Reichel Foods, Inc., Respondent,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A24-0396

Reichel Foods, Inc.,
Respondent,

Stowaway Storage, LLC, et al.,
Defendants,

vs.

Loretta Lynn Taylor,
Appellant.

Filed August 26, 2024
Affirmed
Johnson, Judge

Olmsted County District Court
File No. 55-CV-23-705

David L. Liebow, James A. Godwin, Godwin Dold, Rochester, Minnesota (for respondent)

Amy S. Conners, Brian J. Linnerooth, Allison L. Dohnalek, Best & Flanagan, L.L.P.,
Minneapolis, Minnesota (for appellant)

Considered and decided by Johnson, Presiding Judge; Segal , Chief Judge; and
Bratvold, Judge.
NONPRECEDENTIAL OPINION
JOHNSON, Judge
Loretta Lynn Taylor was employed by Reichel Foods Inc. from 2002 until 2021,
when she resigned her position. S he later was charged with theft by swindle and aiding
and abetting theft by swindle based on allegations that she misappropriated money from
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her employer. While the criminal case was pending, Taylor requested that the company
advance her money to pay the costs of her defense as she incurred them, before a final
determination of her entitlement to indemnification by the company. Reichel Foods denied
her request. Taylor later filed a motion in this civil case for a court order requiring Reichel
Foods to advance her the money she requested. The district court denied Taylor’s motion,
in part because she had signed a petition to plead guilty to theft by swindle. We conclude
that the district court did not err by denying Taylor’s motion. Therefore, we affirm.
FACTS
We recite the relevant facts based on the record before this court, which is relatively
sparse because it includes only the documents that the parties filed in this civil case, not
the documents filed in the criminal case.
Taylor began working for Reichel Foods, which is located in the city of Rochester,
in 2002. She was promoted to the position of controller in 2011. In that position, she was
“responsible for helping to manage payroll, prepare financial statements, review and
approve expenses, and prepare tax filings.”
Taylor resigned her employment with Reichel Foods in July 2021. Ten months
later, in May 2022, the state charged her with one count of aiding and abetting theft by
swindle. According to Taylor’s appellate brief, the state alleged that she misappropriated
approximately $740,000 from the company.
In September 2022, four months after the criminal charge was filed, Taylor’s
attorney sent a letter to Reichel Foods’s attorney seeking an advance payment of money so
that she could pay expenses for which she later might be entitled to indemnification under
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the Minnesota Business Corporation Act . See Minn. Stat. § 302A.521 (2022). Reichel
Foods’s attorney responded by requesting that Taylor personally execute an affidavit
attesting to facts that satisfy the statutory requirements . Taylor did not immediately
respond.
In mid-November 2022, Reichel Foods’s attorney sent a follow-up letter to Taylor’s
attorney. The letter stated that Reichel Foods had not received the requested affidavit and
that the company was denying Taylor’s request for an advance because the company had
determined that she cannot satisfy the statutory requirements for such a payment. In late
November 2022, Taylor’s attorney sent Reichel Foods’s attorney an affidavit that Taylor
had executed in early October 2022 in which she made statements relevant to the statutory
criteria.
In December 2022, Reichel Foods commenced this civil action against Taylor,
Taylor’s husband, the former chief financial officer (CFO) of the company, and members
of the former CFO’s family. Reichel Foods asserted seven claims against the defendants,
including claims against Taylor of breach of fiduciary duty, unjust enrichment, civil
conspiracy, conversion, and civil theft. Reichel Foods alleged in its complaint that Taylor
misappropriated money from Reichel Foods by using its credit cards and credit-card
rewards for personal purposes without proper authorization and by wrongfully obtaining
reimbursements of cell -phone expenses that she did not actually incur. Taylor answered
the complaint in January by denying the allegations and asserting a counterclaim for
indemnification pursuant to Minnesota Statutes section 181.970 (2022).
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In August 2023, in the criminal case, the state amended the complaint by adding
three counts of theft by swindle. According to Taylor’s appellate brief, the state alleged
that she misappropriated approximately $8,000 from the company in the form of improper
cell-phone reimbursements.
In early October 2023, Taylor filed a motion in this case for a court order requiring
Reichel Foods to pay her the advance that she had requested a year earlier. In late October
2023, while her motion for an advance was pending, Taylor signed a petition in the criminal
case to plead guilty to three counts of theft by swindle in exchange for the state’s voluntary
dismissal of the charge of aiding and abetting theft by swindle. Three days after she signed
the plea petition, Reichel Foods filed a memorandum in which it argued, among other
things, that Taylor is not entitled to an advance because she had signed the plea petition.
The district court conducted a hearing on Taylor’s motion in mid-November 2023.
In late November 2023, Taylor entered guilty pleas to the three new counts of theft by
swindle. Reichel Foods informed the district court of Taylor’s guilty pleas by letter. In
February 2024, the district court filed an order in which it denied Taylor’s motion for an
advance with respect to both the criminal case and this civil case. Taylor appeals.
DECISION
Taylor argues that the district court erred by denying her motion for an advance with
respect to both her criminal case and this civil case.
The Minnesota Business Corporation Act provides for the indemnification of
directors, officers, and employees of corporations who are “made or threatened to be made
a party to a proceeding by reason of [their] former or present official capacity.” Minn. Stat.
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§ 302A.521, subds. 1(c), 2(a). Such a person is entitled to indemnification for “judgments,
penalties, fines . . . , settlements, and reasonable expenses, including attorneys’ fees and
disbursements, incurred by the person in connection with the proceeding,” so long as
certain statutory requirements are satisfied. Id., subd. 2(a).
To be eligible for indemnification with respect to a civil proceeding, a director,
officer, or employee of a corporation must satisfy four criteria: the person must not have
been “indemnified by another organization or employee benefit plan,” must have “acted in
good faith,” must have “received no improper personal benefit,” and must have
“reasonably believed that the conduct was not opposed to the best interests of the
corporation.” Id., subd. 2(a)(1)-(3), (5). To be eligible for indemnification with respect to
a criminal proceeding, the person must satisfy the above-stated criteria and, in addition,
must not have had “ reasonable cause to believe the conduct was unlawful.” Id.,
subd. 2(a)(1)-(5).
Before an entitlement to indemnification is determined , a director, officer, or
employee of a corporation may receive an advance payment of money for purposes of
paying reasonable expenses incurred in connection with a civil or criminal proceeding. Id.,
subd. 3. Our caselaw refers to this payment as an “indemnification advance” or
“advancement” and describes it as “immediate interim relief from the personal out- of-
pocket financial burden of paying the significant on-going expenses inevitably involved
with investigations and legal proceedings. ” Asian Women United v. Leiendecker, 789
N.W.2d 688, 691 (Minn. App. 2010) (quotation omitted).
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Specifically, a director, officer, or employee of a corporation who “is made or
threatened to be made a party to a proceeding . . . is entitled, upon written request to the
corporation, to payment or reimbursement by the corporation of reasonable expenses,
including attorneys’ fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding,” subject to two conditions. Minn. Stat. § 302A.521, subd. 3.
The first condition of advancement is that the person provide “the corporation . . . a written
affirmation by the person of a good faith belief that the criteria for indemnification set forth
in subdivision 2 have been satisfied and a written undertaking by the person to repay all
amounts so paid or reimbursed by the corporation, if it is ultimately determined that the
criteria for indemnification have not been satisfied.” Id., subd. 3(a). The second condition
is that the corporation make “a d etermination that the facts then known . . . would not
preclude indemnification.” Id., subd. 3(b).
If a corporation denies a request for advancement or does not respond within 60
days, the director, officer, or employee may seek a determination by a district court of the
person’s entitlement to advancement. Id., subd. 6(a)(5); Leiendecker, 789 N.W.2d at
692-93. In that event, the district court must determine the person’s entitlement to
advancement based on the facts “then known to the district court. ” Leiendecker , 789
N.W.2d at 693. The person seeking advancement “has the burden of establishing that the
person is entitled to” such payment. Minn. Stat. § 302A.521, subd. 6(a)(5). This court
applies a de novo standard of review to a district court’s determination of a person’s right
to advancement. Leiendecker, 789 N.W.2d at 690.
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In this case, Taylor challenges the district court’s determination that she is not
entitled to advancement with respect to both her criminal case and this civil case. We
separately consider her arguments with respect to each case.
A. Criminal Proceeding
Taylor first argues that the district court erred by determining that she is not entitled
to advancement with respect to the criminal case.
In response, Reichel Foods initially argues that Taylor’s request for advancement
with respect to the criminal case is moot because the criminal case was concluded when
Taylor pleaded guilty and was sentenced. A lawsuit, claim, or request for relief may be
moot if “an award of effective relief is no longer possible.” State ex rel. Ford v. Schnell,
933 N.W.2d 393, 401 (Minn. 2019) (quotation omitted). The advancement provision of
the indemnification statute states that a person may seek advancement for “reasonable
expenses . . . incurred by the person in advance of the final disposition of the proceeding.”
Minn. Stat. § 302A.521, subd. 3 (emphasis added). A person may choose to abandon a
request for advancement after the final disposition of a proceeding and instead focus on
obtaining indemnification, and we assume that most persons would do so. But the statute
does not necessarily preclude a person from receiving advancement after the conclusion of
a proceeding , so long as the expenses for which advancement is sought were incurred
before the final disposition of the proceeding. Accordingly, it was possible for the district
court in this case to have awarded effective relief to Taylor with respect to the expenses
she incurred in the criminal case before final judgment was entered. Thus, Taylor’s request
for advancement with respect to the criminal case is not moot.
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Reichel Foods argues in the alternative that Taylor is ineligible for advancement
because she filed a petition to plead guilty, and later pleaded guilty, to three criminal
charges. The district court agreed, relying on evidence submitted by Reichel Foods that
Taylor had filed a plea petition that indicated her intention to plead guilty to three counts
of theft by swindle. The district court reasoned that the offense of theft by swindle requires
proof that a person intentionally engaged in a swindle and, as a result, obtained for herself
the property of another. See Minn. Stat. § 609.52, subd. 2(a)(4) (2022). Given the evidence
of Taylor’s plea petition, the district court determined that the known facts would preclude
Taylor from qualifying for indemnification by Reichel Foods, thus making her ineligible
for advancement.
On appeal, Taylor initially contends that the district court erred on the ground that
her petition to plead guilty, and her subsequent guilty pleas, are not dispositive. She cites
a provision of the indemnification statute that states, “The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent
does not, of itself, establish that the person did not meet the criteria” for indemnification.
Minn. Stat. § 302A.521, subd. 2(b). But the district court did not rely solely on the fact
that Taylor’s criminal case was resolved by a settlement or that it resulted in a conviction.
Rather, the district court considered the elements of the charged offense and determined
that Taylor’s stated intention to plead guilty to theft by swindle is necessarily inconsistent
with two of the statutory criteria of indemnification: that she “received no improper
personal benefit” and that she did not have “reasonable cause to believe the conduct was
unlawful.” See Minn. Stat. § 302A.521, subd. 2(a)(3)-(4).
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The district court’s analysis is correct. The crime of theft by swindle requires proof
that a defendant had a specific intent to defraud. State v. McNeilly, 6 N.W.3d 161, 189
(Minn. 2024); In re Disciplinary Action Against Bonner, 896 N.W.2d 98, 111 (Minn.
2017); State v. Pirsig, 670 N.W.2d 610, 615 (Minn. App. 2003) . By stating in a plea
petition that she intended to plead guilty to theft by swindle, Taylor effectively negated the
prior statements in her October 2022 affidavit that she had no “reasonable cause to believe
the conduct was unlawful” and that she had “received no improper personal benefit.” See
Minn. Stat. § 302A.521, subd. 2(a)(3)-(4). Thus, the district court did not err by reasoning
that, given the elements of the offense of theft by swindle, Taylor’s plea petition precludes
her from establishing two of the statutory criteria of indemnification, which makes her
ineligible for advancement.
Taylor also contends that the district court erred on the ground that its decision is
based only on written submissions and not on oral testimony. Taylor cites no authority for
the proposition that the district court was required to conduct an evidentiary hearing before
ruling on the motion. In any event, it does not appear that Taylor requested an evidentiary
hearing. Rather, Taylor chose to submit only the affidavit that she executed in October
2022, one year before she signed her petition to plead guilty to theft by swindle. Even after
Reichel Foods submitted evidence of Taylor’s signed plea petition in its opposition to her
motion, Taylor did not submit any additional evidence with her reply memorandum, such
as an additional affidavit addressing the obvious conflicts between her October 2022
affidavit and the October 2023 plea petition. As the party seeking advancement, Taylor
bore “the burden of establishing that [she] is entitled to” advancement. See Minn. Stat.
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§ 302A.521, subd. 6(a)(5). Given the evidence submitted by the parties, the district court
properly concluded that the known facts would preclude Taylor from being eligible for
indemnification, which makes her ineligible for advancement with respect to the criminal
case.
Thus, the district court did not err by denying Taylor’s motion for advancement with
respect to the criminal case.
B. Civil Proceeding
Taylor also argues that the district court erred by determining that she is not entitled
to advancement with respect to the civil case.
The district court resolved this part of Taylor’s motion by reasoning that Taylor’s
request for advancement with respect to the civil case was not properly before the court
because she did not submit to Reichel Foods a proper request for advancement with respect
to the civil case. Specifically, the district court reasoned that Taylor was not a party to a
civil case when she executed her affidavit in October 2022 and when she sent it to Reichel
Foods in November 2022 because Reichel Foods commenced this civil case against her
later, in December 2022. The district court also reasoned that, when Taylor executed the
October 2022 affidavit and requested advancement, there was no threatened civil case.
Taylor contends that the district court erred for three reasons. First, she contends
that her affidavit sought advancement with respect to both the criminal case and the civil
case because it referred to the then-pending criminal case “and all related matters.” Her
contention ignores the statute, which allows advancement only “if a person is made or
threatened to be made a party to a proceeding .” Minn. Stat. § 302A.521, subd. 3. When
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she executed her affidavit in October 2022 and sent it to Reichel Foods in November 2022,
she was not “a person . . . made . . . a party” to any civil case. See id. She was, of course,
a party to a civil case by the time her request for advancement came before the district
court. But a district court’s authority to determine a person’s entitlement to advancement
exists only if the corporation has denied the person’s request or has not responded to a
request within 60 days. Minn. Stat. § 302A.521, subd. 6(a)(5). Because Taylor did not
request advancement from Reichel Foods at a time when she was a party to a civil case,
the district court had no authority to determine her eligibility for advancement in the first
instance.
Second, Taylor contends that, even if she was not a party to a civil case when she
executed her October 2022 affidavit, she was a party to this civil case when she asserted
her counterclaim in January 2023. But Taylor pleaded a counterclaim for indemnification,
not advancement. In addition, her counterclaim is based on a different statute, Minnesota
Statutes section 181.970. An employee is not entitled to indemnification pursuant to
section 181.970 if she is entitled to indemnification pursuant to section 302A.521. Minn.
Stat. § 181.970, subd. 2(3); Schantzen v. Erdmann, 4 N.W.3d 821, 825-27 (Minn. App.
2024), rev. denied (Minn. June 18, 2024). For that reason, an employee’s allegation that
she is entitled to indemnification under section 181.970 is, in effect, a statement that she is
not entitled to indemnification under section 302A.521. Furthermore, Taylor’s answer
does not satisfy the conditions of advancement because it is not “a written affirmation” by
Taylor herself (as opposed to an attorney) and because the answer does not contain “a
written undertaking . . . to repay all amounts so paid or reimbursed by the corporation, if it
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is ultimately determined that the criteria for indemnification have not been satisfied.” See
Minn. Stat. § 302A.521, subd. 3. For all of these reasons, Taylor’s counterclaim cannot be
construed as a request for advancement pursuant to section 302A.251, subdivision 3.
Third, Taylor contends that, when she executed the October 2022 affidavit, she was
“a person . . . threatened to be made a party to a proceeding” because the CEO of Reichel
Foods had made a statement to police investigators in September 2021, shortly after her
resignation, that he intended to sue her. See id., subd. 3 (emphasis added). In support of
this contention, Taylor cites evidentiary materials in her addendum. At oral argument, we
questioned whether those evidentiary materials were in the district court record when the
district court ruled on Taylor’s motion. In a supplemental submission after oral argument,
Taylor’s attorney forthrightly conceded that the materials were not part of the record that
was before the district court when it ruled on Taylor’s motion. Thus, there is no evidence
in the record that a civil proceeding was threatened before this civil case was commenced.
In sum, the district court did not err by determining that Taylor ’s request for
advancement with respect to the civil case was not properly before the court because, when
she made the request, she was neither a party nor threatened to be made a party to a civil
proceeding. And even if the district court had erred in that ruling, its error would be a
harmless error because Taylor would not be entitled to advancement with respect to the
civil case for one of the reasons she is not entitled to advancement with respect to the
criminal case: because she cannot satisfy the condition that she has “received no improper
personal benefit.” See Minn. Stat. § 302A.521, subd. 2(a)(3); see also Minn. R. Civ. P. 61.

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Thus, the district court did not err by denying Taylor’s motion for advancement with
respect to this civil case.
Affirmed.