the companies at $7 million.
We disagree.
A district court’s valuation determination is reviewed for an abuse of discretion. Cf.
Bolander, 703 N.W.2d at 548 (“We re view the district court’s exercise of equitable relief
for abuse of discretion.”). When conflicting opinions of expert witnesses have a reasonable
basis in fact, the trier of fact must decide who is right. Thomas v. Thomas, 407 N.W.2d
124, 126 (Minn. App. 1987). Appellate courts generally de fer to the district court’s
credibility determinations. Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988).
If parties cannot agree on the fair value of an LLC membership interest within 40
days of an order for its sale, then the district court must “determine the fair value of the
membership interests under th e provisions of section 322B .386, subdivision 7.” Minn.
Stat. § 322B.833, subd. 2. Under Minn. Stat . § 322B.386, subd. 7 (2012), “[the district
court] shall determine the fair value of the me mbership interests, taking into account any
and all factors the court finds relevant, computed by any method or combination of methods
that the court, in its discretion, sees fit to use[.]” District courts follow the same procedure
when parties cannot agree on the fair value of corporate shares following an order for sale.
See Minn. Stat. § 302A.751, subd. 2 (referencing Minn. Stat. § 302A.473, subd. 7 (2012)).
Loth first argues that the district court erred in adopting the Turnquist appraisal
because it improperly calculated the fair value of the compan ies based on the “book” or
“liquidation” value, rather than on the co mpanies’ value as a going concern. The
Minnesota Supreme Court has defined “fair valu e,” for the purpose of ordering a buy-out
of corporate shares, as the “p ro rata share of the value of the corporation as a going

12
concern.” Advanced Commc’n Design, Inc. v. Follett, 615 N.W.2d 285, 290 (Minn. 2000).2
The supreme court has held that, “[t]o determine fair value, the [district] court may rely on
proof of value by any technique that is ge nerally accepted in the relevant financial
community and should consider all relevant factors, but the value must be fair and equitable
to all parties.” Id.
Here, the Turnquist appraisal stated that the fair value of the companies would be
calculated based on the companies continuing “as a going concern.” The appraisal further
stated that the value of the companies “is greater as a going concern than in liquidation
value” and that the appraisal would not use liquidation value because that would assume
discontinuance of the companies as a going concern. The appraisal calculated the
companies’ fair value using two methods: an “income approach” and an “asset approach.”
Under the income approach, Turnquist appraised the value of the companies to be negative
$593,000 due to their operating losses. Under the asset approach, Turnquist appraised the
value of the companies to be negative $4,000. Turnquist ultimately applied the adjusted-
assets appraisal because it provided the highest estimated value for the companies. Loth’s
contention that Turnquist determined the value of the companies based on their liquidation
value, rather than on their value as a going concern, is contradicted by the record.
Loth next argues that corporate valuations must be supported by “contemporaneous
expectations of management,” that the Turnquis t appraisal failed in that regard, and that

2 Interpretations of the MBCA have been applied to interpreta tion of the MLLCA. See
Stone v. Jetmar Props., LLC, 733 N.W.2d 480, 486 (Minn. App. 2007) (“[T]he law relevant
to corporations guides our interpretation and application of the law relevant to LLCs . . . .”).

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the appraisal ignored a ten-week period in January through March 2012, during which, he
claims, the companies sh owed a small profit. Loth also argues that the appraisal “defies
logic” because the companies have continued to operate and litigate the case. Issues not
adequately briefed on appeal are not properly before this court. See Schoepke v. Alexander
Smith & Sons Carpet Co. , 290 Minn. 518, 519- 20, 187 N.W.2d 133, 135 (1971) (“An
assignment of error based on mere assert ion and not supported by any argument or
authorities in appellant’s brief is waived an d will not be considered on appeal unless
prejudicial error is obvious on mere inspecti on.”). Loth cites no caselaw or authority to
support his arguments, and provides no citati on to evidence in the record showing the
profits he claims that the companies realized. Moreover, Loth does not dispute the district
court’s findings that the companies lost m oney in each year from 2008 to 2011 and had
negative equity at the time of his discharge. Because prejudicial error is not obvious upon
mere inspection, we decline to reach the merits of these arguments.
Loth also argues that the district court erred in adopting the Turnquist appraisal
because the appraisal overlooked evidence showing (1) Griffith’s $150,000 investment in
the companies and (2) Hoscheit’s self-prepared May 2012 financial statement in which he
valued his interest in the companies as $700,000. Loth also claims that there is no evidence
to support the district court’s finding that Hoscheit learned that the companies would be
losing the Jarden deal before terminating Loth, which the Turnquist appraisal accepted in
calculating the companies’ fair value.
Each statement of material fact in an appellant’s brief “shall” be accompanied by a
cite to record. Minn. R. Civ. App. P. 128.02, subd. 1(c). “[M]aterial assertions of fact in

14
a brief properly are to be supported by a cite to the record, and such cites are particularly
important where . . . the record is extensive.” Hecker v. Hecker, 543 N.W.2d 678, 681 n.2
(Minn. App. 1996) (citing Minn. R. Civ. App. P. 128.02, subd. 2; 128.03), aff’d, 568
N.W.2d 705 (Minn. 1997). Failure to comply with the rules may lead to nonconsideration
of an issue. Cole v. Star Tribune, 581 N.W.2d 364, 371-72 (Minn. App. 1998).
Here, Loth provides no citations to the re cord evidence that he claims Turnquist
failed to consider. Nonetheless, our review of the evidence shows that the district court
characterized Griffith’s $150,000 contribution as a loan, rather than an investment, and
entered judgment for Griffith in the amount of $150,000 with interest in 2015, prior to the
appraisal. The evidence also includes Hosche it’s testimony that he used 2011 values to
prepare his May 2012 financial statement, when the companies were operating under the
assumption, later proved false, that the Jarden deal would co ntinue. The district court’s
finding on the timeframe in which Hoscheit learned that th e companies would be losing
the Jarden deal is supported by Hoscheit’s testimony, and Lo th cites no evidence in the
record to support his claim that the finding is erroneous. Therefore, Loth has not met his
burden to show that the district court erre d in adopting the Turnquist appraisal on the
grounds that the appraisal overlooked evidence.3
Loth argues that the district court erred in discrediting the Steele appraisal because
the judgment in favor of Griffith on which the district court relied occurred after the

3 Loth also argues that the district court e rred in considering the companies’ 2013 tax
returns and QuickBooks data in determining the value of th e companies. However, Loth
provides no record citation to the specific finding or evid ence that he challenges.
Therefore, we decline to reach the argument.

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valuation date. Loth cites to a federal-tax- court memorandum and a federal-small-claims
case addressing the consideration of events subsequent to a valuation date. But this court
is bound only by decisions of the Minnesota Supreme Court and the United States Supreme
Court. Citizens for a Balanced City v. Plymouth Congregational Church, 672 N.W.2d 13,
20 (Minn. App. 2003). In a case involving the fair valuation of a property subject to a
taking, the Minnesota Supreme Court held that “when valuing . . . property, the fact finder
should take into account conditions that exist at the tim e of the taking bu t are discovered
subsequent to the taking.” Moorhead Econ. Dev. Auth. v. Anda , 789 N.W.2d 860, 884
(Minn. 2010). And the district court has br oad equitable powers when fashioning a buy-
out. Follett, 615 N.W.2d at 292.
Here, it is undisputed that Griffith contributed $150,000 to the companies before the
March 8, 2012 valuation date. The Steel e appraisal submitted by Loth treated the
contribution as an investment in the companies despite the district court’s 2015 judgment
that the companies owed Griffith $150,000 with interest, which the court characterized as
a determination that Griffith did not invest in the companies, but made a loan.4 Griffith’s
contribution is the relevant event that occurr ed before the valuation date. The district
court’s later ruling merely clarified that the contribution was not an investment. Given the
district court’s broad equitable powers, we conclude that the district court did not err in

4 Loth does not challenge the district cour t’s characterization of the 2015 judgment; he
argues only that the judgment itself constitu ted an event occurring subsequent to the
valuation date, which the experts should not consider.

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discrediting the Steele appraisal because it treated the $1 50,000, which the court had
awarded to Griffith, as an investment in the companies.
Because Loth has not met hi s burden to demonstrate th at any of the challenged
findings are clearly erroneous or unsupported by the record, and because we defer to the
district court’s factual findings and credibility determinations, we conclude that the district
court did not abuse its discre tion in determining the value of Loth’s interest in the
companies on the basis of the expert opinions.
Affirmed.