Nos. A07-0584, A07 -788

• - 1 Brian Kidwell,

Respondent, v.

S ybaritic Inc.,

BRlEF AND APPENDIX OF RESPONDENT BRIAN KIDWELL

James H. Kaster (#53946) Sofia B. Andersson (#0350709) NICHOLS KA STER & ANDERSON, P.L.L.P. 4600 IDS Center 80 South Eighth Street Minneapolis, MN 55402 (612) 256-3200

Attorneys for Respondent

Katherine A. McBride (#168543) James R. Roegge (#92678) Bradley}. Lindeman (#0298116) Erica G. Strohl (#279626) MEAGHER & GEER, PL.L.P. 33 South Sixth Street, Suite 4400 Minneapolis, MN 55402 (612) 338-0661

Attorneys for Appellant

2007 - LEGAL PRINTING FAX {612)_337-8053--PHONE.(612).339-9518

The appendix to this brief is not available for online viewing as specified in the Minnesota Rules of Public Access to the Records of the Judicial Branch, Rule 8, Subd. 2(e)(2).

TABLE OF CONTENTS

LEGAL ISSUES ................................................................................................... l

STATEMENT OF THE CASE ............................................................................. 4

STATEMENT OF THE FACTS ........................................................................... 6

The Difficulty Duty E-mail ........................................................................ 6

Tax Evasion ............................................................................................... 7

Unauthorized Practice of Medicine ............................................................ 8

Obstruction of Justice ................................... ............................................. 9

Sybaritic's Response to the E-mail. .......................................................... 10

ARGUMENT ..................................................................................................... 12

I. Standard of Review .................................................................................. 12

II. Kidwell's Claim Is Not Barred As A Matter ofLaw ................................. 13

TTT Kid w ell Is Entitled To The J..1..1.. 11 J_.::) Jury Awardu ...•.••••••........••••••••••••.... ••..........

IV. Kidwell Established A Prima Facie Case Of Retaliation ........................... 24

A. Kidwell 's "A Difficult Duty" E-mail Constitutes A Report Under The Whistleblower Act ...................................................................................... 25

V. Sybaritic Is Not Entitled To A New Trial Because The Court's Jury Instructions Were Proper .......................................................................... 34

VI. The Evidentiary Issues Raised By Sybaritic On Appeal Do Not Warrant A New Trial ................................................................................................. 39

A. The Court Properly Admitted Evidence Related to Privileged Communications Between Kidwell and Sybaritic ................................ 39

B. The Court Properly Allowed Testimony Regarding Steve Daffer's Conviction ........................................................................................... 44

C. The Court Properly Excluded The Settlement Letter ........................... 46

VIL The Trial Court Erred in Denying Kidwell's Motion for Punitive Damages .................................................................................................. 48

CONCLUSION .................................................................................................. 51

CERTIFICATE OF COMPLIANCE ..................................................... .

i

TABLE OF AUTHORITIES

CASES

Abraham v. County of Hennepin, 639 N.W.2d 342 (Minn. 2002) ................... l, 30

Anderson-Johanningmeier v. Mid-Minnesota Women's Center, Inc., 637 N.W.2d 270 (Minn. 2002) ............................................................... 1, 19, 22

Barnes v. Northwest Airlines, Inc., 47 N.W.2d 180 (1951) ................................................................................. l, 34

Burkhart v. Semitool, Inc., 5 P.3d 1031 (Mont. 2000) ......................................... 19

C.J. Duffey Paper Co. v. Reger, 588 N.W.2d 519 (Minn. Ct. App. 1999) ............ 46

Cokley v. City of Otsego, 623 N.W.2d 625 (Minn. Ct. App. 2001) ................ 1, 27

Crews v. Buckman Laboratories Int'l., Inc., 78 S.W.3d 852 (Tenn. 2002) ................................................................ 18, 19, 20

Gen. Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164, Cal.Rptr.2d l, 876 P.2d 487 (1994) ....................................... 20

Gilchrist v. Perl, 387 N.W.2d 412 (Minn. 1986) ....................................... 1, 23, 24

Grundtner v. Univ. ofMinn., 730 N.W.2d 323 (Minn. Ct. App. 2007) ................ 26

Heckman v. Zurich Holding Co. of America, 2007 WL 1347753 (May 8, 2007 D. Kan.) .......................................................................................................... 19

Hem v. Bankers Life Cas. Co., 133 F. Supp.2d 1130 (D. Minn. 2001) ................ 49

Hilligoss v. Cargill, Inc., 649 N.W.2d 142 (Minn. 2002) ................................. 1, 34

Janklow v. Minnesota Bd. of Examiners for Nursing Home Adm'rs, 552 N.W.2d 711 (Minn. 1996) ........................................................................ 18

Kroning v. State Farm Auto. Ins. Co., 567 N.W.2d 42 (Minn. 1997) .... 2, 39, 43, 47

Lawler v. Dunn, 176 N.W. 989 (1920) ................................................................ 14

McGrath v. TCF Bank Sav., FSB, 509 N.W.2d 365 (Minn. 1993) ............................................................... 1, 22, 23

ii

McKenzie v. Northern States Power Co., 440 N.W.2d 183 (Minn. Ct. App. 1989) ............................................................................................................... 48

Melrose Floor Co., Inc. v. Lechner, 435 N.W.2d 90 (Minn. Ct. App. 1989) .... 2, 40

Michaelson v. Minnesota Mining & Manufacturing Co., 474 N.W.2d 174 (Minn. App. 1991) ............................................... 16-17, 26, 27

Minnesota Specialty Crops, Inc., 210 F.R.D. 675 ................................................ 42

Morlock v. St. Paul Guardian Ins. Co., 650 N.W.2d 154 (Minn. 2002) ............... 34

Nordling v. Northern States Power Co., 465 N.W.2d 498 (Minn. App. 1991) ................................................................ 14

Nordling v. Northern States Power Co., 478 N.W.2d498 (Minn. 1991) ............................................. 1, 14, 15, 16, 17, 20

Northwest Airlines, Inc. v. American Airlines, Inc., 870 F. Supp. 1499 (D. Minn. 1994) ................................................................. 49

O'Brien v. StoltNielsen Transp. Group Ltd., 838 A.2d 1076 (Conn. Supp. 2003) 19

Obst v. Microtron, Inc., 614 N.W.2d 196 (Minn. 2000) ....................... 1, 28, 30, 38

Olson v. Snap Products, Inc., 29 F. Supp.2d 1027 (D. Minn. 1998) .................... 49

Phipps v. Clark Oil & Refining Corp., 408 N.W.2d 569 (Minn. 1987) ................ 49

Pine River State Bank v. Metille, 333 N.W.2d 622 (Minn. 1983) ........................ 22

Pouliot v. Fitzsimmons, 582 N.W.2d 221 (Minn. 1998) ................................ 12, 13

Rosenbloom v. Flygare, 501 N. W.2d 597 (Minn. 1993) ....................................................................... 49

State v. Anderson, 683 N.W.2d 818 (Minn. 2004) .......................................................... 18-19

State v. Kuhnau, 622 N.W.2d 552 (Minn. 2001) ................................................. 34

Swanlund v. Shimano Indus. Corp., Ltd., 459N.W.2d 159 (Minn. Ct. App. 1990) ........................................................................................................... 3, 49

Ulrich v. City of Crosby, 848 F. Supp. 861 (D. Minn. 1994) ............................... 49

iii

Willy v. Coastal States Mgmt. Co., 939 S.W.2d 193 (Tex. App. 1996) ................................................................... 19

RULES

Minn. R. Evid. 401 ......................................................................................... 3, 47

Minn. R. Evid. 403 ......................................................................................... 3, 47

Minn. R. Evid. 404 ......................................................................................... 2, 44

Minn. R. Evid. 408 ......................................................................................... 3, 46

Minn. R. Evid. 801-02 .................................................................................... 3, 47

Minn. R. Prof. Conduct 1.6(b )(8) ................................................................. passim

CIVJIG 55.65 (2006) ................................................................................ 2, 36, 38

IV

STATUTES

18 u.s.c. § 1512 ·······················································································9, 33, 34

Cal. Rev. & Tax. Code § 6203 .............................................................. 7, 8, 31, 32

Cal. Rev. & Tax. Code§ 6207 ............................................................... 7, 8, 31, 32

Minn. Stat. § 147.02-03 .................................................................................. 8, 33

Minn. Stat. § 147.081. ............................................................................ 8, 9, 32, 33

Minn. Stat. § 181.932 ................................................................................... passim

Minn. Stat. § 549.191 .......................................................................................... 48

Minn. Stat. § 549.20 ...................................................................................... 23, 48

Minn. Stat. § 645.16 ............................................................................................ 18

OTHER AUTHORITIES

1 McCormick On Evid. § 93 (6th ed.) .................................................. .40

4 Wigmore, Evidence, 3d Ed.,§ 1061. ................................................. .40

Kobus, John Jacob, Establishing Corporate Counsel's Right to Sue for Retaliatory Discharge, 29 Val. U. L. Rev. 1343 (1995) .................................... 18

V

LEGAL ISSUES

1. Whether in-house attorneys are per se barred from bringing retaliatory discharges claims under the Minnesota Whistleblower Act.

Trial Court Ruling:

The trial court properly ruled that in-house attorneys are not barred as a matter of law from bringing retaliatory discharge claims under the Minnesota Whistleblower Act.

Apposite Authority:

Nordling v. Northern States Power Co., 478 N.W.2d 498 (Minn. 1991) Minn. Stat.§ 181.932 Minn. R. Prof. Conduct l .6(b )(8)

2. Whether Kidwell can be barred from recovering damages under the Minnesota Whistleblower Act simply because Sybaritic could have terminated for him legitimate reasons, despite the fact that the jury found that Sybaritic would not have terminated Kidwell but for him making a whistleblowing report.

Trial Court Ruling:

The trial court properly ruled that consistent with Minnesota law, Kidwell may recover damages.

Apposite Authority:

Gilchrist v. Perl, 387 N.W.2d 412 (Minn. 1986) Anderson-Johanningmeier v. Mid-Minnesota Women's Center, Inc., 637 N.W.2d 270 (Minn. 2002) McGrath v. TCF Bank Sav., FSB, 509 N.W.2d 365 (Minn. 1993)

3. Whether Kidwell failed to engage in statutorily protected conduct when he made a good faith report of a violation or suspected violation oflaw.

Trial Court Ruling:

The trial court properly ruled that Kidwell engaged in statutorily protected conduct because he made a good-faith report about violations or suspected violations of law.

Apposite Authority:

Minn. Stat.§ 181.932 Cokley v, City of Otsego, 623 N. W.2d 625, 631 (Minn. Ct. App. 2001) Obst v. Microtron, Inc., 614 N. W.2d 196, 200 (Minn. 2000)

Abraham v. County of Hennepin, 639 N. W.2d 342, 355 (Minn. 2002)

4. Whether it was an abuse of discretion to instruct the jury that an employee engages in a protected activity under the Minnesota Whistleblower Act if the employee makes a good faith report of a violation or suspected violation of law.

Trial Court Ruling:

The trial court did not abuse its discretion when it instructed the jury that Kidwell engaged in statutorily protected conduct ifhe made a good-faith report of violations or suspected violations oflaw.

Apposite Authority:

Hilligoss v. Cargill, Inc., 649 N.W.2d 142, 147 (Minn. 2002) Barnes v. Northwest Airlines, Inc., 47 N.W.2d 180, 187 (1951). Minn. Stat. § 181.932 CIVJIG 55.65

5. Whether it was a abuse of discretion for the court to allow Kidwell to admit into evidence documents and testimony pursuant to Minnesota's Rules of Professional Responsibility and concerning communications that Sybaritic had previously waived its privilege on.

Trial Court Ruling:

The trial court did not abuse its discretion when it allowed the evidence.

Apposite Authority:

Minn. Stat.§ 181.932 Minn. R. Prof. Conduct, Rule l .6(b )(8) Melrose Floor Co., Inc. v. Lechner, 435 N.W.2d 90 (Minn. Ct. App. 1989)

6. Whether it was an abuse of discretion for the court to allow Kidwell to admit into evidence information about Steve Daffer's conviction, when his conviction was raised for the first time during Sybaritic's opening statement and when Kidwell was not using the conviction for impeachment purposes.

Trial Court Ruling:

The trial court properly admitted evidence of Steven Daffer's conviction.

Apposite Authority:

Kroning v. State Farm Auto. Ins. Co., 567 N.W.2d 42 (Minn. 1997) Minn. R. Evict. 404

2

7. Whether the trial court abused its discretion when it excluded irrelevant settlement communications made by Sybaritic's attorney to Kidwell.

Trial Court Ruling:

The trial court properly excluded the irrelevant settlement communications.

Apposite Authority:

Minn. R. Evid. 401 Minn. R. Evid. 403 Minn. R. Evid. 408 Minn. R. Evid. 801-02

8. Whether the district court's decision, denying Respondent Brian F. Kidwell's motion to amend his complaint to add a claim of punitive damages, should be reversed.

Trial Court Ruling:

The trial court improperly denied Kidwell's motions to amend his complaint to add a claim of punitive damages.

Apposite Authority:

Minn. Stat.§ 549.191 Minn. Stat. § 549.191 Swanlund v. Shimano Indus. Corp., Ltd., 459 N.W.2d 151 (Minn. Ct. App. 1990).

3

STATEMENT OF THE CASE

Brian Kidwell ("Kidwell") was terminated from his job as a general

counsel after he made a good faith report of illegal conduct to his employer, and

threatened to go to the appropriate authorities with the facts supporting his claims.

He filed a Complaint against his employer, Defendant Sybaritic, Inc. ("Sybaritic"),

for a violation of the Minnesota Whistleblower Act, Minn. Stat.§ 181.932. (A.2-

4). In response, Sybaritic filed five counterclaims against Kidwell alleging

conversion, defamation, breach of fiduciary duty, breach of the duty of loyalty,

and unjust enrichment. (A.5-16). Brian Kidwell moved to amend his complaint to

add a claim for punitive damages based on evidence that Sybaritic's managers

knew that it was wrong to terminate an employee if the reason for doing so was

that he is a whistleblower. (A.17-18). Kidwell's punitive damages motion was

denied on July 25, 2006. (A.19-24).

A jury trial was held from September 25, 2006 to October 3, 2006; the

Honorable Kevin S. Burke presided. At the end of the trial, Sybaritic withdrew

three of its counterclaims, choosing to move forward on only its conversion and

breach of fiduciary duty counterclaims. Sybaritic also moved for judgment as a

matter of law, which, after consideration by the Court, was denied. (T.773-76).

Kidwell renewed his motion to add a claim for punitive damages. The motion was

again denied. (T.771, T.879).

As to Kidwell's whistleblower claim, the jury found in favor of Kidwell.

(A.25-27). As to the breach of fiduciary duty claim, the Court directed a verdict in

Sybaritic's favor and decided that Kidwell breached his fiduciary duty as a matter

of law. (Id.) However, at the request of Sybaritic's counsel, the Court allowed the

question of damages to go the jury. The jury found that Sybaritic was not

damaged by Kidwell's breach of fiduciary duty. (Id.) Finally, with respect to the

conversion claim, the jury found in favor of Sybaritic. (Id.)

Sybaritic subsequently brought motion for judgment as a matter of law and

moved for a new trial. (A.28). Judge Burke denied Sybaritic's motion on

February 2, 2007. (A.29-41). This appeal followed.

5

STATEMENT OF THE FACTS

Brian Kidwell began working for Sybaritic in July, 2004. (T.178). As

general counsel for Sybaritic, Kidwell worked on a broad range of assignments,

from overseeing litigation issues to revising contracts and providing legal

assistance in the area of employment law. (T. 181).

During his tenure, Kidwell learned of several improprieties occurring at the

company. (See e.g., T.183-85, Tl87-88, T.200-05, T.210-13, T.224-28). In broad

terms, Kidwell felt that he was responsible for Sybaritic's legal affairs. (T.242).

As a result, when Kidwell learned about the improprieties he reported them to

members of Sybaritic's management who were directly involved in the relevant

issues, usually via written memoranda, e-mail or direct conversation. (See e.g.,

T.189-91, T.368). However, when Kidwell "blew the whistle" on Sybaritic via the

April 24, 2005 e-mail entitled "A Difficult Duty," Kidwell went beyond the

normal scope of his job responsibilities: he made a good faith report that the

company was intentionally violating the law, and he threatened go to the

authorities. (A.42-43).

The Difficult Duty E-mail

On Sunday, April 24, 2005, Kidwell sent several key members of

Sybaritic's management team an e-mail entitled "A Difficult Duty." (A.42-43).

In the e-mail, Kidwell made a good faith report that the company was engaging in

tax evasion, the unauthorized practice of medicine, and obstruction of justice. Id.

At trial, Steve Daffer, the owner and president of Sybaritic, admitted that

6

Kidwell's e-mail was the first time that Kidwell reported these concerns. (T.514).

Tony Daffer, CEO of Sybaritic, admitted that he was very surprised by the

contents of Kidwell's e-mail. (T. Daffer Dep. 65)1. George Mertikas and Steve

Chesley also testified that Kidwell reported violations or suspected violations of

law for the first time in his Difficult Duty e-mail. (T.303-04, T.613). Sybaritic's

managers also admitted that Kidwell accused the company of engaging in the

illegal behavior in the e-mail. (T.297-98, T.528, T.582, T. Daffer Dep. 77).

Tax Evasion

In the Difficult Duty e-mail, Kidwell accused Sybaritic of committing tax

evasion. California law requires retailers doing business in the state of California

to collect sales tax from its purchasers, and to remit those sales taxes back to the

state. Cal. Rev. & Tax. Code§ 6203; (T.205). Failing to do so is a misdemeanor.

Cal. Rev. & Tax. Code § 6207. However, a retailer not doing business in the state

of California, (i.e., one that does not maintain an office in the state) does not have

to collect sales tax from its purchasers. Cal. Rev. & Tax. Code § 6203; (T.205).

In 2002, Sybaritic opened a branch office in San Francisco. In

approximately 2004 or 2005, the San Francisco branch office became Sybaritic

West LLC ("Sy West"), an independent legal entity, supposedly separate from

Sybaritic, Inc. (T.362-63). Sy West was formed as a separate legal entity from

1 The deposition transcript of Tony Daffer was read to the jury, as described at page 570 of the trial transcript, and it attached to the Appendix at pages A.44-A.66.

7

Sybaritic, Inc. so that Sybaritic, Inc. would not have to collect and pay California

sales tax on its own California sales. (Id.)

Sybaritic, Inc. however, did not treat Sy West as a completely separate legal

entity because, among other things, Sy West was listed as a branch office on

Sybaritic's website. (T.204-05). As a result of not treating Sy West as a

completely separate legal entity, Sybartic should have collected and paid

California sales tax on its California sales. Cal. Rev. & Tax. Code §§ 6203, 6207;

(T.369). When Kidwell sent his Difficult Duty e-mail, Sy West was still listed as

a branch office on Sybaritic Inc.'s website. (T.579).

Unauthorized Practice of Medicine

Kidwell also accused Sybaritic of engaging in the unauthorized practice of

medicine. Mohammed Hagar is Sybaritic's medical director. (T.187). Mr. Hagar

is not licensed to practice medicine in the state of Minnesota. Minn. Stat.

§§147.02-03; (T.661). In or around the fall of 2004, Kidwell learned that Mr.

Hagar was engaged in "test studies" on human subjects using various machines

and medical devices sold by Sybaritic. (T.187-88). At around the same time,

Kidwell also learned that Sybaritic identified Mr. Hagar as a medical doctor on its

website. (T.188).

Minnesota law prohibits the practice of medicine without a license. Minn.

Stat. § 147.081; (T.188). The practice of medicine is defined, in pertinent part, to

include "offers or undertak[ings] to prevent or to diagnose, correct, or treat in any

manner or by any means, methods, devices or instrumentalities, any disease,

8

illness, pain, wound, fracture, infirmity, deformity or defect of a person." Minn.

Stat. § 147.081. The practice of medicine also includes "offers or undertak[ings]

to perform .. .invasive or noninvasive procedures involving the use of a laser or

laser assisted device, upon any person." Id. It is unlawful for a non-licensed

individual to use the designation of "doctor of medicine," "medical doctor," or

"M.D." in "the conduct of any occupation or profession pertaining to the diagnosis

of human disease or conditions." Id.

Concerned about Mr. Hagar's offers and undertakings to practice medicine,

as well as the company's identification of Mr. Hagar as a medical doctor, Kidwell

raised the issue several times with George Mertikas, Chief Operations Officer.

(T.189; A.67-75). However, despite Kidwell's insistence that Mr. Hagar's

medical practices should be discontinued, neither Mr. Mertikas, nor anyone else at

Sybaritic, assured Kidwell that Mr. Hagar's practice of medicine would cease.

(T.193-94 ).

Obstruction of Justice

In the Difficult Duty e-mail, Kidwell also accused Sybaritic of intentionally

obstructing justice. The federal statute, 18 U.S.C § 1512, states that

Whoever corruptly-(1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding; or (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so, shall be fined under this title or imprisoned not more than 20 years, or both.

9

At the time he sent the Difficult Duty e-mail, Kidwell believed that Steve Daffer,

the President of Sybaritic, intended to destroy some potentially damaging e-mails

related to a Sybaritic litigation then pending in federal court. (T.224, T.239). Mr.

Daffer told Kidwell that the opposing party "would have a hard time getting their

hands on those e-mails." (T.224). In addition, Tom Atmore, Sybaritic's attorney

of record in the federal lawsuit, told Kidwell that disks he had containing the

damaging e-mails were retrieved by Sybaritic under questionable circumstances.

(T.225-26) Fearing that Mr. Daffer had destroyed or intended to destroy the e­

mails so that they could not be used in the litigation, Kidwell made a good faith

report of Mr. Daffer's conduct in his April 24th e-mail. (T.239-T247).

Sybaritic's Response to the E-mail

Sybaritic's response to Kidwell's e-mail was immediate. On the morning

of April 25th, various members of Sybaritic's management team met with

Kidwell; in addition, various members ofSybaritic's management team met alone,

without Kidwell. (T.248-49). Before the end of the day, it was decided that Steve

Chesley should become Kidwell's supervisor. (T. Daffer Dep. 21). Tony Daffer,

CEO of Sybaritic, admitted that this decision was made as a direct result of

Kidwell's e-mail. (Id.) Steve Chesley testified that as a result of the e-mail, he

and Tony Daffer spent a day or a day and a half to investigate Kidwell's

allegations. (T.621). Steve Daffer testified that he was personally upset by

Kidwell's e-mail and that it represented a breakdown of trust with someone he

trusted. (T.529).

10

Only three weeks after Kidwell made his good faith report, he was

terminated. (T.267). As demonstrated at trial, Sybaritic's reasons for terminating

Kidwell changed over time. For example, at his termination, Kidwell was told that

"it's clear you're not happy here at Sybaritic," and that Steve Daffer was not

happy with Kidwell. (T.267, T.637-37). Next, in Sybaritic's interrogatories, the

company stated that:

The decision to terminate Kidwell was made by Tony Daffer and Steve Chesley. The decision was made following Kidwell's request for one week of vacation on less than one week's notice. The request for a vacation was made because Kidwell stated he needed time to prepare for his daughter's high school graduation. The vacation request coincided with previously scheduled depositions to occur in a pending arbitration involving Sybaritic, Inc. Kidwell was responsible for preparing case summaries prior to his vacation and failed to complete this assignment.

(A.76-86; T.546-47). Sybaritic's interrogatories also stated that "Kidwell was

terminated because Sybaritic, Inc. was not confident nor trusted that Kidwell was

able to complete his duties as General Counsel in a satisfactory manner." (Id.) At

the trial, Sybaritic further asserted that Kidwell was terminated for performance

reasons and because of his breach of fiduciary duty to Sybaritic (i.e., the fact that

he sent a copy of the Difficult Duty e-mail to his father) for performance reasons.

(T.633, 649). However, a considerable amount of evidence established that

Sybaritic' s reasons for Kidwell' s were pretextual:

• Steve Chesley testified that Kidwell's vacation "had nothing to do with his termination," in direct conflict with the interrogatories that he signed on Sybaritic's behalf. (T.574; A.76-86). He also stated that he did not consider terminating Kidwell until he after he learned that Kidwell

11

breached his fiduciary duty by sending a copy of the Difficult Duty e-mail to his father, John Kidwell. (T.649).

• Steve Daffer admitted that when he was asked to state the reasons for Kidwell's termination in his deposition, he did not mention breach of fiduciary duty as one of the reasons for his termination. (T.552). Yet, he also testified that Steve Chesley and Tony Daffer came to him seeking approval for Kidwell's termination. (T.569)

• Tony Daffer admitted that when first asked in his deposition about why Kidwell was terminated, he failed to mention breach of fiduciary duty as one of the reasons for Kidwell's termination. (T.761). Daffer also admitted that Sybaritic did not consider terminating Brian Kidwell immediately following the Difficult Duty email, because the company needed Kidwell's support in the federal lawsuit for a few weeks to prepare for trial. (T.765-66).

• George Mertikas, one of the four managers that runs Sybaritic, testified he did not know about Kidwell's breach of fiduciary duty until well after Kidwell's termination. By the time of his deposition, Mertikas still did not know about Sybaritic's allegedly real reason for terminating Kidwell. (T.296-97).

Based on the evidence produced at the trial, the jury properly concluded

that Brian Kidwell was terminated in violation of the Minnesota Whistleblower

Act, because he made a good faith report of a violation or suspected violation of

law. (A.25-27).

ARGUMENT

I. Standard of Review

The denial of a motion for judgment as a matter of law presents a legal

question subject to de novo review. See Pouliot v. Fitzsimmons, 582 N.W.2d 221,

224 (Minn.1998). But "[w]here JNOV has been denied by the trial court, on

appellate review the [ district] court must be affirmed, if, in the record, there is any

competent evidence reasonably tending to sustain the verdict." Id. (citation

12

omitted). The jury's verdict should not be set aside "[u]nless the evidence is

practically conclusive against the verdict." Id. ( citation omitted). "The evidence

must be considered in the light most favorable to the prevailing party and an

appellate court must not set the verdict aside if it can be sustained on any

reasonable theory of the evidence." Id.

II. Kidwell's Claim Is Not Barred As A Matter Of Law

Sybaritic argues that in-house attorneys should be barred as a matter of law

from bringing retaliatory discharge claims, and that therefore Sybaritic is entitled

to judgment as a matter of law. (App. Br. at 25). Sybaritic's argument fails for a

number of reasons, as outlined below.

As a preliminary matter, it is worth noting that the jury found that Kidwell

was terminated because he made a good-faith report of a violation or suspected

violation of law in direct violation of Minn. Stat. § 181.932. However, in this

appeal, Sybaritic is not challenging the jury's decision as contrary to the weight of

the evidence. At its core, then, Sybaritic's argument is this: Minnesota law

demands that a company's violation of the law is excused simply because the

victim of the unlawful action is an attorney. This cannot be what Minnesota law

demands; Sybaritic should be held accountable for its actions.

Sybaritic begins its argument by asserting that it has long been the rule in

Minnesota that a client may discharge an attorney, with or without cause, at any

time. This is an accurate representation of Minnesota law as it pertains to outside

13

counsel.2 See e.g., Lawler v. Dunn, 176 N.W. 989 (1920). However, as it pertains

to in-house counsel, the law is different. See Nordling v. Northern States Power

Co., 478 N.W.2d 498 (Minn. 1991) ("Nordling II"). In Nordling II, the Minnesota

Supreme Court ruled "that an employee who is in-house attorney for his corporate

employer is not, by reason of the attorney-client relationship, precluded from

making a claim against the employer for wrongful discharge." Id. at 499. The

Supreme Court's decision in Nordling II overruled the decision of the court of

appeals in Nordling I that the claims of an in-house attorney for wrongful

discharge were precluded by "the general rule allowing a client an unfettered right

to discharge its attorney ... ," the very same argument that Sybaritic is advancing

here. Nordling v. Northern States Power Co., 465 N.W.2d 81, 86 (Minn. Ct.

App.1991) ("Nordling I").

The Supreme Court's decision in Nordling II was not announced without

qualifications. Specifically, the Court observed that the nature of the attorney­

client relationship precluded a lawyer-employee's attempt "to foist himself upon

an unwilling client," and that the relief to which Nordling might be entitled was

limited to money damages (i.e., it could not include reinstatement). Nordling, 478

N.W.2d at 503. The Supreme Court also pointed out that an attorney-employee's

right to bring a claim for retaliatory discharge was conditioned upon the ability of

2While the principle that a client has the right to terminate an attorney is sound when the attorney-client relationship is the sole relationship between the parties, even this it is not a completely unfettered right, as the discharged attorney has always had the right to seek payment of wages for services rendered.

14

the attorney to make his case "without violence to the integrity of the attorney­

client relationship." Id. Specifically, the Court stated:

We assume that the trial court in this case will proceed, if a claim of privilege is raised, as it would with any claim of privilege. The trial court will decide whether or not there is a privilege for the data sought to be used, and, if so, whether the privilege has been waived.

Id. (footnotes omitted).

The Supreme Court's decision in Nordling II is clear: an in-house attorney

is not barred from bringing a claim for wrongful discharge against his employer.

In part, the Nordling II court ruled that an in-house attorney could bring a

wrongful discharge claim because ''the fact remains ... that the in-house attorney is

also a company employee, and we see no reason to deny the job security aspects of

the employer-employee relationship [to the attorney-employee]." 478 N.W.2d at

502. The Court noted that the employee-employer relationship made the usual

concerns of client trust and attorney autonomy less likely to be implicated in the

in-house attorney context. Id. With this in mind, the Nordling II Court

contemplated the disclosure of privileged information by the attorney. With

respect to the permissible circumstances for the disclosure of confidential

information, the Court referenced the exceptions provided in Rule 1.6 of the

Minnesota Rules of Professional Conduct, indicating that an attorney may

introduce confidential information to the extent permitted by Rule l.6 of the

Minnesota Rules of Professional Conduct.

15

In 2005, Rule 1.6 of the Rules of Professional Conduct was amended and

the following provision was added:

A lawyer may reveal information relating to the representation of a client if... the lawyer reasonably believes the disclosure is necessary to establish a claim or defense on behalf of the lawyer in an actual or potential controversy between the lawyer and the client, to establish a defense in a civil, criminal, or disciplinary proceeding against the lawyer based upon conduct in which the client was involved, or to respond in any proceeding to allegations by the client concerning the lawyer's representation of the client.

Minn. R. Prof. Conduct, Rule l.6(b)(8). Pursuant to Rule 1.6(b)(8), an in-house

attorney may bring a retaliatory discharge claim against his employer even if he

needs to reveal what would otherwise be construed as confidential information to

assert his claim.3 Put another way, Rule 1.6 permits an in-house attorney to make

a retaliatory discharge claim "without violence to the integrity of the attorney­

client relationship." Nordling, 478 N.W.2d at 503. Pursuant to Nordling II, an in­

house attorney can bring a retaliatory discharge claim against his employer.

Sybaritic's argument that an in-house attorney is per se barred from

bringing a retaliatory discharge claim relies heavily on the decision reached in

Michaelson v. Minnesota Mining & Manufacturing Co., 474 N.W.2d 174 (Minn.

3 The American Bar Association's Model Rules also allow a lawyer to disclose confidential information "to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client." Model R. Prof. Conduct, Rule l.6(b)(5). This language is nearly identical to the language of Minnesota's Rules of Professional Conduct. According to a 2001 American Bar Association opinion, a "claim" under this Rule may include "a retaliatory discharge or similar claim by an in-house lawyer against [an] employer." American Bar Assn., Committee on Ethics and Professional Responsibility, Formal Opinion 424, September 22, 2001.

16

App. 1991 ). This reliance is misplaced. In Michaelson, the court of appeals held,

without qualification, that an in-house attorney plaintiff could not bring a claim

against his employer if that claim arose during the attorney-client relationship.

This holding in Michaelson, that an in-house attorney is per se barred from

bringing a claim against his employer, was the very same holding that the

Minnesota Supreme Court contemplated, and then overruled, in Nordling IL

Nevertheless, Sybaritic argues that Kidwell's claim should be barred "because the

very essence of the attorney-client relationship" is at issue in his claim. However,

Sybaritic's argument fails to acknowledge Rule 1.6(b)(8), the reality that privilege

can be and often is waived ( and was waived by Sybaritic) 4, and the fact that the

Whistleblower Act also promotes important public policy and the public welfare.

Sybaritic contends that the public will suffer if in-house attorneys are

allowed to bring Whistleblower Act claims because companies will become

"unduly circumspect in their dealings with in-house counsel" and will be therefore

"denied the benefits of effective legal advice" or "left seeking advice from outside

counsel." (App. Br. at 31). However, the chilling effect that Sybaritic warns of

will not apply in most circumstances; ironically, the only clients who will be

adversely affected by a law that provides redress to attorney whistleblowers are

4 As is discussed in detail in Section VI.A below, Sybaritic voluntarily waived the attorney-client privilege throughout the course of litigation. As a result, it is not clear that Sybaritic even has standing to assert the argument that Kidwell is per se barred from bringing a retaliatory discharge claim. Sybaritic's argument necessarily relies on Kidwell violating the integrity of the attorney-client relationship. However, because Sybaritic waived the attorney client privilege, there is no way that Kidwell violated the integrity of the attorney client privilege.

17

the very clients who ignore their attorney's advice and violate the law. See John

Jacob Kobus, Jr., Establishing Corporate Counsel's Right to Sue for Retaliatory

Discharge, 29 Val. U. L. Rev. 1343, 1394 (1995).

Equally at stake is the public policy expressed in the Whistleblower Act;

the fact that Kidwell is an attorney does not diminish the public interest the Act is

intended to promote. The Whistleblower Act was enacted to protect the general

public through the medium of shielding from retaliation employees who "blow the

whistle." Janklow v. Minnesota Bd. of Examiners for Nursing Home Adm'rs, 552

N.W.2d 711, 717 (Minn. 1996). It seems anomalous that a lawyer employee, who

has affirmative obligations concerning the administration of justice should be

denied recourse for a termination resulting from trying to carry out those very

obligations. Crews v. Buckman Laboratories Int'l., Inc., 78 S.W.3d 852, 859

(Tenn. 2002) (citations omitted). Importantly, a bar on an in-house attorney's

right to bring a claim under the Act would have the effect of depriving some of the

people in the best position to know of a company's violations of law from

protection under the Act. These considerations and others may be why the

protections afforded by the Minnesota Whistleblower Act are granted broadly to

all employees, not just non-lawyer employees. See Minn. Stat. § 181.932. The

plain language of the statute does not create distinctions between categories of

employees, and the enforcement of the Act should not create distinctions either.

See Minn. Stat. § 645.16 (When interpreting a statute, the court must ascertain

and effectuate the intention of the legislature.); State v. Anderson, 683 N.W.2d

18

818, 821 (Minn. 2004) (When the legislature's intent is clearly discernible from a

statute's plain and unambiguous language, the court interprets the language

according to its plain meaning without resorting to other principles of statutory

construction.) See also, Anderson-Johanningmeier v. Mid-Minnesota Women's

Center, Inc., 637 N.W.2d 270, 273 (Minn. 2002) (The analysis of the

Whistleblower Statute starts with the statutory language.).

The overwhelming majority of courts to have considered the issue have

permitted in-house attorneys to bring retaliatory discharge claims against their

former employers/clients. See Heckman v. Zurich Holding Co. of America, --­

F.R.D.---, 2007 WL 1347753 (May 8, 2007 D. Kan.) (law does not prohibit in­

house attorney plaintiff from maintaining a whistleblower claim against her

employer/client)5; O'Brien v. StoltNielsen Transp. Group Ltd., 838 A.2d 1076,

1084 (Conn. Supp. 2003) (no persuasive per se rationale for barring wrongful

termination suits by in-house attorneys); Crews, 78 S.W.3d at 857, 863-64 (in­

house counsel may sue for retaliatory discharge in violation of public policy

subject to applicable confidentiality restrictions); Burkhart v. Semitool, Inc., 5

P.3d 1031, 1042 (Mont. 2000) (in-house counsel may bring employment claims

contemplated under rules of professional conduct); Willy v. Coastal States Mgmt.

Co., 939 S.W.2d 193, 200 (Tex. App. 1996) (plaintiffs status as in-house counsel

does not preclude wrongful termination claim if it can be proved without violation

5 A copy of Heckman v. Zurich Holding Co. of America, ---F.R.D.---, 2007 WL 1347753 (May 8, 2007 D. Kan.) can be found in the Appendix at page A.130-37.

19

of confidentiality obligation); Gen. Dynamics Corp. v. Superior Court, 7 Cal.4th

1164, 32 Cal.Rptr.2d l, 876 P.2d 487,490 (1994) (balanced considerations favor

recognition of wrongful discharge claim for in-house counsel unless suit cannot

proceed without breach of attorney-client privilege). Nordling II requires that the

Court not rule differently.

Sybaritic also argues that allowing in-house counsel to bring a

whistleblower action essentially creates a "super employee" immune from at-will

employment and from the concept that a client can terminate an attorney for any

reason at any time. This argument ignores the fact that the Whistleblower Act has

a good faith requirement, which would prevent Sybaritic's hypothetical "super

employee" from ever asserting a valid claim, as the whistleblowing would likely

not be in good faith. See Minn. Stat. § 181.932.

Sybaritic's argument also inappropriately ignores the jury's findings of fact.

Brian Kidwell did not "create the very issues" he blew the whistle on, as Sybaritic

suggests. Although Sybaritic attempted to advance this argument at trial, the jury

rejected it, and instead found that Kidwell acted in good faith and engaged in

protected conduct. (A.25-27). Kidwell is not the "super employee" Sybaritic

warns the Court about. Finally, the Court should instead consider that one of the

repercussions of barring in-house counsel from bringing claims under the

Whistleblower Act, as Sybaritic urges, would be to create a "super employer," one

that gains the right to cheat its employees and the public simply because it imparts

confidences on its attorney-employees.

20

Finally, this is an era of Enron, WorldCom, and other corporate scandals.

"Ultimately, sole reliance on the mere presence of ethical rules to protect

important public policies give too little weight to the actual presence of economic

pressures designed to tempt in-house counsel into subordinating ethical standards

to corporate misconduct. Unlike lawyers possessing a multiple client base, in­

house counsel are dependent upon only one client for their livelihood." Crews, 78

S.W.3d at 860. Like other non-lawyer employees, an in-house attorney is

dependent upon his employer for his sole income and benefits; and the lawyer is

subject to raises and promotions at the discretion of the employer. The public

cannot not afford to have in-house attorneys be economically fearful of blowing

the whistle on their employers. In-house counsel should not be barred from

bringing Whistleblower Act claims; the Court should deny Sybaritic's request for

judgment as a matter of law.

III. Kidwell Is Entitled To The Jury Award

Sybaritic also argues that Kidwell is not entitled to compensation following

the Court's ruling that Kidwell breached his fiduciary duty to Sybaritic. The

company's argument is premised on the fact that, as a result of his breach,

Sybaritic had the absolute right to terminate its relationship with Kidwell and that

it did terminate its relationship with Kidwell because he breached his fiduciary

duty to Sybaritic. (App. Br. at 33). In making this argument, Sybaritic completely

ignores the jury's finding in this regard. In question five of the special verdict

form, the jury was specifically asked:

21

5. Regardless of whether Brian Kidwell engaged in protected conduct, would Sybaritic, Inc. have terminated his employment at the time that they did?

The jury's answer to this question was "No." (A.25-27). The jury contemplated

the fact that Sybaritic could have terminated Brian Kidwell because of his breach

of fiduciary duty, but decided, based on the evidence presented at trial, that the

company did not terminate because of his breach of fiduciary duty. Id. As a result,

Kidwell is entitled to his award of past and future wage loss.

An employer cannot be shielded from liability simply because it has the

"right" to terminate an employee. In fact, employers regularly enjoy the "right" to

terminate its employees. Indeed, as an at-will employer, Sybaritic had the

discretion to terminate Kidwell's employment for "any reason or no reason at all,"

so long as the decision was not motivated by retaliatory animus. Pine River State

Bank v. Mettille, 333 N.W.2d 622, 627 (Minn. 1983); Anderson-Johanningmeier,

637 N.W.2d at 273. However, the jury found that Syabritic's decision was

motivated by retaliatory animus. (A.25-27).

Sybaritic argues that the Court should ignore the jury's finding that

Sybaritic's decision was motivated by retaliatory animus and instead contends that

because Sybaritic also had a legitimate reason to terminate Kidwell, Sybaritic does

not have to pay Kidwell's damages. However, as the Minnesota Supreme Court

made clear in McGrath v. TCF Bank Sav., FSB, 509 N.W.2d 365 (Minn. 1993),

even if an employer has a legitimate reason for the discharge, a plaintiff may

nevertheless prevail if an illegitimate reason "more likely than not" motivated the

22

discharge decision. McGrath applies to Kidwell's case, like it does to any other;

Kidwell is entitled to the damages awarded by the jury.

Particularly relevant to Sybaritic' s argument is the decision of the Minnesota

Supreme Court in Gilchrist v. Perl, 387 N.W.2d 412 (Minn. 1986) ("Perl III"). In

Perl III, the Supreme Court ruled that "cases of actual fraud or bad faith result in

total fee forfeiture." Id. at 417. However, "when no actual fraud or bad faith is

involved, when no actual harm is sustained ... we think the better approach is to

determine the amount of fee forfeiture by a consideration of the relevant factors

set out in Minn. Stat. §549.20, subd. 3 [governing awards of punitive damages in

civil cases]." Id. Significantly, the Supreme Court in Perl III held that the amount

of any forfeiture is to be determined by the trier of fact. Id.

Sybaritic's claim of total disgorgement therefore fails for several reasons.

First, Sybaritic cannot prove that Kidwell's breach of fiduciary duty caused the

company an independent loss. The record is absolutely void of any evidence that

the company suffered financially as a result ofKidwell's communication of thee­

mail to his father. Second, Sybaritic cannot not prove that Kidwell's behavior was

willful or fraudulent. Kidwell testified that he sent the e-mail to his father because

he sought his advice and counsel on how to comply with the law. There was no ill

will or malice in his transmission of the e-mail to his father and Sybaritic did not

prove otherwise at trial. Finally, the issue of damages for breach of fiduciary duty

23

went to jury on the request ofSybaritic's counseL6 In accord with Perl III, the jury

in Kidwell's case was instructed that the Plaintiff had committed a breach of

fiduciary duty. The jury nonetheless found that an award of $0.00 was sufficient

to fairly and adequately compensate Sybaritic for the Plaintiffs breach of

fiduciary duty. Sybaritic's appeal on this issue must fail.

IV. Kidwell Established A Prima Facie Case Of Retaliation

According to the plain language of the statute, "an employer shall not

discharge ... because ... the employee, or a person acting on behalf of an employee,

in good faith, reports a violation or suspected violation of any federal or state law

or rule adopted pursuant to law to an employer .... " Minn. Stat. § 181.932.

Nevertheless, Sybaritic argues that Kidwell did not engage in protected activity

under Minnesota's Whistleblower Act because (1) he was fulfilling his job

responsibilities when he wrote the Difficult Duty e-mail, (2) Sybaritic was already

aware of the concerns raised in the e-mail, and (3) the e-mail does not implicate

any violations of law. Contrary to Sybaritic's arguments in this regard, the case

law developed in response to the Whistleblower Act does not alter the

requirements of the statute. In this case, Kidwell established that he made a (1)

good faith, (2) report, (3) of a violation or suspected violation of law, (4) to his

6 In fact, at the jury instructions conference between the parties' counsel and the Court, Judge Burke warned Sybaritic's counsel that if he allowed the issue of damages to go to the jury, he would stand by the jury's decision. Despite Judge Burke's warning, Sybaritic's counsel agreed to let the jury decide the issue of damages for breach of fiduciary duty.

24

employer. As a result, the jury properly found in Kidwell's favor, and the trial

court properly denied Sybaritic's motion for judgment as a matter oflaw

A. Kidwell's "A Difficult Duty" E-mail Constitutes A Report Under The Whistleblower Act.

Sybaritic argues that Kidwell's Difficult Duty e-mail does not constitute a

report for purposes of the Minnesota Whistleblower's Act because he was acting

within the scope of his employment when he wrote the Difficult Duty e-mail.

Although Kidwell was acting within the broad scope of his employment when he

wrote the Difficult Duty e-mail, the Whistleblower Act's reach is not limited to

those who act beyond the scope of their employment. Indeed, the plain language

of the statute is without limitation and provides protection to all employees who

make a good faith report of a violation or suspected violation of law to their

employers. Minn. Stat. 181.932. Importantly, the statute requires an employee­

employer relationship before liability can attach. Id. It would be inconsistent to

require an employee-employer relationship on the one hand, and on the other

require an employee to be acting outside of the scope of his employment to prevail

under the statute. 7

Sybaritic argues that Minnesota law is well settled that a complaint or

concern that falls within the scope of employment is not statutorily protected

7 If this Court were to find that the Whistleblower Act fails to protect whistleblowers who act within the broad scope of their employment, as Sybaritic urges, there is a considerable risk that employers will add "reporting of violations or suspected violations of law" to every job description, simply to avoid lawsuits and liability under the Act. If so, the protections of the Whistleblower Act would become completely eviscerated.

25

under the Act. Sybaritic's analysis of the law is off-the-mark. For example,

Sybaritic argues that "Kidwell is no different from the plaintiff in Grundtner."

(App. Br. at 38). However, Grundtner is a whistleblower case in which the Court

affirmed a judgment in favor of an employer, finding that the employee did not

report a violation or suspected violation of law, and therefore did not engage in

protected conduct under the Act. Grundtner v. Univ. of Minn., 730 N.W.2d 323,

330 (Minn. Ct. App. 2007)("The facts asserted by [Grundtner], that Perkins

'proposed' using an improper procurement method but did not, if proven, do not

constitute a violation of the law.") To the extent that the court of appeals

considered Grundtner' s job duties, it was only in dicta, and simply to point out that

in addition to not reporting a violation or suspected violation of law, it was

unlikely that Grundtner's purpose in "reporting" was to expose an illegality (i.e., it

is unlikely that he acted in good faith). Grundtner does not hold that an employee

acting within the scope of his employment fails to engage in protected conduct

under Minnesota's Whistleblower Act.

Sybaritic also argues that Kidwell's report is comparable to the report made

in Michaelson. 474 N.W.2d 174. In Michaelson, an in-house attorney, at his

employer's request, gave his opinion as to the appropriate action to take on a

number of employment problems and situations. 474 N.W.2d at 177. On several

occasions, his employer chose not to follow his advice. Id. The fact that

Michaelson's employer chose not to follow his advice, served as the basis for his

Whistleblower claim.

26

The court of appeals held that Michaelson failed to assert a Whistleblower

Act claim because:

First, except for appellant's opinion that respondent's plans may have violated Title VII and EEO laws, he offered no proof of such violations. Second, he did not "report" conduct, but rather gave his supervisor feedback, based upon his legal analysis, regarding proposed business decisions. Third, he did not report the alleged violations to any other outside authority. Fourth, appellant produced no evidence of the causal connection between his feedback on respondent's proposed actions and the alleged retaliation. Fifth, respondent did not discharge appellant, but rather redefined his employment responsibilities in light of his recent inability to handle all matters efficiently.

474 N.W.2d at 180. With respect to the report, the court of appeals properly held

that Michaelson did not make a "report" of illegal conduct for purposes of the

Minnesota Whistleblower Act. To qualify as a report under the statute, a report

must "blow the whistle" by notifying the employer of a violation of law that is a

clearly mandated public policy. Cokley v. City of Otsego, 623 N.W.2d 625, 631

(Minn. Ct. App. 2001). An individual that merely gives his supervisor requested

feedback regarding proposed business decisions does not make a report for

purposes of the Act because such an account does not "blow the whistle."

Kidwell's case is distinguishable. In his A Difficult Duty e-mail, Kidwell

did not merely give feedback to his supervisors regarding proposed business

decisions. (A.42-43). Rather, he made an unambiguous report that the company

was intentionally violating the law, and he threatened to go to the authorities.

(A.42-43). He did this outside of regular business hours, on his own time, and not

27

in the normal course of business. (T.405-09). Kidwell went beyond the scope of

his job duties when he "blew the whistle" on Sybaritic's unlawful behavior.

Sybaritic also argues that Kidwell did not engage in protected activity

because he had previously raised each of the issues contained in the A Difficult

Duty e-mail. Sybaritic's argument assumes an incorrect interpretation of

Minnesota law, and overlooks relevant factual evidence.

Sybaritic asserts that Minnesota law "is clear that a protected activity is not

reporting conduct about which the employer is already aware." (App. Br. at 39).

Sybaritic relies heavily on the Minnesota Supreme Court decision in Obst v.

Microtron, Inc., 614 N.W.2d 196, (Minn. 2000). The Obst Court specifically

addressed the issue of whether the employer's knowledge of unlawful activity

prevents an employee from engaging in protected conduct, and decided that an

employer's knowledge does not unequivocally bar an employee from bringing a

successful claim:

This is not to say that whenever an employer established that it or another entity receiving a report of a violation or suspected violation of law from an employee knows of the violation before the report is made, that the employer can escape liability under the whistle-blower statute .... We can think of a number of situations in which the employer's previous knowledge might not lead to the conclusion that the employee lacked good faith in reporting.

Obst, 614 N.W.2d at 203, FN5. The fact that Sybaritic knew about the alleged

violations of law does not automatically bar Kidwell from successfully bringing

his claim. So long as Kidwell brought his claim in good faith (i.e., to expose an

illegality), he can prevail. Minn. Stat. § 181.932. In this case, because the jury

28

found that Kidwell brought his claim in good faith, his claim should stand. (A.25-

27).

However, even if Minnesota law prevented an employee from engaging in

protected activity once the employer was aware of its unlawful activity, the factual

evidence presented at trial established that Kidwell made his first good faith report

of a violation or suspected violation of law in the A Difficult Duty e-mail. At trial,

Steve Daffer, the owner and president of Sybaritic, admitted that Kidwell's e-mail

was the first time that Kidwell reported these concerns. (T.514). Tony Daffer,

CEO of Sybaritic, admitted that he was very surprised by the contents ofKidwell's

e-mail (T. Daffer Dep. 65)8. George Mertikas and Steve Chesley also testified that

Kidwell reported violations or suspected violations of law for the first time in his

Difficult Duty e-mail. (T.303-04, T.613). As well, Steve Chesley's testimony

regarding the immediate and time-consuming response to the e-mail lends

additional support to Kidwell's claim that he made his first official report of illegal

activity in his A Difficult Duty e-mail. (T.621). If Kidwell was doing nothing

more than telling the company what it already knew, there would be no need for

an immediate response from individuals who did not supervise Kidwell, or for

multiple meetings on the same day regarding the e-mail. (T.248-49).

Sybaritic also makes the argument that because there was no violation of

law, Kidwell didn't make out his prima facie case of retaliation. To begin with,

8 The deposition transcript of Tony Daffer was read to the jury, as described at page 570 of the trial transcript.

29

this argument was not properly preserved on appeal because it was not argued in

Sybaritic's post-trial motion for judgment not withstanding the verdict. Therefore,

the court should not even consider it. The argument also inappropriately ignores

the plain language on the Whistleblower Act, which provides redress for reports of

violations or suspected violations of law. Minn. Stat. § 181.932. Sybaritic's

statement that "thus, to constitute a report, the employer must have actually

violated the law," (App. Br. at 41), is a patently false representation of the law.

To qualify as a report under the Minnesota Whistleblower Act, a report

must "blow the whistle" by notifying the employer of a violation or suspected

violation of law. Obst v. Microtron, Inc., 614 N.W.2d 196, 200 (Minn. 2000).

The statute does not require a Plaintiff to make a report of an actual violation of

law; a report of a suspected violation is sufficient. Minn. Stat. § 181.932. A

suspected violation of law is one where if the facts alleged were proven, they

would constitute a violation of law. Abraham v. County of Hennepin, 639 N.W.2d

342, 355 (Minn. 2002).

Sybaritic argues that Kidwell did not engage in statutorily protected

conduct because he did not present any evidence that Sybaritic violated the law

with regard to the issues raised in the Difficult Duty e-mail. (App. Br. at 43).

Sybaritic' s argument is inconsistent with the evidence in the record.

To begin with, portions of the Difficult Duty e-mail specifically accuse

Sybaritic of violating the law: "[i]t is my firm conviction that Sybaritic intends to

continue to engage in tax evasion, the unauthorized practice of medicine and

30

obstruction of justice. Accordingly, it is my intention to advise the appropriate

authorities of these facts." (A.42-43)). Sybaritic's managers also admitted that

Kidwell accused the company of intentionally engaging in unlawful behavior in

his April 24th e-mail. (T.297-98, T.528, T.582, T. Daffer Dep. 77).

Moreover, with respect to tax evasion, section 6203 of the California

Revenue and Taxation Code requires "every retailer engaged in business" in the

state to "collect the tax from the purchaser and give to the purchaser a receipt

therefor in the manner and form prescribed by the board." Cal. Rev. & Tax. Code

§ 6203. Section 6203(c) further provides that a "[r]etailer engaged in business in

this state" means and includes any of the following:

Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business.

Cal. Rev. & Tax. Code § 6203(c). A violation of code section 6203 is a

misdemeanor under California law. Cal. Rev. & Tax. Code§ 6207.

In the Difficult Duty e-mail, Kidwell accused Sybaritic of being engaged in

business in California without collecting tax from the purchaser, as required by

California law:

In this culture, we deny any obligation to collect or pay California sales tax based on the claim that we do not do business in California and then advertise the opening of a San Francisco branch office on our website.

31

(A.42-43). Kidwell's accusation is a report of a violation or suspected violation of

law. If Sy West was not functioning as a truly separate company from Sybaritic,

Inc., but in reality served as a branch office, Sybaritic, Inc. would be engaged in

business in the state of California for purposes of Cal. Rev. & Tax. Code § 6203.

(T.205). If Sybaritic, Inc. nevertheless rejected its obligation to collect and remit

sales tax in California based on a claim that it did not engage in business in

California, the company would be in violation of California law. Cal. Rev. & Tax.

Code §§ 6203, 6207; (T.205). Kidwell's report of tax evasion was a report of a

violation or suspected violation of law.

The same is true for Kidwell's report of the unauthorized practice of

medicine. Minnesota law prohibits the practice of medicine without a license.

Minn. Stat. § 147.081. The practice of medicine is defined, in pertinent part, to

include "offers or undertak[ings] to prevent or to diagnose, correct, or treat in any

manner or by any means, methods, devices or instrumentalities, any disease,

illness, pain, wound, fracture, infirmity, deformity or defect of a person." Id. It

also includes "offers or undertak[ings] to perform ... invasive or noninvasive

procedures involving the use of a laser or laser assisted device, upon any person."

Id. It is also unlawful for a non-licensed individual to use the designation of

"doctor of medicine" "medical doctor" or "M.D." in "the conduct of any ' '

occupation or profession pertaining to the diagnosis of human disease or

conditions." Id.

32

During his tenure at Sybaritic, Kidwell discovered that Mr. Hagar,

Sybaritic's medical director, engaged in "test studies" on human subjects using

various machines and medical devices sold by Sybaritic. (T.187-88). At around

the same time, Kidwell also learned that Sybaritic identified Mr. Hagar as a

medical doctor on its website. (T.188). Mr. Hagar is not licensed to practice

medicine in the state of Minnesota. Minn. Stat. §§147.02-03; (T.661). These

actions constitute practicing medicine without a license. Minn. Stat. § 147.081.

Thus, when Kidwell sent the Difficult Duty e-mail, he reported a violation or

suspected violation of law.

With respect to obstruction of justice, Kidwell also made a good faith

report of a violation or suspected violation of law. Federal statute, 18 U.S.C §

1512, states that:

Whoever corruptly-(!) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding; or (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so, shall be fined under this title or imprisoned not more than 20 years, or both.

At the time he sent the Difficult Duty e-mail, Kidwell believed that Steve Daffer,

the President of Sybaritic, intended to destroy some potentially damaging e-mails

related to a Sybaritic litigation then pending in federal court. (T.224, T.239). Mr.

Daffer told Kidwell that the opposing party "would have a hard time getting their

hands on those e-mails." (T.224). In addition, Tom Atmore, Sybaritic's attorney

of record in the federal lawsuit, told Kidwell that disks he had containing the

33

damaging e-mails were retrieved by Sybaritic in questionable circumstances.

(T.225-26). Kidwell had a basis to believe that Mr. Daffer had destroyed or

intended to destroy the e-mails, so that they could not be used in the litigation.

These actions would have violated 18 U.S.C § 1512.

There is ample evidence in the record to suggest that Kidwell made a good

faith report of a violation or suspected violation of law in his Difficult Duty e­

mail. Certainly, Kidwell satisfied the elements of his prima facie case.

V. Sybaritic Is Not Entitled To A New Trial Because The Court's Jury Instructions Were Proper

Appellate courts review a district court's decision on jury instructions under

an abuse of discretion standard. Hilligoss v. Cargill. Inc ., 649 N.W.2d 142, 147

(Minn. 2002). Generally, the district courts have "considerable latitude" in

choosing jury instructions. Morlock v. St. Paul Guardian Ins. Co., 650 N.W.2d

154, 159 (Minn. 2002). Although a court errs if it gives a jury instruction that

materially misstates the law, State v. Kuhnau, 622 N.W.2d 552, 556 (Minn. 2001),

a trial court does not err if it gives jury instructions which "as a whole convey to

the jury a clear and correct understanding of the law of the case." Barnes v.

Northwest Airlines, Inc., 47 N.W.2d 180, 187 (1951). "A [jury instruction] which

is substantially correct is sufficient." Id. at 189.

Sybaritic argues that it is entitled to a new trial because the jury instructions

failed to state that in order to engage in protected activity, it must not have been

34

Kidwell's job to bring violations of law to Sybaritic's attention. Sybaritic argues

that the Court was required to issue this instruction:

An employee does not engage in a protected activity if it was the employee's job to bring to the employer's attention or the attention of any governmental agency any activities that the employee in good-faith believed were in violation of any federal, state or local law.

(A.87-121). However, Sybaritic's recommended jury instruction is not the law.

As discussed above, neither the Whistleblower Act itself, nor the related case law,

indicates that such a jury instruction is appropriate or required.

Additional guidance with respect to the proper instruction comes from the

Minnesota Jury Instruction Guides. With respect to violations of the

Whistleblower Act, the Guides provide the following instruction:

Duty not to retaliate

An employer (person acting on the employer's behalf) may not (fire) (discipline) (threaten) (discriminate against) (penalize) an employee by changing the employee's (pay) (terms of employment) (conditions of employment) (location of employment) (privileges of employment) if:

1. [The employee (person acting on employer's behalf) in good faith reported an actual or suspected violation of ( a state or federal law or legal rule) to (an employer) (any governmental body or law enforcement official)] or

[The employee is asked by a public body or office to take part in an investigation, hearing, or inquiry.] or

[The employee refuses an employer's order that the employee believes, based on objective facts, violates any state or federal law or rule or regulation. The employee must inform the employer that the order is being refused for that reason.] and

35

2. The employee's report (was a motivating factor) (played a part in) in the employer's decision.

CIVJIG 55.65 (2006). Noticeably absent from the model jury instruction is any

mention of an employee's "job." A neutral committee charged with studying the

Minnesota Whistleblower Act and related case law in order to develop an

appropriate and fair instruction did not believe that consideration of an employee's

"job." was a necessary part of the jury instruction. Nevertheless, Sybaritic asserts

that the trial court's failure to include a jury instruction related to Brian Kidwell's

"job." was erroneous and prejudicial. Sybaritic is wrong.

Sybaritic also argues that the court's jury instruction with respect to good

faith was errorneous because it allowed the iurv to consider Brian Kidwell's iob for - - - --- --- J - - .

purposes of determining whether he acted in good faith. Originally, Sybaritic

asked the trial court to use a jury instruction instructing the jury to consider

Kidwell'sjob and purpose:

An employee does not engage in protected activity unless he made a report in good faith. To determine whether a report was made in good faith, you "must look not only at the content of the report, but also at the reporter's purpose in making the report" at the time the report was made, not after subsequent events have transpired.

"Where the employee's purpose, at the time of making the report[] ... [was] to protect his own job," the good faith requirement is not met.

(A.87-121). Judge Burke, over objections made by Plaintiffs counsel, ultimately

decided that the jury instruction should read as follows:

36

An employee does not engage in protected activity unless he made a report in good faith. To determine whether a report was made in good faith, you must look not only at the content of the report, but also at Mr. Kidwell's job and purpose in making the report at the time the report was made, not after subsequent events have transpired.

(T.868). Sybaritic now asserts that as a result of this instruction "[t]he jury's

understanding of the law was ... the complete opposite of what [the law] actually is

because it was instead told that if Kidwell was simply doing his job when he wrote

and sent the difficult-duty e-mail, he was then proceeding in good faith and that he

had this engaged in protected conduct." (App. Br. at 45). This argument does not

make sense. The jury was not instructed to find that Kidwell was acting in good

faith if he was simply doing his job. Rather, the jury was instructed to take

Kidwell's job into consideration when determining whether Kidwell was acting in

good faith or engaging in protected conduct, something that, ironically, Sybaritic

argues in this same appeal that the jury instructions failed to do. Sybaritic cannot

have it both ways: a finding of error when the jury instructions do not include

consideration of job duties and a finding of error when the jury instructions do

include consideration of job duties.

Sybaritic also argues that the jury instructions were erroneous because they

failed to instruct the jury that:

An employee does not engage in a protected activity ifhe reports alleged violations of law that were already known by the employer.

37

(A.87-121). However, Sybaritic's requested instruction is not an accurate

statement of the law. See Minn. Stat.§ 181.932; Obst, 614 N.W.2d at 203, FN5.

A consideration of what an employer already knows was also not deemed to be an

appropriate consideration by the committee that drafted the Minnesota Jury

Instruction Guides. See CIVJIG 55.65 (2006).

In relevant part, the jury instructions instructed the jury that:

To recover under the [whistleblower] act, Brian Kidwell must prove by a greater weight of the evidence that he engaged in a protected activity, and that there was a causal connection between the protected activity and the adverse employment action.

Protected activity is an employee's conduct in making a good faith report of an actual or suspected violation of a state or federal law to an employer. ...

An employee engages in a protected activity under the act if the purpose of the employee's report to the employer. .. was to blow the whistle for the purpose of exposing an illegality that is a violation of federal state or local law.

In order to establish that the made a protected report ... Brian Kidwell is required to allege facts that if proven constitute a current violation oflaw.

An employee does not engage in protected activity unless he made a report in good faith. To determine whether a report was made in good faith, you must look not only at the content of the report, but also at Mr. Kidwell's job and purpose in making the report at the time the report was made, not after subsequent events have transpired.

If Brian Kidwell has sustained his burden of proving that his alleged protected conduct was a substantial or motivating factor in the adverse employment decision, Sybaritic, Inc., has the opportunity to prove that it would have taken the same adverse action for legitimate reasons.

38

(T.867-68). Taken as a whole, the jury instructions do not materially misstate the

law; Judge Burke's instructions were not abuse of discretion and a new trial is not

necessary.

VI. The Evidentiary Issues Raised By Sybaritic On Appeal Do Not Warrant A New Trial

Sybaritic claims a new trial is necessary because of various evidentiary

errors made by the Court. Evidentiary rulings rest "within the broad discretion of

the trial court" and should not be overruled unless they are "based on an erroneous

view of the law or constitute[] an abuse of discretion." Kroning v. State Farm

Auto. Ins. Co., 567 N.W.2d 42, 45-46 (Minn. 1997). A new trial is warranted only

when the oartv can demonstrate oreiudicial error. Id. at 46. In the absence of

some indication that the trial court exercised its discretion arbitrarily, capriciously,

or contrary to legal usage, the appellate court is bound by the result. Id.

A. The Court Properly Admitted Evidence Related to Privileged Communications Between Kidwell and Sybaritic

Sybaritic argues that Kidwell was inappropriately allowed at trial to testify

about, and submit documents containing, information subject to the attorney-client

privilege. However, because Sybaritic waived the privileged status of its

communications and because the Rules of Professional Responsibility allow

Kidwell to disclose attorney-client communications to establish a claim or defense

for himself, the Court properly admitted the testimony and documents into

evidence.

39

"Privilege is personal to those to whom it belongs and is waived unless

asserted by them." 4 Wigmore, Evidence, 3d Ed.,§ 1061. When Kidwell's filed

his Complaint against Sybaritic, he was careful to not publish any privileged

information. (A.2-4 ). In response to the Complaint, Sybaritic filed five

counterclaims against Kidwell, including breach of fiduciary duty, defamation,

and breach of the duty of loyalty. (A.5-16). In order to prevail on these claims,

Sybaritic would have to rely on the very documents and testimony it now claims

are privileged. Once Sybaritic elected to file an answer and counterclaims against

Kidwell, (as opposed to making a motion to dismiss), Sybaritic waived its right to

assert the attorney-client privilege with respect to Kidwell's legal communications

regarding the kickbacks, Dr. Hagar's unauthorized practice of medicine, the

formation of Sybaritic West and the NeoQi litigation, communications which it is

now attempting to assert as privileged. Melrose Floor Co., Inc. v. Lechner, 435

N.W.2d 90, 91-92 (Minn. Ct. App. 1989) (stating that that the attorney-client

privilege is waived if plaintiff sues plaintiffs attorney); 1 McCormick On Evid. §

93 (6th ed.) ("[i]t has accordingly become established that if a party interjects the

"advice of counsel" as an essential element of a claim or defense, then that party

waives the privilege as to all advice received concerning the same subject

matter.") Sybaritic also waived the attorney-client privilege during discovery. For

example, on November 23, 2005, Sybaritic provided Plaintiffs with a privilege

log, listing various documents that responsive to Plaintiffs request for the

production of documents but being withheld on grounds of attorney-client

40

privilege. (A.122-124) The difficult duty e-mail (which Sybaritic now claims is

privileged) was not on Sybaritic's privilege log, and was produced without

condition to Plaintiffs. Also, the parties entered into a Stipulated Confidentiality

Agreement and Order, which was executed by the Court on January 20, 2006. The

Confidentiality Order provided for the designation of documents and deposition

testimony as Confidential. (A.125-129). Despite the Confidentiality Agreement,

Sybaritic failed to designate any deposition testimony regarding Kidwell's work

and legal analysis regarding the kickbacks, Hagar's unauthorized practice of

medicine, the formation of Sybaritic West or the NeoQi litigation testimony as

Confidential. (See e.g., A.44-66) The fact of the matter is that company

repeatedly waived its privilege, and therefore lost the ability to argue that the trial

court impermissibly admitted privileged communications.

Moreover, Sybaritic, itself, offered testimony and documents that were

subject to the attorney-client privilege. From the inception of this case, Sybaritic

has engaged in a self-serving pattern of making selective disclosures of

information that fall within the purview of the attorney-client privilege while

attempting to prohibit use by Kidwell of any information that might even arguably

fall within the protections generally afforded confidential communications. For

example, Sybaritic called its attorney, Thomas Atmore, as a witness at trial to

examine him about his beliefs concerning Sybaritic's participation in NeoQi case

discovery; yet the company argues on appeal that the admission an April 19, 2005

e-mail that Mr. Atmore sent to the Kidwell concerning the NeoQi case was made

41

error. (T.722-33; App. Br. at 46, fn 2). As well, Sybaritic alleged in its opening

statement that one factor in the decision to terminate Kidwell's employment was

his failure to complete a litigation summary; nonetheless, it states that the court

erred in permitting the jury to see the detailed litigation summary that Kidwell

actually completed. (T.104-06; Ap. Br. at 46, fn 2). "Fairness dictates that a party

may not use the attorney-client privilege as both a sword and a shield." Minnesota

Specialty Crops, Inc., 210 F.R.D. at 675. Sybaritic cannot use the attorney-client

privilege as a "sword" against Kidwell for purposes of prevailing against Kidwell,

and at the same time as a "shield" against Kidwell for purposes of preventing

Kidwell from prevailing on his claim. The trial court properly allowed the

privileged communications to be admitted.9

It is also relevant that the Rules of Professional Conduct allowed Kidwell to

admit privileged information into evidence. The attorney-client privilege has

never been absolute. Rather, the important public policy it serves has always

yielded to policies that are deemed to be of greater importance. Thus, a lawyer

has long been permitted to reveal confidential information necessary to prevent the

commission of a crime by a client, as well as confidences and secrets necessary to

rectify the consequences of past fraudulent or criminal acts by the client in the

9 Sybaritic argues that neither the Court nor Kidwell ever challenged Sybaritic's assertions that the information admitted at trial was privileged. Clearly though, the majority of the facts presented at trial were not subject to the attorney-client privilege, and accordingly were not objected to on those grounds. Although Kidwell does acknowledge that some attorney-client communications were presented at trial, the communications were admissible because of Sybaritic's waiver and/or Rule l.6(b )(8) of the Rules of Professional Conduct.

42

furtherance of which the lawyer's services were used. Minn. R. Prof. Conduct,

Rules 1.6(b)(4)-(5).

In 2005, Rule 1.6 of the Rules of Professional Conduct was amended and

the following provision was added:

A lawyer may reveal information relating to the representation of a client if. .. the lawyer reasonably believes the disclosure is necessary to establish a claim or defense on behalf of the lawyer in an actual or potential controversy between the lawyer and the client, to establish a defense in a civil, criminal, or disciplinary proceeding against the lawyer based upon conduct in which the client was involved, or to respond in any proceeding to allegations by the client concerning the lawyer's representation of the client.

'

Minn. R. Prof. Conduct, Rule 1.6(b)(8). Based on the expanded Rule 1.6, the trial

court correctly allowed Kidwell to admit confidential information at trial so that he

could establish (I) his whistleblower claim against Sybaritic, and (2) his defense

against Sybaritic' s counterclaims.

It also deserves noting that Judge Burke gave serious consideration to the

issue of attorney-client privilege. He did not make his decisions regarding

evidence lightly, as is reflected throughout the trial transcript. It is clear that Judge

Burke did not exercise his discretion arbitrarily, capriciously or contrary to legal

use. As a result, his evidentiary rulings regarding privilege should stand.

Kroning, 567 N. W.2d at 46 (in the absence of some indication that the trial court

exercised its discretion arbitrarily, capriciously, or contrary to legal usage, a new

trial is not warranted.)

43

B. The Court Properly Allowed Testimony Regarding Steve Daffer's Conviction

The Court also properly admitted testimony regarding Steve Daffer's

conviction. The Minnesota Rule of Evidence 404(b) states that "evidence of

another crime, wrong, or act is not admissible to prove the character of a person in

order to action in conformity therewith. It may however, be admissible for other

purposes such as proof of motive, opportunity, intent, preparation, plan,

knowledge, identity, or absence of mistake or accident." Minn. R. Evid. 404(b ).

In this case, Kidwell was properly allowed to introduce evidence that Steve Daffer

was previously convicted of mail fraud in order to prove that he sent the A

Difficult Duty e-mail in good faith. Kidwell had been made aware of Daffer's

conviction before he sent the A Difficult Duty e-mail, and as he testified,

Kidwell's knowledge ofDaffer's conviction played a significant role in his belief

that Sybaritic was in fact engaging in unlawful behavior. (T.201). The purpose of

introducing Steve Daffer's conviction was to show Kidwell's good faith (an

essential element of Kidwell's claim), not to show "action in conformity

therewith." Minn. R. Evid. 404(b).

Ultimately, Steve Daffer was extensively examined at trial regarding his

prior conviction. (T.497-500, T.553-67). However, the extensive examination

was prompted by statements made in Sybaritic's opening statement, which

characterized Mr. Daffer as having been "young" and "stupid" when he committed

his crime, and explained that he "voluntarily went to the authorities," once he

44

decided that what he had done was wrong. (T.75-76). Sybaritic was the first party

to address Steve Daffer's conviction - it was not mentioned in Plaintiffs opening

statement - and Sybaritic mischaracterized Steve Daffer's crime as one that

happened quickly, as a result of a momentary lapse in judgment, and as a crime

that ended before it really got started. (Id.) However, the facts surrounding Mr.

Daffer's conviction are starkly different than portrayed by Sybaritic in its opening

statement and later by Steve Daffer in his examination. (See T.553-67). When

Mr. Daffer was examined about his conviction, it was for purposes of

impeachment: to prove that Sybaritic and Steve Daffer were being dishonest at

triaI. 10 It was not to attack Steve Daffer's credibility because of events that

occurred 25 years ago or to prove action in conformity therewith. To the extent

that Sybaritic now argues that evidence of Mr. Daffer's conviction was prejudicial

to Sybaritic at trial, it was undoubtedly prejudicial because Sybaritic and Steve

Daffer were caught misrepresenting the facts and circumstances of the conviction

to the jury; it was not prejudicial simply because Mr. Daffer was once convicted of

a crime. The Court properly admitted evidence of Steve Daffer's conviction.

10 Sybaritic objected to Plaintiffs examination because the company's "understanding of the Court's ruling in this case is that the only reason this 25 year old crime was relevant here was because of Mr. Kidwell's statements that he learned of this and that somehow affected his evaluation of the --." In response, Judge Burke stated "you brought it up in your opening statement and said that this was just a momentary lapse. The only reason I'm letting this in is the way you characterized in (sic) in your opening statement." (T.557-58).

45

C. The Court Properly Excluded The Settlement Letter

Similarly, the trial court properly excluded as evidence at trial, a letter

dated May 25, 2005 and written by Sybaritic's attorney, explaining the reasons for

Kidwell's termination. The company argues that the court improperly excluded

the letter because it was not an inadmissible settlement letter. Pursuant to Rule of

Evidence 408, evidence of offers to compromise are "not admissible to prove

liability for or invalidity of the claim or its amount." Minn. R. Evid. 408. The

letter that Judge Burke excluded is an offer of compromise, falls squarely within

Rule 408, and was properly excluded.

Sybaritic nevertheless argues that the letter should have been admitted. In

support of its argument, however, Sybaritic misstates the law. Although Sybaritic

properly states that Rule 408 is a rule of exclusion, as opposed to one of

discretion, it improperly states that "if a statement does not violate the rule, the

trial court does not have discretion to exclude it." (App. Br. at 50). The correct

statement of the law with respect to Rule 408 (and other rules of exclusion) is that

"if a statement violates the rule, a trial court does not have discretion to admit the

statement." C.J. Duffey Paper Co. v. Reger, 588 N.W.2d 519, 524 (Minn. Ct.

App. 1999). This difference is significant because Sybaritic appears to be arguing

that Judge Burke was required under Rule 408 to admit the letter, but that is not

right. Even if the letter could have been admitted pursuant to Minn. R. Evid. 408,

it was properly excluded on other grounds articulated at trial, including that it is

hearsay, not relevant or alternatively that it probative value is substantially

46

outweighed by the danger of unfair prejudice (T.446). Sybaritic undoubtedly

intended to use the letter to prove the truth of the matter asserted within it - that

Kidwell was terminated for breach of fiduciary duty. This is impermissible

hearsay, and properly excludable. Minn. R. Evid. 801 & 802. Moreover, the letter

was not relevant. The letter was written by Sybaritic's attorney in an effort to

settle the matter, and lists for Kidwell various reasons why Kidwell should not sue

Sybaritic for wrongful discharge. The letter is not relevant because it does not

make the "existence of any fact that is of consequence ... more probable or less

probable than it would be without the evidence." Minn. R. Evid. 401. However,

even if the letter was relevant, "although relevant, evidence may be excluded if its

probative value is substantially outweighed by the danger of unfair prejudice,

confusion of the issues, or misleading the jury, or by considerations of undue

delay, waster of time, or needless presentation of cumulative evidence." Minn. R.

Evid. 403. If relevant, the trial court correctly excluded the evidence on these

grounds. Finally, although the letter was not admitted into evidence, Sybaritic

cannot demonstrate prejudicial error because Brian Kidwell testified with respect

to the contents of the letter. 11 (T.446-48). Therefore, a new trial based on the

letter's exclusion is not warranted. Kroning, 567 N.W.2d at 46.

11 It is interesting that Sybaritic now claims on appeal that the settlement letter was offered to negate Kidwell's insinuation that Sybaritic's reasons for terminating him repeatedly shifted. At the trial, the questions that Sybaritic's counsel raised with respect to the letter focused on whether Brian Kidwell "set up" his whistleblower claim, not on whether Sybaritic' s reasons for his termination were consistent.

47

VII. The Trial Court Erred in Denying Kidwell's Motion For Punitive Damages.

After filing suit, a party may make a motion to amend the complaint to

allege punitive damages. Minn. Stat. § 549.191. The motion "must allege the

applicable legal basis under section 549 .20 or other law for awarding punitive

damages in the action and must be accompanied by one or more affidavits

showing the factual basis for the claim." Minn. Stat. § 549.191. A court shall

grant a motion for punitive damages if the court finds prima facie evidence in

support of the motion. See id. "Prima facie evidence is that evidence, which, if

unrebutted, would support a judgment in the party's favor." McKenzie v.

Northern States Power Co., 440 N.W.2d 183, 184 (Minn. Ct. App. 1989).

Minnesota Statues section 549.20, subdivision 1 provides:

(a) Punitive damages shall be allowed in civil actions only upon clear and convincing evidence that the acts of the defendant show deliberate disregard for the rights and safety of others.

(b) A defendant has acted with deliberate disregard for the rights or safety of others if the defendant has knowledge of facts or intentionally disregards facts that create a high probability of injury to the rights and safety of others and:

(1) deliberately proceeds to act in conscious or intentional disregard of the high degree of probability of injury to the rights or safety of others; or

(2) deliberately proceeds to act with indifference to the high probability of injury to the rights or safety of others.

Minn. Stat. § 549.20, subd. I.

48

To allege punitive damages, a plaintiff must present clear and convincing

evidence that the acts of the defendant show a deliberate disregard for the rights or

safety of others. See Swanlund v. Shimano Indus. Corp., Ltd., 459 N.W.2d 151,

154 (Minn. Ct. App. 1990). However, "[t]he plaintiff is not required to

demonstrate an entitlement to punitive damages per se, but only an entitlement to

allege such damages." Ulrich v. City of Crosby, 848 F. Supp. 861, 867 (D. Minn.

1994). In determining whether to grant leave to amend to add punitive damages,

"the Court should examine the evidence in support of a punitive damages claim,

without considering the evidence submitted in opposition to the claim." Olson v.

Snap Products, Inc., 29 F.Supp.2d 1027, 1033 n. 1 (D. Minn. 1998) (citing

Northwest Airlines, Inc. v. American Airlines, Inc., 870 F.Supp. 1499, 1502-1503

(D. Minn. 1994)); Swanlund, 459 N.W.2d at 154. The Court should not consider

any challenge to the plaintiffs proof. See Ulrich, 848 F.Supp. at 868; Hern v.

Bankers Life Cas. Co., 133 F. Supp. 2d 1130, 1135 n.2 (D. Minn. 2001).

Punitive damages are "imposed to punish the defendant and to deter him,

and others like him, from intentional wrongs and deliberate disregard of the safety

or rights of others." Rosenbloom v. Flygare, 501 N.W.2d 597, 602 (Minn. 1993).

A number of policy considerations are taken into effect when evaluating whether

punitive damages are appropriate, including the nature of the conduct in question,

the wisdom of some form of pecuniary punishment, the advisability of a deterrent,

and whether wrongs may go unredressed. See Phipps v. Clark Oil & Refining

Corp ., 408 N.W.2d 569, 572 (Minn. 1987). When these policy considerations are

49

applied to this case, it is clear that Brian Kidwell should have been allowed to seek

punitive damages.

The nature of Sybaritic's conduct called for the issue of punitive damages

to go to the jury. Sybaritic deliberately disregarded Kidwell's right to be free from

illegal retaliation. As the jury found, Kidwell was terminated because he made a

good-faith report of a violation or suspected violation of law to his employer.

(A.25-27). By terminating Kidwell because of his report, Sybaritic acted with

deliberate disregard for Kidwell's right to report illegal activity without fear of

reprisal.

Particularly relevant is the admission from Tony Daffer, Sybaritic's CEO,

that at the time of Kidwell's termination, he was aware that Whistleblower laws

existed to protect employees. (T. Daffer Dep. 64). Although Sybaritic he knew

that whistleblower laws existed to protect employees like Kidwell, Sybaritic

terminated him anyway. Punitive damages in this case would also serve to deter

Sybaritic and other corporations from engaging in similar unlawful conduct in the

future. Punishing behavior of this kind would have chilling effect on the kind of

conduct in which Sybaritic engaged. To allow the Defendant to avoid punishment

in these circumstances would be contrary to the public policy of the State of

Minnesota, which is to protect the employee who in good faith blows the whistle

on unlawful acts of his employer. By using Kidwell's good faith complaint as a

factor in the decision to terminate his employment, Defendant deliberately

disregarded Kidwell's rights to be free from retaliation under the Minnesota

50

Whistleblower Act. The trial court inappropriately denied his motions to add a

claim of punitive damages. (A.17-18).

CONCLUSION

The jury properly found that Sybaritic violated Minnesota's Whistleblower

Act when the company terminated Kidwell for making a good faith report of a

violation or suspected violation of law. That Kidwell is an attorney does not

change the fact that Sybaritic violated the law. Minnesota law does not per se bar

Kidwell from bringing his Whistleblower Claim against Sybaritic, nor does the

law prevent him from keeping his award of damages. Thus, Sybaritic is not

entitled to judgment as a matter of law. As well, because the trial court properly

charged the jury, admitted relevant evidence without denigration to the attorney­

client privilege, and excluded improper settlement evidence, Sybaritic is not

entitled to a new trial. The jury's verdict must stand.

Dated: N1CHOLS KASTER & ANDERSON, PLLP

James H. Kaster (#53946) Sofia B. Andersson (#350709) 4600 IDS Center 80 South 8th Street Minneapolis, MN 55402 Telephone: (612) 256-3200

ATTORNEYS FOR PLAINTIFF

51

CERTIFICATE OF COMPLIANCE

This brief was drafted using Word 2003. The font is Times New Roman,

proportional 13 point type, which includes serifs. The word count, including

footnotes, is 13,203.

Dated: NICHOLS KASTER & ANDERSON, PLLP

James H. Kaster (#53946) Sofia B. Andersson (#350709) 4600 IDS Center 80 South 8th Street Minneapolis, MN 55402 Telephone: (612) 256-3200

ATTORNEYS FOR PLAINTIFF