Tarnowski v. Resop

Rule of Law:

A principal who successfully rescinds a fraudulent transaction with a third party is not barred from bringing a separate action against their disloyal agent to recover secret profits and consequential damages, including attorneys' fees from the prior litigation, that resulted from the agent's breach of fiduciary duty.

Facts:

• Plaintiff hired Defendant to act as his agent to investigate and negotiate the purchase of a route of coin-operated music machines.
• Defendant represented to Plaintiff that he had conducted a thorough investigation, stating the route had 75 locations, new equipment, and a monthly income over $3,000.
• In reality, Defendant had only superficially investigated five locations and passed on false representations from the sellers (Phillip Loechler and Lyle Mayer) as his own.
• Relying on Defendant's representations, Plaintiff purchased the business for $30,620, making an initial payment of $11,000.
• Approximately six weeks later, Plaintiff discovered the business had only 47 locations, old equipment, and much lower income than represented.
• Plaintiff also learned that Defendant had accepted a secret commission from the sellers for consummating the sale.
• Upon discovering the fraud, Plaintiff offered to return the business to the sellers and demanded his money back, but the sellers refused.

Procedural Posture:

• Plaintiff brought an action for rescission against the sellers (Loechler and Mayer) in the district court of Olmsted county.
• A jury returned a verdict of $10,000 for the Plaintiff in the action against the sellers.
• The sellers subsequently paid Plaintiff $9,500, and the action was dismissed with prejudice by stipulation.
• Plaintiff then initiated the present action against Defendant (his agent) in Hennepin county district court.
• The jury in this second action returned a verdict of $5,200 for the Plaintiff.
• Defendant, as appellant, appealed the judgment entered on that verdict to the state's highest court.