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«This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2008). STATE OF MINNESOTA IN COURT OF ...»

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This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2008).

STATE OF MINNESOTA

IN COURT OF APPEALS

A09-1178

Cornerstone Home Builders, Inc., et al.,

Respondents,

vs.

Guyers Development, LLC, et al.,

Appellants.

Filed April 20, 2010

Affirmed

Worke, Judge

Hennepin County District Court File No. 27-CV-07-11965 Thomas P. Malone, Karen K. Kurth, Susan E. Tegt, Barna, Guzy & Steffen, Ltd., Minneapolis, MN 55433 (for respondents) David K. Nightingale, Mark E. Greene, Sarah L. Krans, Bernick, Lifson, Greenstein, Greene & Liszt, P.A., Minneapolis, MN 55416 (for appellants) Considered and decided by Wright, Presiding Judge; Worke, Judge; and Crippen, Judge.* * Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

UNPUBLISHED OPINION

WORKE, Judge Appellants challenge the district court’s judgment in favor of respondents, arguing that the court erred in: (1) concluding that appellants committed fraud; (2) concluding that appellants committed negligent misrepresentation; (3) determining damages;

(4) piercing the corporate veil; and (5) dismissing appellants’ recoupment defense. We affirm.

FACTS In 2005, appellant Alan J. Roers and his business partner Mark Litherland1 incorporated a single-purpose entity, appellant Guyers Development, LLC (appellants).

Ramsey Town Center LLC (RTC) approached appellants about marketing the residential lots in the 8th and 10th additions of the proposed Ramsey Town Center project to local builders. RTC suggested that each of the 56 residential lots could be sold to developers for $73,000 with the anticipated resale value to builders of $80,000. Appellants decided to purchase all of the residential lots directly from RTC and resell them, instead of simply marketing the lots for a fee as initially proposed.

RTC and appellants entered into a purchase agreement (RTC/Guyers purchase agreement) in March 2005 for 56 lots priced at $73,000 each, with the potential to sell 11 additional lots that had not yet been platted. The RTC/Guyers purchase agreement provided that the sale was contingent on appellants finding a second buyer for each lot, and that the closing would be contemporaneous with the subsequent closings of the resale Litherland was not named individually as a party to this lawsuit.

of the lots. Appellants were not required to pay any earnest money up front or make any financial commitment until they had secured a second buyer.

Under the master agreement RTC entered into with the city of Ramsey, RTC was required to escrow adequate security interests to ensure that the development would be completed. Accordingly, the RTC/Guyers purchase agreement also contained an escrow provision stating that RTC and appellants would escrow $15,000 from the sale of each lot. The city, RTC, and appellants entered into the individual escrow agreements for each addition, requiring RTC to post sums provided in the master agreement before the city would release money to fund the infrastructure improvements. The escrow agreements contained an attached project schedule which outlined the anticipated duration and completion dates for the infrastructure improvements. The improvements were to begin on September 23 and the projected completion dates were November 25 for the 8th addition and December 22 for the 10th addition.

Between March and June of 2005, appellants and respondent-builders Cornerstone Home Builders, Inc., Monarch Homes Inc., Gilmore Construction, Inc., New Dimension Homes Inc., and Purmort Homes Inc. entered into purchase agreements for 56 lots at $80,000 per lot (“respondents’ purchase agreements”).2 Appellants were responsible for the completion of the infrastructure improvements under the terms of respondents’ purchase agreements. At no point were respondents aware that appellants intended to purchase the properties from RTC and contemporaneously resell them.

The remaining 10 lots were purchased at the same price by Sorteberg Homes, Inc., which was initially a party along with respondents but was dismissed without prejudice during the trial for failing to appear.

The closings of the RTC/Guyers purchase agreement and respondents’ purchase agreements occurred on September 23 and 26, 2005. When respondents arrived at the closings, they noticed that the infrastructure improvements had not yet begun. Appellants assured respondents that the infrastructure improvements would be completed in three weeks. These assurances intimated that the completion date of the infrastructure improvements would be October 13, despite the project schedule projecting otherwise. In addition to the standard mortgages signed at closing, appellants also granted respondents special fee mortgages to cover the trunk and lateral charges due at the closing of each lot under respondents’ purchase agreements. The special fee mortgages were intended to delay respondents’ payment of the trunk and lateral charges until respondents received building permits.

The infrastructure improvements had not begun prior to the closings because the requisite security had not yet been deposited into the escrow accounts. RTC deposited $15,000 from the sale of each lot and obtained a bank loan to cover the remaining amount required under the escrow agreements. The city approved final construction plans in late September. The infrastructure improvements began incrementally and behind the project schedule, greatly exceeding the three-week estimation guaranteed by appellants.





In the spring of 2006, the city grew suspicious of the transactions between RTC and the project excavator and began withholding funds from the escrow. As a result, contractors working on the infrastructure improvement were not paid, stopped working, and foreclosed on their mechanics’ liens. With the lots rendered useless due to the incomplete infrastructure, respondents sued appellants for breach of contract, negligent misrepresentation, fraud, and also brought a claim to pierce the corporate veil to hold Roers personally liable for damages.

Following a court trial, the district court dismissed respondents’ breach-of-contract claim, but ruled in favor of respondents on the negligent-misrepresentation and fraud claims. The court found that, with winter approaching and the window for construction closing, appellants’ assurances that the infrastructure improvements would be completed within three weeks induced respondents to close. The court awarded out-of-pocket damages in the amount of $15,000 per lot—the money earmarked for infrastructure improvements that were never completed. The court granted respondents’ motion to pierce the corporate veil, holding Roers personally responsible for $840,000 in damages.

The court also dismissed appellants’ affirmative defense of recoupment. This appeal follows.

–  –  –

In a case tried without a jury, we assess whether the district court erred in its findings of fact and conclusions of law. Powell v. MVE Holdings, Inc., 626 N.W.2d 451, 457 (Minn. App. 2001), review denied (Minn. July 24, 2001). Findings of fact will be upheld unless clearly erroneous and are viewed in the light most favorable to the district court’s determination. Minn. R. Civ. P. 52.01; Rogers v. Moore, 603 N.W.2d 650, 656 (Minn. 1999) (noting that an application of rule 52.01 should be made in the light most favorable to the district court’s judgment). Questions of law are reviewed de novo.

Great Lakes Gas Transmission L.P. v. Comm’r of Revenue, 638 N.W.2d 435, 438 (Minn.

2002).

Fraud A successful claim for fraud requires: (1) a false representation of a past or existing material fact susceptible to knowledge; (2) made with knowledge of the falsity or without knowing whether the representation was true or false; (3) with intent to induce another to act in reliance of the misrepresentation; (4) reasonable reliance caused by the misrepresentation; and (5) damages. Hoyt Props., Inc. v. Prod. Res. Group, L.L.C., 736 N.W.2d 313, 318 (Minn. 2007). “[T]he standard of proof in all fraud cases is the preponderance of the evidence standard.” State by Humphrey v. Alpine Air Prods., Inc.,

–  –  –

Appellants challenge whether the assurances that the infrastructure improvements would be completed within three weeks qualify as actionable false misrepresentations of past or existing material facts as a matter of law. The Minnesota Supreme Court has stated that

–  –  –

Vandeputte v. Soderholm, 298 Minn. 505, 508, 216 N.W.2d 144, 147 (1974). The supreme court revisited this principle in Valspar Refinish, Inc. v. Gaylord’s, Inc., 764 N.W.2d 359 (Minn. 2009). In Valspar, the alleged misrepresentation was Valspar’s assurance that it could fix inadequacies in its paint products cited as a concern by Gaylord’s during product testing. 764 N.W.2d at 363. Based on this assurance, the parties entered into a five-year contract for Valspar to be the exclusive provider of paint for Gaylord’s truck-bed lids. Id. Product-quality problems persisted throughout the first year of the contract, leading Gaylord’s to finally purchase paint through another supplier.

Id. Valspar sued Gaylord’s for breach of contract, prompting Gaylord’s to assert fraud as a counterclaim. Id. at 364. The supreme court concluded that Gaylord’s fraud claim failed, in part, because Gaylord’s did not demonstrate a misrepresentation concerning a past or existing material fact. Id. at 368.

The assurances at issue in this case differ from the Valspar assurance because the district court found that when appellants assured respondents that the infrastructure improvements would be completed within three weeks, appellants had no intention to perform this promise. Indeed, it would have been impossible for appellants to ensure that the infrastructure improvements were completed within this timeframe. The project schedule provided that the improvements would not be completed until November 25 for the 8th addition and December 22 for the 10th addition—timeframes that targeted the completion of the infrastructure improvements at two and three months from the closing

–  –  –

existing material facts, appellants had no intention to complete the infrastructure improvements within three weeks of the closing. Thus, these assurances were actionable present intentions. The district court therefore did not err as a matter of law in concluding that respondents demonstrated the first fraud-claim element.

–  –  –

Appellants argue that the district court erred in concluding that the respondents reasonably relied on the misrepresentation that the improvements would be completed within three weeks. In a fraud claim, reliance is measured in the context of the aggrieved party’s intelligence, experience, and ability to investigate the facts underpinning the alleged misrepresentation. Murphy v. Country House, Inc., 307 Minn. 344, 351, 240 N.W.2d 507, 512 (1976); Davis v. Re-Trac Mfg. Corp., 276 Minn. 116, 118-19, 149 N.W.2d 37, 39 (1967). Appellants argue that respondents failed to demonstrate a reasonable reliance and, even if the reliance was reasonable, respondents were nevertheless compelled to close on the purchase agreement when they arrived at the closing and the misrepresentations would have been moot.

Appellants claim that respondents’ reliance was unreasonable because it was contrary to the language of respondents’ purchase agreements; no schedule for the infrastructure improvements was provided therein, whereas the agreements stated that the properties were being sold “as is” and required any and all modifications to be in writing.

Appellants contend that the three-week assurances constituted oral representations in complete contradiction to the written language of respondents’ purchase agreements, and such reliance is unjustifiable. See Boyd v. DeGardner Realty & Constr., 390 N.W.2d 902, 904 (Minn. App. 1986) (stating that reliance on an oral representation that contradicts a written contract is unjustifiable as a matter of law) review denied (Minn.

Sept. 24, 1986).

But appellants fail to illustrate explicit contractual language which would be contradicted by the oral assertion that the infrastructure improvements would be completed within three weeks. Conversely, respondents’ purchase agreements provide that “after [c]losing, [appellants] shall cause the [p]roperty to be improved, at [appellants’] expense, not to exceed the escrow amount of $15,000.... The obligations of [appellants] under this [s]ection [ ] shall survive after [c]losing.” An inquiry and corresponding representation as to the targeted completion of the infrastructure improvements flows naturally from this contractual language. As appellants fail to address the relation between this contractual language and their misrepresentations of the improvement schedule, their argument is unconvincing.

Appellants’ second argument is equally unavailing. Appellants claim that longstanding caselaw disallows a party from relying on a representation that had not yet been made when he acted. See Rien v. Cooper, 211 Minn. 517, 527, 1 N.W.2d 847, 853 (1942) (stating that “[a] party cannot rely on a representation which had not been made when he acted”). Because respondents signed purchase agreements and arrived at the closing ready to complete the transactions, appellants contend that they were obligated to close on that date and had effectively “acted” prior to hearing the three-week assurances.

As respondents correctly argue, however, the notion that a party is required to close on a real-estate transaction by virtue of signing a purchase agreement is contrary to standard real-estate precepts. Respondents had no obligation to close on the transactions solely by arriving at the closing; respondents could have simply forfeited the earnest money deposited in conjunction with signing the purchase agreements if they believed that the infrastructure improvements would be significantly delayed. The district court did not err in determining that respondents reasonably relied on appellants’ representation. Accordingly, the district court did not err in concluding that respondents successfully demonstrated a claim for fraud.



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