This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).
STATE OF MINNESOTA IN COURT OF APPEALS A15-1362
A. H. Bennett Company, Respondent,
vs.
Hackbarth Enterprises Corporation, et al., Defendants, Steven R. Hackbarth, Appellant.
Filed June 6, 2016 Affirmed Reyes, Judge
McLeod County District Court File No. 43CV09170
Steve C. O’Toole, Eagan, Minnesota (for respondent)
Scott L. Nokes, Glencoe, Minnesota (for appellant)
Considered and decided by Reyes, Presiding Judge; Ross, Judge; and Tracy Smith,
Judge.
UNPUBLISHED OPINION
REYES, Judge
In this appeal from judgment following a bench trial of a distributor’s claim to
hold the sole shareholder and officer of a corporation personally liable for the
corporation’s debt under Minn. Stat. § 514.02 (2014), appellants argue that the district court erred in concluding that they failed to prove by a preponderance of the evidence
that all proceeds received by the corporation for the improvement of residential real
estate were applied to the cost of labor, skill, material, or machinery furnished for the
improvement. We affirm.
FACTS
The appellants in this case are Hackbarth Enterprises Corporation (HEC), Steven
R. Hackbarth (Hackbarth), and Hackbarth’s wife, Lynn A. Fricke Hackbarth. From
November 13, 2007 through January 11, 2008, HEC was a licensed residential roofing
contractor and Hackbarth was its sole shareholder and officer. As an officer, Hackbarth
had responsibilities including issuing all checks and paying material distributors and
laborers. Respondent A. H. Bennett (Bennett) was a distributor of roofing materials.
Bennett regularly sold residential roofing materials to HEC on an “open account.”1
HEC made payments to Bennett irregularly, and the payments often did not
correlate with a particular invoice or group of invoices. HEC did not reference any
invoice numbers or job sites on its checks and did not provide instructions on how to
apply the payments. Because it did not receive specific instructions, Bennett followed
common industry practice and applied HEC’s payments to the oldest unpaid invoice on
the account.
By 2007, HEC had fallen behind on its payments to Bennett. Bennett received the
last payment from HEC by check dated March 10, 2008, and applied it to the oldest
1 A Bennett credit manager testified at trial that “[a]n open account means that [a company has] terms, and it means that they will buy the material, we will invoice it, and they have a period of time to pay us.”
2 invoice at that time, which was dated November 13, 2007. HEC made no additional
payments to Bennett after this date. Bennett eventually wrote off HEC’s account as bad
debt.
In January 2009, Bennett sued appellants, alleging, among other things, theft of
proceeds under Minn. Stat. § 514.02, subds. 1, 1a. Bennett moved for partial summary
judgment, and on August 4, 2009, the district court granted summary judgment for
Bennett against HEC only. The district court concluded that, as a matter of law, HEC is
liable to Bennett for $30,071.99 because HEC has yet to pay Bennett for $30,071.99 in
materials that it bought on its open account between November 2007 and January 2008.
In March 2015, the district court held a bench trial on the remaining issues. The
district court concluded that Hackbarth was personally liable for HEC’s debt under Minn.
Stat. § 514.02 and entered judgment against him in the amount of $30,071.99 plus costs,
fees, and disbursements. This appeal follows.
DECISION
Appellants argue that Hackbarth cannot be held personally liable for HEC’s debt
under Minn. Stat. § 514.02 because the amount of payments HEC made to material
distributors and laborers between November 13, 2007 and January 11, 2008 exceeded the
amount of proceeds received by HEC during that same time period. Appellants’
argument is misguided.
On appeal from a bench trial, “[w]hen reviewing mixed questions of law and fact,
we correct erroneous applications of law, but accord the [district] court discretion in its
ultimate conclusions and review such conclusions under an abuse of discretion standard.”
3 Porch v. Gen. Motors Acceptance Corp., 642 N.W.2d 473, 477 (Minn. App. 2002)
(alteration in original) (quotations omitted), review denied (Minn. June 26, 2002). Under
Minn. Stat. § 514.02, subds. 1(b), 1a, a shareholder or officer of a corporation may be
held personally liable for the corporation’s debt if the shareholder or officer “fails to use
the proceeds of a payment made to [the corporation] for the improvement [of residential
real estate], for the payment for labor, skill, material, and machinery contributed to the
improvement, knowing that the cost of the labor performed, or skill, material, or
machinery furnished remains unpaid.” And Minn. Stat. § 514.02, subd. 3 provides:
Proof that [the shareholder or officer] failed to pay for labor performed, or skill, material, or machinery furnished within 15 days after receiving notice that the cost of such labor performed, or skill, material, or machinery furnished remains unpaid [is] sufficient to sustain a finding that the proceeds of such payment were used for a purpose other than the payment for labor, skill, material, and machinery for such improvement, knowing that the costs of labor performed, or skill, material, or machinery furnished remains unpaid, unless the [shareholder or officer];
(1) Establishes that all proceeds received from the person making such payment have been applied to the cost of labor, skill, material, or machinery furnished for the improvement . . . .
(Emphasis added). Therefore, Bennett has the initial burden of proving that Hackbarth
failed to pay for the unpaid material within 15 days of receiving notice that the material
remained unpaid. See id. If this burden is met, the burden then shifts to Hackbarth to
prove that he applied all the proceeds received for the improvement to the cost of labor,
skill, material, or machinery furnished for that same improvement. See id.
4 Here, the district court concluded that Bennett proved by a preponderance of the
evidence that it provided written notice to Hackbarth and HEC that $30,071.99 was
unpaid, that Hackbarth and HEC had knowledge of the nonpayment, and that the
$30,071.99 remained unpaid for over 15 days. After the burden shifted to Hackbarth, it
concluded that Hackbarth failed to meet his burden of proving “that he applied all
proceeds received from the real estate projects toward the materials or services furnished
for those same projects.” Although the district court acknowledged that “[a]n assortment
of checks were produced at trial: (1) checks (proceeds) received by Hackbarth from the
improvement projects; (2) checks sent by Hackbarth to Bennett; and (3) checks sent by
Hackbarth to . . . laborers,” it stated that Hackbarth did not produce “any documentation
regarding which jobs these laborers worked on, [any] bookkeeping showing where the
proceeds went, or some compelling correlation in the proceed amounts brought in, the
amounts paid out, and the time between.”
The record amply supports the district court’s conclusion that Hackbarth failed to
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This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).
STATE OF MINNESOTA IN COURT OF APPEALS A15-1362
A. H. Bennett Company, Respondent,
vs.
Hackbarth Enterprises Corporation, et al., Defendants, Steven R. Hackbarth, Appellant.
Filed June 6, 2016 Affirmed Reyes, Judge
McLeod County District Court File No. 43CV09170
Steve C. O’Toole, Eagan, Minnesota (for respondent)
Scott L. Nokes, Glencoe, Minnesota (for appellant)
Considered and decided by Reyes, Presiding Judge; Ross, Judge; and Tracy Smith,
Judge.
UNPUBLISHED OPINION
REYES, Judge
In this appeal from judgment following a bench trial of a distributor’s claim to
hold the sole shareholder and officer of a corporation personally liable for the
corporation’s debt under Minn. Stat. § 514.02 (2014), appellants argue that the district court erred in concluding that they failed to prove by a preponderance of the evidence
that all proceeds received by the corporation for the improvement of residential real
estate were applied to the cost of labor, skill, material, or machinery furnished for the
improvement. We affirm.
FACTS
The appellants in this case are Hackbarth Enterprises Corporation (HEC), Steven
R. Hackbarth (Hackbarth), and Hackbarth’s wife, Lynn A. Fricke Hackbarth. From
November 13, 2007 through January 11, 2008, HEC was a licensed residential roofing
contractor and Hackbarth was its sole shareholder and officer. As an officer, Hackbarth
had responsibilities including issuing all checks and paying material distributors and
laborers. Respondent A. H. Bennett (Bennett) was a distributor of roofing materials.
Bennett regularly sold residential roofing materials to HEC on an “open account.”1
HEC made payments to Bennett irregularly, and the payments often did not
correlate with a particular invoice or group of invoices. HEC did not reference any
invoice numbers or job sites on its checks and did not provide instructions on how to
apply the payments. Because it did not receive specific instructions, Bennett followed
common industry practice and applied HEC’s payments to the oldest unpaid invoice on
the account.
By 2007, HEC had fallen behind on its payments to Bennett. Bennett received the
last payment from HEC by check dated March 10, 2008, and applied it to the oldest
1 A Bennett credit manager testified at trial that “[a]n open account means that [a company has] terms, and it means that they will buy the material, we will invoice it, and they have a period of time to pay us.”
2 invoice at that time, which was dated November 13, 2007. HEC made no additional
payments to Bennett after this date. Bennett eventually wrote off HEC’s account as bad
debt.
In January 2009, Bennett sued appellants, alleging, among other things, theft of
proceeds under Minn. Stat. § 514.02, subds. 1, 1a. Bennett moved for partial summary
judgment, and on August 4, 2009, the district court granted summary judgment for
Bennett against HEC only. The district court concluded that, as a matter of law, HEC is
liable to Bennett for $30,071.99 because HEC has yet to pay Bennett for $30,071.99 in
materials that it bought on its open account between November 2007 and January 2008.
In March 2015, the district court held a bench trial on the remaining issues. The
district court concluded that Hackbarth was personally liable for HEC’s debt under Minn.
Stat. § 514.02 and entered judgment against him in the amount of $30,071.99 plus costs,
fees, and disbursements. This appeal follows.
DECISION
Appellants argue that Hackbarth cannot be held personally liable for HEC’s debt
under Minn. Stat. § 514.02 because the amount of payments HEC made to material
distributors and laborers between November 13, 2007 and January 11, 2008 exceeded the
amount of proceeds received by HEC during that same time period. Appellants’
argument is misguided.
On appeal from a bench trial, “[w]hen reviewing mixed questions of law and fact,
we correct erroneous applications of law, but accord the [district] court discretion in its
ultimate conclusions and review such conclusions under an abuse of discretion standard.”
3 Porch v. Gen. Motors Acceptance Corp., 642 N.W.2d 473, 477 (Minn. App. 2002)
(alteration in original) (quotations omitted), review denied (Minn. June 26, 2002). Under
Minn. Stat. § 514.02, subds. 1(b), 1a, a shareholder or officer of a corporation may be
held personally liable for the corporation’s debt if the shareholder or officer “fails to use
the proceeds of a payment made to [the corporation] for the improvement [of residential
real estate], for the payment for labor, skill, material, and machinery contributed to the
improvement, knowing that the cost of the labor performed, or skill, material, or
machinery furnished remains unpaid.” And Minn. Stat. § 514.02, subd. 3 provides:
Proof that [the shareholder or officer] failed to pay for labor performed, or skill, material, or machinery furnished within 15 days after receiving notice that the cost of such labor performed, or skill, material, or machinery furnished remains unpaid [is] sufficient to sustain a finding that the proceeds of such payment were used for a purpose other than the payment for labor, skill, material, and machinery for such improvement, knowing that the costs of labor performed, or skill, material, or machinery furnished remains unpaid, unless the [shareholder or officer];
(1) Establishes that all proceeds received from the person making such payment have been applied to the cost of labor, skill, material, or machinery furnished for the improvement . . . .
(Emphasis added). Therefore, Bennett has the initial burden of proving that Hackbarth
failed to pay for the unpaid material within 15 days of receiving notice that the material
remained unpaid. See id. If this burden is met, the burden then shifts to Hackbarth to
prove that he applied all the proceeds received for the improvement to the cost of labor,
skill, material, or machinery furnished for that same improvement. See id.
4 Here, the district court concluded that Bennett proved by a preponderance of the
evidence that it provided written notice to Hackbarth and HEC that $30,071.99 was
unpaid, that Hackbarth and HEC had knowledge of the nonpayment, and that the
$30,071.99 remained unpaid for over 15 days. After the burden shifted to Hackbarth, it
concluded that Hackbarth failed to meet his burden of proving “that he applied all
proceeds received from the real estate projects toward the materials or services furnished
for those same projects.” Although the district court acknowledged that “[a]n assortment
of checks were produced at trial: (1) checks (proceeds) received by Hackbarth from the
improvement projects; (2) checks sent by Hackbarth to Bennett; and (3) checks sent by
Hackbarth to . . . laborers,” it stated that Hackbarth did not produce “any documentation
regarding which jobs these laborers worked on, [any] bookkeeping showing where the
proceeds went, or some compelling correlation in the proceed amounts brought in, the
amounts paid out, and the time between.”
The record amply supports the district court’s conclusion that Hackbarth failed to
prove by a preponderance of the evidence that he applied all proceeds received by HEC
from the real estate projects to the cost of labor or material furnished for those same
projects. See id. The evidence presented at trial establishes that, between November 13,
2007 and January 11, 2008, the amount of payments that HEC made to Bennett and the
laborers was more than HEC received in proceeds, but Hackbarth did not establish that
the payments made to Bennett and the laborers were for the same projects for which the
proceeds were received. In fact, screen shots from Bennett’s accounting program that
were admitted into evidence show that the payments made to Bennett were applied to
5 invoices dated November 14, 2007 or earlier. Therefore, the record supports the district
court’s finding that the payments to Bennett were for earlier projects than those for which
the proceeds were received. The district court did not abuse its discretion in determining
that Hackbarth was personally liable for the HEC debt under Minn. Stat. § 541.02 and
entering judgment against him in the amount of $30,071.99 plus costs, fees, and
disbursements.
Appellants cite Duluth Superior Erection, Inc. v. Concrete Restorers, Inc., 665
N.W.2d 528 (Minn. App. 2003), to support their argument. They rely on this court’s
conclusion in Duluth Superior that “appellants could have raised an issue of material fact
by producing their financial records and by providing for an accounting of the proceeds
received.” Id. at 535. Here, appellants argue that Hackbarth “provided all of the
financial records for the court to review, and thus provide[d] an unrefuted roadmap of
accounting.” We are not persuaded. Although Hackbarth may have provided all of the
limited financial records that he had in his possession,2 he failed to provide an accounting
of the proceeds received. There was no evidence that the payments made to Bennett and
the laborers correlated in any way to the projects for which the proceeds were received.
In fact, the evidence shows payments made to Bennett were irregular and did not
correlate with a particular invoice or group of invoices, and the checks written to Bennett
2 Hackbarth stored HEC’s records at his home. In 2009, a fire destroyed these records. Therefore, Hackbarth was not able to produce them at trial.
6 and the laborers did not reference any invoice numbers or job sites. Therefore, Hackbarth
did not provide “an unrefuted roadmap of accounting.”
Affirmed.