Lincoln County District Court File No. C601151
Considered and decided by Klaphake, Presiding Judge, Peterson, Judge,
and Halbrooks, Judge.
1. Minn. Stat. § 466.07 (2002) is not ambiguous and on its face does not limit an employee's claim for attorney fees to the context of indemnification of a third-party claim.
2. Under Queen v. Minneapolis Pub. Sch. Dist., 481 N.W.2d 66, 68 (Minn. 1992), and Minn. Stat. § 123B.25(b) (2002), Minn. Stat. § 466.07 must be interpreted to relieve a school district of its duty to defend a teacher under Minn. Stat. §á123B.25 (2002) when the teacher is found to have acted in bad faith.
3. There is no conversion where the property is determined to be compensation to the party who allegedly converted it.
The opinion of the court was delivered by: Halbrooks, Judge
Appellants argue that the trial court improperly denied them attorney fees under Minn. Stat. § 466.07 (2002), Minn. Stat. § 123B.25(b) (2002), or Minn. R. Civ. P. 37.03. Respondent asked the court to review whether it is entitled to judgment on its conversion claim. While we conclude that Minn. Stat. § 466.07 applies to employer/employee claims, because the trial court did not err in finding that appellants acted in bad faith, they are not entitled to attorney fees under Minn. Stat. § 466.07 or Minn. Stat. §á123B.25(b). Because the trial court did not abuse its discretion in finding that respondent had reasonable grounds to believe that the party might prevail, appellants are not entitled to attorney fees under Minn. R. Civ. P. 37.03. Because there can be no conversion where the property is compensation to the party who allegedly converted it, we again affirm the trial court.
Respondent Independent School District No. 404 (school district) commenced an action against appellants Dany Castor and Judy Castor alleging conversion of $20,123.25. Dany Castor was a part-time principal from 1975 until this action and a part-time superintendent for the school district between 1990 and 2000. His wife, Judy Castor, has been a special education teacher for the school district since 1989.
This matter arises out of the interpretation and application of article XI of the school district's contract with the Lake Benton Education Association, which provides as follows:
Section 1. Selection: The selection of the insurance carrier and policy shall be made by the school district as provided by law. Consideration will be given to recommendations submitted by the insured group.
Section 2. Health and Hospitalization Insurance: The school district shall contribute a sum of not to exceed $250.00 per month for 1993-1994 and not to exceed $322.00 per month for 1994-1995 toward the premium for coverage for each full time teacher employed by the school district who qualifies for and is enrolled in the school district's group health and hospitalization plan and/or group income protection plan and/or group dental plan or other group intensive care plan. Any additional cost of the premium shall be borne by the employee and paid by payroll deductions.
It is undisputed that the school district never selected a carrier or insurance policy as stated in section 1. Instead, over 20 years, the practice developed that teachers made assignments of their article XI compensation to various insurance products including accident benefits, prepaid insurance benefits, and whole life insurance. While teachers had the opportunity to obtain insurance benefits by the article XI assignments, they could not take the compensation as cash. If a teacher did not assign the money to an insurance product, the unassigned money remained in the school district's general fund.
For the period 1989-1993, Judy Castor did not request an assignment of all her article XI benefits. The school district retained the money for any unassigned amount. From 1994-2000, Judy Castor assigned her article XI benefits to repay loan balances on life-insurance policies in Dany Castor's name for which she was the named beneficiary. Her assignments for that time frame totaled $20,123.25. While Judy Castor's requests for assignments were presented to the school board in the standard manner, Dany Castor, who made the presentation, did not highlight to the board the fact that Judy Castor's article XI benefit was being used to repay loans on his life-insurance policies.
When a new superintendent replaced Dany Castor in July 2000, he questioned the legality of Judy Castor's current assignment request and brought it to the attention of the board. As a result, Judy Castor's request was denied.*fn1
The school district subsequently commenced the underlying conversion action against the Castors. The Castors denied the allegations, and Judy Castor filed an answer and counterclaim seeking unpaid wages in the amount of $3,433.44, which represented the article XI benefits she had earned that year. Following a bench trial, the trial court denied the school district's claim for conversion, ordered that Judy Castor be allowed to assign compensation from the 2000-2001 school year to an insurance plan, and ordered a separate hearing for costs, attorney fees, and disbursements. The trial court concluded that Dany Castor violated his fiduciary duty to the school board and that the assignments of the funds were misapplied, but that the funds were not converted because the $20,123.25 was compensation earned by Judy Castor.
The hearing regarding attorney fees, costs, and disbursements was held approximately three months after trial. The court determined that each party should pay its own attorney fees and ordered the school district to pay $3,433.33 as damages to Judy Castor, the amount of money she would have been able to assign in the 2000-2001 school year.
The school district also sought Dany Castor's immediate discharge from his teaching contract under Minn. Stat. § 122A.40, subd. 13 (2002), on grounds of (1) immoral conduct, (2) conduct unbecoming a teacher, and (3) willful neglect of duty. The matter was submitted to arbitration pursuant to the contract between Dany Castor and the district. In a decision issued within a few days of the court's ruling on fees, the arbitrator denied the school district's proposed discharge of Dany Castor and ordered his reinstatement as a teacher.
Dany and Judy Castor appeal the trial court's denial of their request for attorney fees. The school district appeals the trial court's denial of its conversion claim and award of ...