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Supreme Court slashes fees owed by ex-CEO to Cirrus Aircraft

ST. PAUL—A wild reversal of fortunes took Alan Klapmeier from being the recipient of a $10 million verdict to owing more than $671,000 in a prolonged legal battle with Cirrus Aircraft, the Duluth-based company he co-founded more than 30 years ago.

On Wednesday, he received a partial reprieve from the state's high court.

The Minnesota Supreme Court, in a split decision, slashed more than $542,000 from the sum he was previously ordered to pay to Cirrus.

The ruling brings an end to litigation initiated by Klapmeier in 2012 after he said Cirrus violated a "non-disparagement" clause in an agreement he signed after his 2009 departure from the company.

Ted Sheu, a Minneapolis attorney representing Klapmeier, limited his comment because he had not yet spoken with his client. But he said the appeal was "successful."

The decision, coming 11 months after the Supreme Court heard oral arguments in the case, was limited to consideration of the fees owed by Klapmeier to Cirrus.

The case stemmed from Klapmeier's contention that statements made by former Cirrus CEO Brent Wouters damaged his reputation in the industry and made it difficult for him to raise money for a new venture called Kestrel Aircraft Co. Kestrel has since joined forces with New Mexico-based Eclipse Aerospace to form ONE Aviation Corp., of which Klapmeier now serves as CEO.

Klapmeier initially enjoyed a major victory in the case, with a Hennepin County jury in 2014 awarding him $10 million. But the state Court of Appeals soon reversed the verdict and dismissed his claims.

Cirrus then sought to recover more than $942,000 in costs and disbursements it said were incurred during its successful appeal, but that amount was contested by Klapmeier. The court granted Cirrus payment of $671,863.33 — the biggest chunk, $542,583.33, coming in fees incurred when the company took a loan to post a $10 million bond ordered by the court as the appeal was ongoing.

But the Supreme Court, in its decision Wednesday, said the Minnesota Rules of Civil Procedure do not allow for the taxation of borrowing costs incurred by a loan under the circumstances presented by Cirrus.

Associate Justice Barry Anderson, who authored the majority decision, said that borrowing costs do not have a "direct relationship" to an appeal because while a court may order a party to post a bond, "the party decides how to obtain the money to enable it to do so in light of the party's individual financial circumstances."

"In an era of interlocking corporations, wholly owned subsidiaries, and complicated financing vehicles" Anderson wrote in an 18-page opinion, "it may well prove difficult to trace why an interest expense was incurred, how the interest expense was incurred, what the interest expense actually was, or even whether the expense was actually incurred in the first place."

Cirrus general counsel Curtis Landherr responded to the ruling with a written statement, noting that Cirrus still stands to receive about $129,000 in other costs and disbursements that were left in place.

"While we are disappointed that the Supreme Court did not affirm the Court of Appeals' award of the borrowing costs incurred by Cirrus in order to post our appeal bond, we are pleased that the Court let stand the other substantial costs awarded to Cirrus," Landherr said. "We are glad to have this litigation behind us as we focus on the many exciting things happening in our business."

The court's ruling was not unanimous, with Justice David Stras abstaining and Justice Natalie Hudson writing a critical dissent.

Hudson said she would have upheld the full costs, reasoning that Cirrus proved the loan to be "necessarily incurred and reasonable." She wrote that her colleagues' decision was "untethered from reality" and pondered its ramifications on civil litigation.

"It is increasingly common for parties engaged in complex business litigation to incur significant expenses in obtaining supersedeas bonds, as evidenced by the size of the financing costs incurred and awarded in this case any many others," Hudson wrote.

"By restricting the types of expenses a prevailing party may recover, the majority's holding may discourage high-stakes commercial litigants from pursuing an appeal, regardless of the merits of the claim, to avoid incurring large appellate costs that are not taxable."

The Minnesota Rules of Civil Appellate Procedure generally prohibit from the Supreme Court from even considering a Court of Appeals decision awarding costs and disbursements. To provide review of the case, the high court granted a "writ of prohibition," which can be utilized to suspend rules only in "extreme cases where the law provides no other adequate remedy."

Shue said it was the first time the Supreme Court has ever granted such a writ against the Court of Appeals.

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