Capital Construction, LLC v. Nicholas Hanzlik

This opinion is nonprecedential except as provided by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
A23-1404

Capital Construction, LLC,
Respondent,

vs.

Nicholas Hanzlik, et al.,
Appellants.

Filed May 20, 2024
Reversed and remanded
Harris, Judge

Anoka County District Court
File No. 02-CV-21-674

Mary L. Hahn, Katherine R. Wagner, Hvistendahl, Moersch, Dorsey & Hahn, P.A.,
Northfield, Minnesota (for respondent)

Jason T. Dzurik, Dzurik, LLC, Minneapolis, Minnesota (for appellants)

Considered and decided by Worke, Presiding Judge; Schmidt, Judge; and Harris,

Judge.

NONPRECEDENTIAL OPINION

HARRIS, Judge

In this appeal from judgment following a bench trial on a breach-of-contract claim

related to the parties’ storm-damage repair contract, appellants assert the district court erred

by improperly placing the burden on appellants to introduce affirmative evidence to

demonstrate that the liquidated-damages clause was unenforceable. Because we agree the
district court erred in this respect, we reverse and remand for the district court to apply the

correct evidentiary burden.

FACTS

In June 2017, appellants Nicholas and Alyssa Hanzlik (the homeowners) suffered

storm damage to their residence. In April 2018, the homeowners contracted with

respondent Capital Construction (Capital) to complete the repair and replacement work

specified by the homeowners insurance company’s estimate. Capital assisted the

homeowners with negotiating their insurance claim, resulting in an appraisal award of

$31,709.37 for window repairs.

The contract between the homeowners and Capital contained a liquidated-damages

clause which, in relevant part, states:

if owner cancels or refuses to perform . . . before
commencement of work . . . Contractor may retain 25% of the
total RCV [Replacement Cost Value] amount of the work
authorized by Owner’s insurance company as a reasonable
amount [of] money for the time Contractor invested in the
performance of this Agreement.

In June 2020, the homeowners cancelled the contract before Capital commenced

physical work on the windows.

In February 2021, Capital filed suit against the homeowners seeking (1) judgment

based on breach of contract, or declaratory judgment, in the amount of $7,927.34; (2) an

award of Capital’s attorney fees and costs, pursuant to the terms of the parties’ agreement;

(3) an award of prejudgment and post-judgment interest; and (4) for such further relief as

the court deems necessary.

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 In April 2023, the district court held a bench trial at which Capital sought to enforce

the liquidated-damages clause. The homeowners argued the liquidated-damages clause was

unenforceable. The district court concluded that Capital succeeded on its breach-of-

contract claim and that the liquidated-damages clause was enforceable. The district court

ordered a declaratory judgment in favor of Capital in the amount of $7,827.34 in liquidated

damages and $13,119.25 in attorney fees and costs. No posttrial motions were filed.

This appeal follows.

DECISION

We review enforceability of a liquidated-damages clause de novo. Lagoon Partners,

LLC v. Silver Cinemas Acquisition Co., 999 N.W.2d 113, 120 (Minn. App. 2023), rev.

denied (Minn. Mar. 19, 2024). When determining whether a liquidated-damages clause is

enforceable, “we first ask whether [the non-breaching party’s] actual damages resulting

from [the breaching party’s breach of the contract] are ‘incapable or very difficult of

accurate estimation.’” Id. at 119-20 (quoting Gorco Constr. Co. v. Stein, 99 N.W.2d 69, 75

(Minn. 1959). If the “actual damages are ‘incapable or very difficult of accurate

estimation,’ we then would ask whether the amount of liquidated damages is ‘a reasonable

forecast of just compensation for the harm that is caused by the breach.’” Id. at 120 (quoting

Gorco, 99 N.W.2d at 74-75). A liquidated-damages clause is unenforceable if the amount

of liquidated damages is “not a reasonable forecast of just compensation.” Id. And “the

proponent of a liquidated-damages clause bears the burden of introducing evidence to

justify the liquidated-damages clause.” Id. at 124.

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 Recognizing that the district court did not have the benefit of Lagoon, we only

address the homeowners’ first argument that the district court erred by construing Gorco

to put the evidentiary burden on the homeowners. 1 The district court determined the

homeowners did not introduce any affirmative evidence that the amount sought by Capital

under the liquidated-damages clause was either punitive or an unreasonable forecast of just

compensation. The district court determined the liquidated-damages clause enforceable

and entered judgment in favor of Capital.

Generally, in a civil lawsuit, the burden of persuasion is on the plaintiff. Minn. R.

Evid. 301. Here, the plaintiff is also the proponent of the liquidated-damages clause. The

burden of persuasion usually does not shift. Id. Therefore, the burden was on Capital to

introduce evidence that the liquidated-damages clause was enforceable under Minnesota

law, and the district court erred by requiring the homeowners to provide affirmative

evidence that the liquidated-damages clause was unenforceable and either punitive or

unreasonable.

A.

During oral argument, Capital argued that Lagoon incorrectly places the evidentiary

burden on the proponent of the liquidated-damages clause. Capital argued that a

liquidated-damages clause is prima facie valid, so it is illogical that the proponent would

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The district court and Capital construed Gorco to mean that the evidentiary burden was
on the homeowners. See Gorco, 99 N.W.2d at 74-75 (“this court has long regarded
provisions for liquidated damages as prima facie valid”). The district court also cited
Bowles Sub Parcel A, LLC v. Wells Fargo Bank N.A. (In re Bowles Sub Parcel A, LLC),
792 F.3d 897, 901-02 (8th Cir. 2015). This case is not binding and also relies on the prima
facie language in Gorco.

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need to present rebuttal evidence. See Lagoon, 999 N.W.2d at 119 (noting that

liquidated-damages clauses are prima facie valid); Dean Van Horn Consulting Assocs., Inc.

v. Wold, 395 N.W.2d 405, 407-08 (Minn. App. 1986) (although a liquidated damages

clause is prima facie valid, the trial court may hear evidence regarding the reasonableness

of the liquidated damages clause).

The prima facie language in Gorco does not automatically assign the evidentiary

burden to the homeowners. Gorco uses prima facie language, while also putting a burden

on the party seeking to enforce a liquidated-damages clause. Gorco, 99 N.W.2d at 74-75

(“[T]his court has long regarded provisions for liquidated damages as prima facie valid.”).

Lagoon reasoned that Gorco puts the evidentiary burden on the proponent of the liquidated-

damages clause because Gorco states, “‘the record is almost devoid of any evidence that

would tend to support a conclusion that the sum stipulated for liquidated damages bears

any reasonable relation to plaintiff’s pecuniary loss.’” Lagoon, 999 N.W.2d at 122-23

(quoting Gorco, 99 N.W.2d at 76). Gorco also states, “[t]he controlling factor, rather than

intent, is whether the amount agreed upon is reasonable or unreasonable in light of the

contract as a whole, the nature of the damages contemplated, and the surrounding

circumstances.” 99 N.W.2d at 74.

We also note the prima facie language in Gorco stems from a case in which the

supreme court addressed the sufficiency of a pleading on liquidated damages. Id. (citing

Blunt v. Egeland, 116 N.W. 653 (Minn. 1908)). In Blunt, appellant argued the complaint

was insufficient because “the stipulated damages are so large and excessive that they

cannot be construed otherwise than a penalty, hence not recoverable.” 116 N.W. at 654.

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The Blunt court held that the complaint was sufficient, and plaintiff was entitled to recover

prima facie the damages stipulated, unless at trial it is determined the amount is a penalty.

Id. Blunt states, “[w]hether the damages stipulated by the terms of the contract should be

treated as penalty can only be determined when issues are framed and the situation and

surroundings of the parties are disclosed.” Id. This is consistent with Dean Van Horn,

which held that the trial court may hear evidence regarding the reasonableness of a

liquidated-damages clause. 395 N.W.2d at 408. “Both parties must have an opportunity to

make a record because liquidated damages clauses must be considered in light of all the

circumstances.” Id. Therefore, the prima facie language in Gorco is not the only

consideration when determining which party has the overall evidentiary burden.

B.

Prima facie means “[s]ufficient to establish a fact or raise a presumption unless

disproved or rebutted,” and “at first sight; on first appearance but subject to further

evidence or information.” Black’s Law Dictionary 1441 (11th ed. 2019). Prima facie case

means “1. The establishment of a legally required rebuttable presumption. 2. A party’s

production of enough evidence to allow the fact-trier to infer the fact at issue and rule in

the party’s favor.” Id. Minnesota law is “in accord with” the following provision of the

Restatement of Contracts:

‘An agreement, made in advance of breach, fixing the
damages therefor, is not enforceable as a contract and does not
affect the damages recoverable for the breach, unless

(a) the amount so fixed is a reasonable forecast of
just compensation for the harm that is caused by the breach,
and

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 (b) the harm that is caused by the breach is one that
is incapable or very difficult of accurate estimation.’

Gorco, 99 N.W.2d at 74 (quoting Restatement of Contracts § 339(1) (1932)); see also

Lagoon, 999 N.W.2d at 119 (citing Gorco). Considering the definition of prima facie with

Lagoon and Gorco, the proponent of the liquidated-damages clause first has the burden of

introducing evidence to allow the trier of fact to conclude that the liquidated-damages

clause is enforceable under Minnesota law. Then, the burden of production shifts to the

opponent to introduce rebuttal evidence that the liquidated-damages clause is

unenforceable. However, this does not shift the proponent’s overall burden of persuasion.

Minn. R. Evid. 301.

Here, the district court improperly placed the evidentiary burden on the

homeowners. The district court determined that the homeowners offered no affirmative

evidence and did not meet their evidentiary burden in showing that the liquidated-damages

clause is an unenforceable penalty. The district court did not make any findings of whether

Capital presented sufficient evidence that the liquidated-damages clause is enforceable

under Minnesota law.

Therefore, we reverse the judgment and remand the case for the district court to

apply the correct standard. If the district court determines that the liquidated-damages

clause is unenforceable, the district court shall decide Capital’s claim for actual damages.

Reversed and remanded.

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