This opinion is nonprecedential except as provided by Minn.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NONPRECEDENTIAL OPINION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.
2 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.
3 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
1 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.
4 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).
Free access — add to your briefcase to read the full text and ask questions with AI
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.
2 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.
3 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
1 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.
4 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.
5 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
6 (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.