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Tom Thumb Food Markets v. TLH Properties

Minnesota Court of Appeals
Jan 26, 1999
No. C9-98-1277 (Minn. Ct. App. Jan. 26, 1999)


No. C9-98-1277.

Filed January 26, 1999.

Appeal from the District Court, Sherburne County, File No. C3-96-1807.

Joseph M. Sokolowski, Ann Marks Sanford, Parsinen Kaplan Levy Rosberg Gotlieb, P.A., (for respondent)

Richard Dahl, Terrance J. Wagener, Dunkley, Bennett Christensen, P.A., (for appellants)

Considered and decided by Amundson, Presiding Judge, Klaphake, Judge, and Mulally, Judge.

Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).


Because the record supports the district court's findings that the parties' lease agreement was not contingent on financing and that breach of the lease resulted in lost profits for respondent, but does not support a finding of injustice sufficient to pierce the corporate veil, we affirm in part and reverse in part.


Respondent Tom Thumb Food Markets, Inc. (Tom Thumb) filed a complaint in district court seeking damages from appellants, TLH Properties, LLC and Terry Hartmann (Hartmann) based on breach of contract and fraud.

A distinction between the business entity and Hartmann will be made in the discussion of piercing the corporate veil; otherwise, all textual references will be to Hartmann personally.

At the court trial, Hartmann, who has been a commercial developer since 1984, testified that in 1993, Jerry Smith, the part owner of land in Zimmerman, Minnesota, asked Hartmann to develop a commercial site. After Tom Thumb indicated interest, Hartmann sent a letter dated March 18, 1993, stating, "I have the land purchased and am presently undertaking the re-zoning and permit process." At that time, however, Hartmann had not purchased the land but was operating under an oral agreement with Smith to develop the site, which included only Smith's offer to extend a written option to purchase the land.

On December 4, 1995, the parties signed a "Lease Agreement." Hartmann signed on behalf of the landlord, TLH Properties. The agreement required TLH to construct a building agreed to by the parties. TLH agreed "to deliver possession of the Leased Premises to Tenant on or before May 31, 1996." The lease term was 12 years, with two four-year renewal options. TLH represented and warranted that "no other person, corporation, partnership or other entity has the right to lease or occupy the Leased Premises." The lease contained no contingencies and included the following integration clause:

Hartmann testified that he formed TLH Properties with his wife in early 1995. Hartmann anticipated Smith and his associate, Aufderhar, joining TLH by contributing the land to the venture. After the project was completed, TLH would act as mortgagee and landlord.

This lease * * * set[s] forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Leased Premises and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth.

When Hartmann attempted to obtain a construction loan for the project through his bank, the bank required underwriting for the risk of the tenancy and requested financial information from Tom Thumb. Tom Thumb ignored a series of such requests, but finally, on March 25, 1996, the bank informed Hartmann that after reviewing information it had recently received from Tom Thumb, it was "unable to underwrite the proposed tenant, Tom Thumb, to [its] satisfaction" and for that reason denied Hartmann's financing request.

Smith then withdrew from the venture because of the risk presented by Tom Thumb. Tom Thumb attempted to assist Hartmann in obtaining financing, but the property was sold to SuperAmerica in the meantime. Tom Thumb later discovered that Hartmann had never owned the property.

After Tom Thumb presented its proof at the court trial, it moved to amend its complaint to conform to the evidence and to add a claim that Hartmann should be held personally liable under the theory of piercing the corporate veil. The district court allowed the amendment and concluded after trial that Hartmann was personally liable. The district court found that Hartmann breached the lease and Tom Thumb was entitled to 12 years of lost profits at a present value of $492,000. The district court found that Tom Thumb failed to prove damages based on fraud and misrepresentation. The district court denied Hartmann's motion for amended findings or a new trial.


Hartmann argues that the lease was conditional because it was subject to a financing contingency and that he was unable to acquire financing only because of Tom Thumb. The district court ruled that because the parties did not agree to or include any contingencies in their lease, it was not conditional.

Respondent argues that most of appellants' arguments should not be considered because they were not litigated below. But Hartmann challenged the lease's enforceability based on a contingency, the lost profit damages, and the piercing claim. Thiele v. Stich , 425 N.W.2d 580 (Minn. 1988), limits appellate review to issues considered by the trial court. Id. at 582. Nevertheless, the arguments on appeal need not be identical to those made at trial. See Plaza Assoc. v. Unified Dev., Inc. , 524 N.W.2d 725, 730 n. 1 (Minn.App. 1994) (party may make new argument for proposition raised at trial), review denied (Minn. Jan. 25, 1995). Respondent's request to strike portions of appellant's brief is denied.

A lease is a contract to be construed according to the rules of contract interpretation. Amoco Oil Co. v. Jones , 467 N.W.2d 357, 360 (Minn.App. 1991). The construction and effect of a contract is an issue of law. Plaza Assocs. v. Unified Dev., Inc. , 524 N.W.2d 725, 728 (Minn.App. 1994), review denied (Minn. Jan. 25, 1995). The language of a lease must be given its plain meaning and interpreted "in the context of the entire agreement." Carlson Real Estate Co. v. Soltan , 549 N.W.2d 376, 379 (Minn.App. 1996) (quoting Hydra-Mac, Inc. v. Onan Corp. , 450 N.W.2d 913, 916 (Minn. 1990)), review denied (Minn. Aug. 20, 1996). A term may be implied if it is supported by the parties' language or is "indispensable" to effectuate the parties' intent. Plaza Assocs. , 524 N.W.2d at 728 (quoting Closuit v. Mitby , 238 Minn. 274, 282, 56 N.W.2d 428, 432-33 (1953)).

Here, two experienced parties to a commercial lease stated that their entire agreement was contained in the written lease. The lease contains no financing contingency or any express requirement that Tom Thumb provide financial information or otherwise qualify as a tenant. Nor does the language of the lease imply that the agreement was contingent on Hartmann's ability to obtain financing. See Republic Nat'l Life Ins. Co. v. Lorraine Realty Corp. , 279 N.W.2d 349, 355 (Minn. 1979) (omission of term from written agreement supports interpretation that parties intended agreement consistent with that omission); Brunsoman v. Lexington-Silverwood , 385 N.W.2d 823, 825 (Minn.App. 1986) (affirming trial court's refusal to reform written contract for deed and promissory note to add conditions; holding writings contained agreement of parties), review denied (Minn. June 13, 1986). Further, even when parties include a written contingency, performance is not excused unless it is impossible because of the failure of the contingency. See Teachout v. Wilson , 376 N.W.2d 460, 463-64 (Minn.App. 1985) (holding agreement that included "[i]f, on the basis of such financial records, the banker refuses to grant Buyer a loan[,]" not void unless bank's refusal to loan was based solely on financial records), review denied (Minn. Dec. 30, 1985). The refusal of one bank to finance Hartmann's project did not excuse his performance for lack of financing. See Hoffman v. Nygaard , 393 N.W.2d 695, 696 (Minn.App. 1986) (party relying on financing contingency has affirmative duty to satisfy contingency in good faith and is not free "to determine whether the financing can be * * * obtained without making" promise illusory) (citation omitted); accord Kmart Corp. v. First Hartford Realty Corp. , 810 F. Supp. 1316, 1326 (D.Conn. 1993) (assuming procurement of financing an objective of lease, before lease voidable for frustration of purpose, all financing opportunities must fail). Therefore, the district court properly ruled that the lease was not subject to a contingency.


Hartmann argues that the district court erred by piercing the TLH corporate veil and holding him personally liable for damages.

[C]ase law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies.

Minn. Stat. § 322B.303, subd. 2 (1996). Piercing the corporate veil is an equitable remedy. Roepke v. Western Nat'l Mut. Ins. Co. , 302 N.W.2d 350, 352 (Minn. 1981). The standard of review of a district court's exercise of equity is abuse of discretion; an abuse of discretion is shown if the court disregarded the facts or applicable principles of equity. Edin v. Josten's, Inc. , 343 N.W.2d 691, 693 (Minn.App. 1984).

Courts will pierce the corporate veil if (1) an entity ignores corporate formalities and acts as the alter ego or instrumentality of a shareholder and (2) the liability limitations of the corporate forum results in injustice or is fundamentally unfair. Victoria Elevator Co., Inc. v. Meriden Grain Co. , 283 N.W.2d 509, 512 (Minn. 1979) (listing several factors supporting alter ego or instrumentality finding). "The practice of piercing the corporate veil is generally a creditor's remedy used to reach an individual who has used a corporation as an instrument to defraud creditors." Id.

This record fails to establish the injustice or fundamental unfairness required to pierce TLH's corporate veil. The district court found that "Hartmann and TLH intentionally misled Tom Thumb as to the ownership of the property." Although the record establishes that Hartmann misrepresented his ownership in the property, it does not support a finding that those statements were intended to mislead Tom Thumb. Hartmann's undisputed testimony and the testimony of Smith, one of the landowners, was that they planned to form the limited liability company to develop the land for Tom Thumb. Far from creating the company to perpetrate a fraud, the undisputed testimony was that the company was formed to achieve development of a Tom Thumb store.

Furthermore, a party seeking equity "must come with clean hands." Edin , 343 N.W.2d at 694.

The [claimant's] misconduct need not be of such a nature as to be actually fraudulent or constitute a basis for legal action. * * * The [claimant] may be denied [equitable] relief * * * where the result induced by his conduct will be unconscionable either in the benefit to himself or the injury to others.

Id. (quoting Earle R. Hanson Assoc. v. Farmer Coop. Creamery Co. , 403 F.2d 65, 70 (8th Cir. 1968)). The record is undisputed that when Hartmann attempted to obtain financing for the project, Tom Thumb delayed sending financial statements to Hartmann's bank. The record is also undisputed that when the bank ultimately received Tom Thumb's financial information, it refused to finance the project because Tom Thumb had a negative net worth. Tom Thumb's conduct contributed to the delay and ultimately caused the bank to refuse financing. This conduct contributed to breach of the lease, and it would be unjust to allow Tom Thumb to recover against Hartmann personally. See MTS Co. v. Taiga Corp. , 365 N.W.2d 321, 327 (Minn.App. 1985) ("inequitable result" if benefit to party whose conduct forced other party to breach contract), review denied (Minn. June 14, 1985). We therefore reverse the district court's decision to pierce the corporate veil.

We reject appellants' argument that this record does not support the district court's findings of lost profits. Lost profits are recoverable "where they are shown to be the natural and probable consequences of the act or omission complained of and their amount is shown with a reasonable degree of certainty and exactness." Cardinal Consulting Co. v. Circo Resorts, Inc. , 297 N.W.2d 260, 266 (Minn. 1980) (affirming jury award of lost profits for start-up tour company when hotel breached contract to provide rooms). Here, Tom Thumb produced evidence of profits from stores in similar Minnesota locations to support its lost profits claim, and we defer to the district court's finding. Because equity does not support piercing the corporate veil, however, we decline to allow Tom Thumb to recover $492,000 in lost profits against Hartmann personally.

Affirmed in part and reversed in part.

Summaries of

Tom Thumb Food Markets v. TLH Properties

Minnesota Court of Appeals
Jan 26, 1999
No. C9-98-1277 (Minn. Ct. App. Jan. 26, 1999)
Case details for

Tom Thumb Food Markets v. TLH Properties

Case Details

Full title:Tom Thumb Food Markets, Inc., Respondent, v. TLH Properties, LLC, et al.…

Court:Minnesota Court of Appeals

Date published: Jan 26, 1999


No. C9-98-1277 (Minn. Ct. App. Jan. 26, 1999)

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