Kratzer v. Welsh Companies, LLC

OPINION

Respondent Wayne Rratzer brought this action against his former employer, Welsh Companies, LLC (Welsh), alleging that Welsh terminated his employment in violation of Minnesota’s whistleblower statute, Minn.Stat. § 181.932, subd. 1(a) (2008).1 The district court granted Welsh’s summary judgment motion, but the court of appeals reversed. Kratzer v. Welsh Cos., No. A06-2284, 2008 WL 1747607, at *1 (Minn.App. Apr. 15, 2008).2 We granted *16Welsh’s petition for review on the whistle-blower claim. Because we conclude that Kratzer has not demonstrated that he engaged in protected activity under the whis-tleblower statute, we reverse.

The record reflects that Kratzer began working with Welsh as a real estate agent in January 1997. Three years later, Krat-zer became Assistant Vice President of Investment Sales. In February 2000, Kratzer received a Letter of Understand-ingDffer of Employment detailing that Kratzer’s supervisor would be Welsh President Robert Angleson, but functionally, Kratzer would report to Pete Rand. The terms of Kratzer’s employment included a salary, commissions, health insurance, and a company car.

Kratzer’s whistleblower claim stems from a transaction for the purchase of the Park Square Shopping Center (Park Square) in Brooklyn Park, Minnesota. John Hancock Real Estate Investment Group (John Hancock) owned Park Square. In early 2000 John Hancock retained Welsh to act as the brokerage firm in connection with its efforts to sell Park Square. John Hancock set the original list price at $10 million and agreed to pay Welsh a 2.5% commission on the purchase price. Pete Rand acted for Welsh as John Hancock’s broker on the Park Square transaction.

Simultaneously with his broker work for John Hancock, Rand also represented Welshlnvest, an affiliate of Welsh, in connection with Welshlnvest’s efforts to acquire properties. When Welshlnvest expressed interest in acquiring Park Square, Rand acted as its broker, and Kratzer assisted Rand with the Park Square deal on the acquisition side, representing Welshlnvest.

Rand testified that he presented Welsh-lnvest to John Hancock as a potential buyer for the Park Square property. Because he also represented Welshlnvest, Rand said that he discussed with John Hancock the potential conflict of interest for the Park Square transaction.3 According to Rand, John Hancock chose not to pursue Welshlnvest as a buyer at the time that Park Square was first on the market because of the conflict. After considering several offers, however, John Hancock changed its mind.

Initially John Hancock received three offers for Park Square: Welshlnvest’s offer for $8,025 million and two others for $8 million and $8.6 million. Rand testified that John Hancock wanted to complete the sale by the end of 2000, and that only Welshlnvest was in a position to complete the deal by that deadline. With Welshln-vest as the most viable prospect, John Hancock decided to entertain Welshln-vest’s offer.

As the predicate for his claims, Kratzer relies on the fact that at some point during negotiations for Park Square, Rand entered into an agreement with Welshlnvest for an additional commission. Kratzer characterizes this agreement as Welshln-vest agreeing to pay Rand an “extra two points on his commission if he could convince [John] Hancock to lower their asking price by [$1.5 million].”

*17Welshlnvest ultimately lowered its purchase price offer to $6.5 million. Rand testified that Welshlnvest lowered the offer “for a variety of reasons.” Rand stated, for example, that during the time that Park Square was on the market, the closure of the anchor store, Rainbow Foods, negatively impacted the value of the property. In August 2000, the deal between John Hancock and Welshlnvest nearly fell through.

But on August 29, 2000, Welshlnvest purchased Park Square from John Hancock for $6.5 million. According to the complaint, Rand earned an additional $130,000 commission from Welshlnvest for securing the price reduction on the transaction.

Sometime in January 2002, Welshlnvest decided to sell Park Square. Rand represented Welshlnvest in this transaction, and assigned Kratzer to handle marketing materials for the sale. Rand told Kratzer that the sale should not be advertised to John Hancock because Rand did not want John Hancock to question Welshlnvest’s asking price for Park Square, which was higher than the purchase price Welshln-vest paid to John Hancock. Kratzer then questioned Rand regarding the additional commission agreement, and Rand said that John Hancock was not aware of that agreement.

Kratzer told Rand that Kratzer believed it would be illegal to exclude John Hancock from the marketing of the Park Square property.4 According to Kratzer, Rand responded, “You can go to management if you disagree with me, but if you do, this will be your last deal at Welsh.” Rand removed Kratzer from the Park Square sale that day, and removed Krat-zer’s name from marketing materials several weeks later.

Around the same time as this conversation with Rand, Kratzer also met with Angleson to describe what Kratzer thought was illegal conduct on the Park Square transaction. Kratzer contends that Angleson did not address his concerns.

Several months after his meeting with Angleson, Kratzer received a letter from Angleson informing Kratzer that his compensation would be adjusted from that of a salaried employee to the company’s standard commission program. Kratzer alleges that on August 30, 2002, he discovered that Rand had prevented Kratzer from receiving a commission he believed he was owed in connection with a different transaction.

On September 6, 2002, Kratzer presented his concerns about Rand, the Park Square transaction, and the actions taken by Angleson and Rand to Welsh’s Chief Executive Officer, Dennis Doyle. Doyle told Kratzer that Doyle would “get to the bottom of it,” but also stated his desire to maintain his “longterm relationship with Rand.” Kratzer alleges that Doyle’s attitude toward Kratzer changed after this meeting.

On October 14, 2002, Welsh terminated Kratzer’s employment. Angleson stated in an affidavit that Welsh terminated Krat-zer’s employment because of Kratzer’s “lack of productivity and focus in the brokerage area.”

As a result of Kratzer’s termination and issues surrounding commissions, Kratzer commenced legal action against Welsh. After discovery, Welsh moved for sum*18mary judgment. The district court granted summary judgment on all claims. The court held, in relevant part, that Kratzer failed to establish a prima facie case under the whistleblower statute because the conduct Kratzer reported did not violate any state or federal law or rule adopted pursuant to law, and because Kratzer failed to establish a causal connection between his report and the adverse employment action.

The court of appeals reversed. Kratzer, 2008 WL 1747607, at *1. The court held that Rand’s activities, as reported by Kratzer, violated Minn. R. 2805.2000, subpart 1(A) (1999).5 2008 WL 1747607, at *5-6. This Minnesota rule requires knowing consent to dual agency in a real estate transaction. To interpret language in the rule, the court of appeals referred to the common law. Id. at *5. The court noted that at common law “a real estate broker has a fiduciary duty toward the principal,” and that one “with a fiduciary duty has a duty to disclose material facts to the persons to whom the duty is owed.” Id. The court concluded that Rand’s commission arrangement with Welshlnvest was a material fact and that without knowledge of this arrangement, John Hancock could not give the “knowing consent to the dual representation” required under Rule 2805.2000, subpart 1(A). 2008 WL 1747607, at *5. The court also held that Kratzer’s report was made in good faith and that Kratzer established a prima facie showing of causation. Id. at *6. Finally, the court concluded that whether Welsh’s reasons for terminating Kratzer’s employment were pretextual was a disputed fact question. Id. at *7. We granted Welsh’s petition for review.6

This case comes to us after the district court granted Welsh’s motion for summary judgment. We apply a de novo standard of review to a grant of summary judgment. Zip Sort, Inc. v. Comm’r of Revenue, 567 N.W.2d 34, 37 (Minn.1997). Because the district court granted Welsh’s summary judgment motion against Kratzer, we view the evidence in the light most favorable to Kratzer. See Grondahl v. Bulluck, 318 N.W.2d 240, 242 (Minn.1982). The judgment will be affirmed, however, if no genuine issues of material fact exist and if the court below properly applied the law. Zip Sort, Inc., 567 N.W.2d at 37; see also Minn. R. Civ. P. 56.03.

I.

This issue presented in this case is whether Kratzer engaged in conduct that the whistleblower statute, Minn.Stat. § 181.932, protects. For the whistleblower statute to apply so as to restrict the employer’s ability to lawfully terminate an employee, the employee must have engaged in protected conduct. Minn.Stat. § 181.932.7 Specifically, the statute makes *19it illegal for an employer to terminate an employee because the 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, subd. 1(a). The parties agree that the conduct at issue is Kratzer’s report that Rand failed to tell John Hancock about the terms of Rand’s commission agreement with Welshlnvest.8 Kratzer argues that this report is protected under the whistleblower statute because it implicates a violation of Minn.Stat. § 82.27 (2002) and Minn. R. 2805.2000 (1999). Welsh argues that Kratzer did not report conduct that violates either the statute or the rule.9

To state a claim under the whistle-blower statute, the employee does not need to identify in the report the exact law that is violated, but the conduct reported must at least implicate a federal or state law. Abraham v. County of Hennepin, 639 N.W.2d 342, 354-55 (Minn.2002) (“A whistleblower claim need not identify the specific law or rule that the employee suspects has been violated, so long as there is a federal or state law or rule adopted pursuant to law that is implicated by the employee’s complaint, the employee reported the violation or suspected violation in good faith, and the employee alleges facts that, if proven, would constitute a violation of law or rule adopted pursuant to law.”). To determine whether Kratzer’s report is protected conduct, we turn first to a discussion of the law Kratzer claims his report implicated.

Section 82.27 is a licensing statute that allows the Commissioner of Commerce to deny, revoke, or suspend a real estate broker’s license for fraudulent and deceptive practices:

The commissioner may by order deny, suspend or revoke any license or may censure a licensee if the commissioner finds (1) that the order is in the public interest, and (2) that the applicant or licensee or, in the case of a broker, any officer, director, partner, employee or agent or any person occupying a similar status or performing similar functions

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(b) has engaged in a fraudulent, deceptive, or dishonest practice....

Minn.Stat. § 82.27, subd. 1(b) (2002) (em*20phasis added).10 The administrative rule at issue defines “fraudulent, deceptive, and dishonest practices” for real estate brokers according to an enumerated list of behaviors:

For the purposes of Minnesota Statutes, section 82.27, subdivision 1, clause (b), the following acts and practices constitute fraudulent, deceptive, or dishonest practices:

A. act on behalf of more than one party to a transaction without the knowledge and consent of all parties....

Minn. R. 2805.2000, subp. 1(A) (1999) (currently codified at Minn.Stat. § 82.41, subd. 13 (2008)).

A.

Kratzer argues that Rand’s failure to disclose the terms of his fee agreement with Welshlnvest violates Minn.Stat. § 82.27, subd. 1(b), because it is a “fraudulent, deceptive, or dishonest practice” as defined by Minnesota Rule 2805.2000.11 Welsh argues that Rule 2805.2000, subpart 1(A), does not provide a specific disclosure duty that may be violated. The only statutory requirements for disclosure in real estate transactions, according to Welsh, apply to residential — not commercial— transactions under Minn.Stat. § 82.197 (2002).12

The plain language of the rule requires that Rand disclose the fact of his dual agency, and on this record, there is no dispute that the dual agency disclosure was made. The rule does not require that Rand disclose the details of his compensation or anything beyond the fact that he is acting for both sides. See Rule 2805.2000, subpart 1(A). This reading is reinforced by the legislature’s treatment of disclosures required in the event of a dual agency within the context of a residential transaction. See Minn.Stat. § 82.197, subds. 2, 4 (2002) (now codified at Minn.Stat. § 82.22 (2008)). Under these provisions, the legislature has listed the specific things a dual agent must disclose, including a statement that “[d]ual agents may not advocate for one party to the detriment of the other.” Minn.Stat. § 82.197, subd. 4 (now codified at Minn.Stat. § 82.22 (2008)) (listing limitations on the representation dual agents can lawfully provide in a residential property transaction). The legislature has thus provided for specific, heightened duties of disclosure in the residential real estate context. The rule at issue in this case, by contrast, includes no such requirements for dual agents in the context of a commercial transaction, like the Park Square transaction, other than the disclosure of the fact of the dual agency.13

*21But, Kratzer argues, the meaning of the rule, and therefore the extent of Rand’s disclosure obligations, should be informed by the common law. Kratzer notes that under the common law, Rand had a fiduciary duty to John Hancock as its broker. Based on this duty, Kratzer contends that Rand was obligated under the common law to communicate to John Hancock “ ‘all facts of which he has knowledge which might affect his principal’s rights or interests.’ ” Magee v. Odden, 220 Minn. 498, 508, 20 N.W.2d 87, 90 (1945) (quoting Doyen v. Bauer, 211 Minn. 140, 145, 300 N.W. 451, 454 (1941)). Because John Hancock did not have all of the material facts, i.e., knowledge of the specific terms of Rand’s commission agreement with Welshlnvest, Kratzer argues that John Hancock could not have given knowing consent to the dual agency as required by Rule 2805.2000, sub-part 1(A).

The court of appeals adopted this approach and decided that it could not ascertain whether John Hancock had “knowledge” or had given “consent” under the rule without examining the meaning of those words under the common law. Krat-zer, 2008 WL 1747607, at *5. In urging that we affirm the court of appeals, Krat-zer argues that the terms “fraud” and “knowledge and consent” are “technical terms with specialized meanings that have been regularly interpreted under the common law.” Kratzer argues that we therefore must turn, as did the court of appeals, to the common law to interpret these terms. But Kratzer has not demonstrated that the terms “knowledge and consent” are “technical” terms in the statutory context presented here.

Kratzer has not otherwise provided a reason we should look outside the plain language of the rule. We look beyond the plain language of the statutory or regulatory provision only if the text is ambiguous. State v. Gorman, 546 N.W.2d 5, 8 (Minn.1996). Ambiguous text is susceptible to more than one reasonable meaning. Amaral v. Saint Cloud Hosp., 598 N.W.2d 379, 384 (Minn.1999). The court of appeals did not find any ambiguity in the rule, and the parties do not argue that the rule is ambiguous. We likewise find no ambiguity in the rule. In a situation such as this, “[wjhere the words of [the rule] are clear and free from ambiguity, we have no right to construe or interpret the [rule’s] language. Our duty in such a case is to give effect to the [rule’s] plain meaning.” Tuma v. Comm’r of Econ. Sec., 386 N.W.2d 702, 706 (Minn.1986).

The plain language of the rule is disposi-tive. The applicable rule provides that the parties must have knowledge of and consent to a broker’s “act[ion] on behalf of more than one party to a transaction.” Minn. R. 2805.2000, subp. 1(A). The clear language, therefore, requires “knowledge and consent” of the fact of the dual agency relationship, but not any other particular disclosures. Because the rule does not require that Rand disclose the terms of his commission agreement to John Hancock, Kratzer’s report that Rand did not make this disclosure did not implicate a violation of the rule.

B.

As an alternative to his argument that Rand’s conduct violated the rule, Kratzer argues that whether Rand’s conduct actually violated Rule 2805.2000 is immaterial to the question of whether Kratzer engaged in protected conduct. Kratzer contended at oral argument that an actual violation of the rule is not necessary as long as he suspected in good faith that the conduct was a violation of the rule, and that because he did suspect the law was violated, he engaged in protected conduct. We have rejected this argument on at least *22three occasions and we do so again in this case.

We have “caution[ed] ... against construing section 181.932 too broadly.” Anderson-Johanningmeier, 637 N.W.2d at 275; see also Williams v. St. Paul Ramsey Med. Ctr., Inc., 551 N.W.2d 483, 484 n. 1 (Minn.1996) (noting in dicta that the Whis-tleblower Act does not protect reports based on an employee’s subjective notions of wrongdoing, but protects only “an action by a neutral — one who is not personally and uniquely affronted by the employer’s unlawful conduct but rather one who ‘blows the whistle’ for the protection of the general public or, at the least, some third person or persons in addition to the whis-tleblower”). Consistent with this caution, we have recognized that a mere report of behavior that is problematic or even reprehensible, but not a violation of the law, is not protected conduct under the Whistle-blower Act. Obst v. Microtron, Inc., 614 N.W.2d 196, 204 (Minn.2000) (concluding that a report that raised safety concerns about a windshield-wiper device did not allege illegal conduct necessary to support a whistleblower claim); Hedglin v. City of Willmar, 582 N.W.2d 897, 902 (Minn.1998) (concluding that a report alleging that firefighters were “showing up at fire calls while drunk” suggested reprehensible conduct but did not present a violation of a law such that the report would be protected); Nordling v. N. States Power Co., 478 N.W.2d 498, 504 (Minn.1991) (concluding that a report about behavior that “seems distasteful and ... ill-advised, but that is not ... illegal” is not protected conduct under the Act).

In our most recent application of this principle, Obst v. Microtron, we said: “While there need not be an actual violation of law, the reported conduct must at least implicate a violation of law.” 614 N.W.2d at 200. Kratzer and the dissent would read this sentence to mean that the reported conduct need only seem, in the eyes of the employee, to be unlawful, even if that conduct is lawful. We disagree.

The proper standard to apply when assessing the legal sufficiency of a claim under the whistleblower statute is to assume that the facts have occurred as reported and then determine, as we said in Abraham, whether those facts “constitute a violation of law or rule adopted pursuant to law.” 639 N.W.2d at 355 (citing Obst, 614 N.W.2d at 204). The sentence in Obst thus refers to the existence of the facts as reported, it does not stand for the proposition that the law the employee claims to have been violated need not to exist.14 In other words, to find protected conduct, there need not be an actual violation of the law, as we said in Obst, because the facts may not be as the employee reported them to be. Although there need not be an actual violation, the law alleged to have been violated must exist. If it later turns out that the facts are not as the employee reported them in good faith to be, the *23conduct is protected so long as the facts, if they had been true, would be a violation of the law.15

This standard is consistent with the approach we adopted in both Obst and Hedg-lin. We recognized in both cases that a report about conduct — assuming that conduct had occurred — that did not violate a state or federal law was not protected activity. Obst, 614 N.W.2d at 204; Hedglin, 582 N.W.2d at 902. We removed all doubt about the scope of the rule in Obst when responding to the dissent. The Obst dissent contended that we did not need “to find a law implicated by the conduct reported when the employee’s belief that a law was violated was held in good faith.” 614 N.W.2d at 204. We said that this view was “simply wrong” and concluded: “it is clear that the report of a suspected violation of federal or state law must implicate an actual federal or state law and not one that does not exist.” Id.16

We reach the same conclusion in this case. Because Kratzer’s report does not implicate a violation of any federal or state law or rule, we hold that Kratzer did not engage in protected conduct and, therefore, his whistleblower claim fails as a matter of law.

Reversed.