Bergquist v. Kreidler

Supreme Court of Minnesota · Corporations

CorporationsDamagesMisrepresentationLitigation expensesmisrepresentationdamagesattorneys' feeslitigation expenses

Facts

Plaintiffs bought real estate from Elizabeth Kreidler through her son and agent, Erasmus G. Kreidler, relying on his representation that the existing store lease would expire on August 1, 1920. The representation was false, because the tenant in fact had a lease extending to August 1, 1922, at a below-market rent. After discovering that the lease had been executed by Erasmus as agent without written authority from the owner, plaintiffs were advised the lease might be unenforceable under the statute of frauds and brought litigation against the tenant to obtain possession. Plaintiffs notified defendants of that litigation and invited them to participate, but defendants refused; after plaintiffs ultimately lost on appeal, they sought to recover the attorneys' fees and disbursements from that litigation as damages caused by the misrepresentation.

Issue

May a plaintiff in a misrepresentation action recover attorneys' fees and disbursements incurred in subsequent litigation with a third party when that litigation was undertaken to secure rights represented by the defendant, was pursued in good faith and on reasonable grounds, and was a direct result of the defendant's wrong?

Rule

Where a defendant's tortious misrepresentation places the plaintiff in an embarrassing dilemma and causes subsequent litigation with a third party, the plaintiff may recover the reasonable expenses of that litigation as damages if the litigation was undertaken in good faith, on reasonable grounds, and in a lawful effort to secure, avoid, or minimize the consequences of the wrong. The controlling inquiry is whether the later litigation and its expense were the direct, legitimate, natural, and probable consequence of the defendant's wrongful act and plainly traceable to it.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Milwaukee, Dana Sorenson bought a warehouse from North Harbor Holdings, acting through its agent, Leo Vance, after Leo falsely stated that a neighboring logistics company had no recorded access easement across the loading yard. After closing, Dana learned the easement might still be unenforceable because it had been granted by Leo without written authority from the owner. On counsel's advice, Dana sued the logistics company to quiet title, notified Leo and invited him to join the case, but lost after appeal.

In Dana's later fraud action against Leo, are Dana's reasonable attorney's fees and disbursements from the quiet-title suit most likely recoverable as damages?

Explanation. The majority allowed recovery of reasonable litigation expenses incurred in later third-party litigation when that litigation was the direct, legitimate, natural, and probable consequence of the defendant's tortious misrepresentation and was undertaken in good faith, on reasonable grounds, and as a lawful effort to secure the represented right or minimize the loss. The fact that the plaintiff initiated the suit and ultimately lost does not bar recovery if the expenditures were judicious and plainly traceable to the wrong. (Derived from Bergquist v. Kreidler (n.d.).)