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Fawcett v. Heimbach, 591 N.W.2d 516

Facts

In 1980, Robert Heimbach and John Fawcett agreed to purchase 8,000 shares of Medical Graphics Corporation stock, with both contributing equally. Heimbach sold shares without Fawcett's knowledge and failed to disclose these transactions, leading to a series of unauthorized sales and pledges of the stock as collateral for loans. By 1994, Fawcett discovered that the shares had been lost due to a margin call, prompting him to file a lawsuit against Heimbach for conversion and other claims.

In the summer of 1980, Heimbach had the opportunity to purchase shares of common stock in Medical Graphics Corporation (MGC). Heimbach was not financially able to purchase the minimum increment and asked Fawcett to join him in the purchase of the stock.

Issue

Did the trial court err in determining the measure of damages for the conversion of stock and in awarding attorney fees under the Minnesota Securities Act?

Did the trial court err in fixing damages for the conversion of the securities at the time the conversion occurred rather than within a reasonable time after respondent John Fawcett discovered the conversion of the securities and erred in awarding attorney fees under the Minnesota Securities Act, Minn.Stat. ch. 80A (1998)?

Rule

When calculating damages for the conversion of stock, the measure of damages is either (a) the value of the stock at the time of the conversion or (b) the highest value the stock reaches within a reasonable time after the owner has knowledge of the conversion, whichever is higher. Attorney fees under the Minnesota Securities Act are not appropriate unless the misrepresentations occurred prior to or contemporaneously with the decision to buy the stock.

When calculating damages for the conversion of stock, the measure of damages is either (a) the value of the stock at the time of the conversion or (b) the highest value the stock reaches within a reasonable time after the owner has knowledge of the conversion, whichever of the two is higher.

Analysis

The court applied the New York rule for determining damages in cases of stock conversion, allowing the injured party to claim either the market value at the time of conversion or the highest value reached after the owner became aware of the conversion. The trial court found that Heimbach's actions constituted conversion and calculated damages based on the stock's value at the time of conversion. However, the court reversed the award of attorney fees, concluding that Fawcett did not demonstrate that Heimbach's misrepresentations were made before or at the time of the stock purchase.

The trial court agreed that Minnesota has adopted the New York rule, but found the Hornblower case did not fully explain the New York rule.

Conclusion

The court affirmed the trial court's determination of damages for conversion but reversed the award of attorney fees, concluding that Fawcett failed to establish the necessary connection between Heimbach's actions and the decision to purchase the stock.

The trial court properly determined the damages for the conversion of Fawcett's stock at the time the stock was converted rather than within a reasonable time after Fawcett discovered the stock had been converted.

Who won?

Fawcett prevailed in the conversion claim, as the court found that Heimbach had converted his shares and awarded damages accordingly. However, Fawcett did not prevail regarding the attorney fees, which were reversed.

Fawcett prevailed in the conversion claim, as the court found that Heimbach had converted his shares and awarded damages accordingly.

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